Chart of the Day
The Fed didn’t change much in the way of policy yesterday, but the statement that it will soon begin to raise interest rates and the general hawkish message from Powell still send real yields soaring even higher. Equity markets performed ok considering the sharp rise in real rates – not great by any means, but the rate-sensitive Nasdaq was little changed on the day. Perhaps a sign that the worst of the selling is now behind us, at least for a while?
Macro
US new home sales rose sharply in December.
But can that momentum continue with mortgage rates now rising?
Oil production in the US has made a weak start to the year, falling last week after rising in the final stages of 2021.
Markets
The US yield curve flattened as short rates rose by more than long ones.
The Bank of Canada also met yesterday. Although it kept policy unchanged, contrary to what many expected, the Canadian 10-year still moved up with the US, just not by as much.
It’s unusual for the Nasdaq to be little changed when real yields rise as sharply as they did yesterday.
The relative performance between the S&P 500 and the equal-weighted index has converged as the mega-cap tech stocks have fallen by more than most, although it was the equal-weighted index that did worst yesterday.
The rise in yields hasn’t been as good news for the Russell 2000 as it was in late 2020, due to the large falls in many “meme” stocks.
EVs have been under pressure as well, but generally turned up yesterday. One exception was Nio, a concerning sign considering the fortunes of other smaller EVs like Workhorse and Nikola.
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