Daily Market Color

All Eyes Turn to the Fed

Treasury yields and swap rates ended the day mostly higher, following risk assets on the eve of the first FOMC meeting and press conference of 2022. The market ascribes virtually no probability to a surprise Fed rate hike tomorrow, which seems even less likely now that tensions between Russia and NATO allies have ratcheted higher. The market has priced in an aggressive path for rate hikes in 2022, and it feels like even a hint of dovishness from Fed Chair Jay Powell could be enough to send the front end of the curve lower. The 10-year Treasury yield ended the day little changed at 1.77% but 2-year yields climbed a healthy 4 bps- reversing much of the previous day’s move.

Consumers confidence challenged by the usual suspects  Consumer confidence fell for the first time in four months as optimism for the economic outlook has been dulled by rising covid cases and prices. The Conference Board’s index fell in January to 113.8, while December’s print was also revised lower. Businesses as well have felt the effects of rising covid cases and inflationary pressures. The Richmond Fed’s manufacturing activity index showed a deceleration of growth in January. Businesses within the mid-Atlantic region reported continued increasing prices paid and received, while wage increases hit the second-highest value on record.

IMF cuts global growth forecasts. The International Monetary Fund (IMF) downgraded global growth for 2022 by 0.5% to 4.4% due to continued rising Covid cases and rising prices. The world’s two largest economies, the U.S. and China, led the decrease in growth with the IMF decreasing U.S. growth by 1.2% to 4.0% and China growth being adjusted down 0.8% to 4.8%.

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