Hawkish Fedspeak Tempers UST Rally, But Stocks Keep Flying

Treasury yields flat after Fed speakers double-down on pushback. UST yields were roughly flat today on comments from Fed officials that pushed back on the market’s policy rate outlook for 2024 following last week’s similar sentiment from Fed President Williams. The 2-year yield was unchanged on the day while the 10-year closed 2bps higher at 3.93%. Equities largely shrugged off those comments, however, with the S&P 500 and NASDAQ climbing 0.5% and 0.6%, respectively, as more than $40 billion of M&A activity was announced today following months of tepid deal activity. This week’s economic data will help determine if the S&P 500 can extend its rally for an eighth-straight week, which has only happened 12 times since 1964.  

Global oil prices rise on geopolitical tensions. British Petroleum (BP) along with other major oil companies and tanker operators have started to avoid Red Sea shipping lanes because of more frequent attacks by Houthi rebels in the region. Lars Barstad, CEO of one of the world’s largest tanker owners Frontline Plc, said, “we are afraid that it is only a question of time until we see a ship that is completely unrelated to Israel or any part of the conflict that will be attacked.” Brent crude rose ~1.80%, closing the day at $77.95 per barrel.

Three more Fed officials push back against market expectations. Fed officials continued to voice disagreement with Fed rate cuts currently priced in by markets. Chicago Fed President Goolsbee was surprised by the market reaction to updated Fed projections, saying, “I thought there seemed to be some confusion about how the FOMC even works. We don’t debate specific policies speculatively about the future.” Cleveland Fed President Mester said that markets have gotten “a little bit ahead” of the central bank, and that “the next phase is not when to reduce rates…it’s about how long do we need monetary policy to remain restrictive.” San Francisco Fed President Daly had a slightly more hawkish tone, saying that it is appropriate for policymakers to consider cuts in 2024, but too soon to speculate on when they might happen.