Equities Suffer, Bonds Stay Neutral as Fed Makes Hawkish Remarks

Yields mostly unchanged despite hawkish Fed commentary. Treasury yields were mostly unchanged today despite hawkish Fed sentiment that was reiterated throughout the session. St. Louis Fed President James Bullard and his New York counterpart John Williams urged that there is more work to do in order to curb inflation, with Bullard suggesting that he prefers to get rates up in short order. Fed Vice Chair Lael Brainard added fuel to the fire when she noted that the string of global supply shocks, including China’s continued adoption of strict COVID shutdowns, is keeping inflationary pressures high. While yields increased by only the thinnest of margins, equities suffered significantly, with the S&P and NASDAQ realizing losses of 1.54% and 1.58%, respectively. 

Labor outlook complex ahead of unemployment data releases this week. U.S. labor markets have stayed strong during the hiking cycle due to labor shortages. The OECD reports that the jobless rate was 4.4% in developed economies as of September, the lowest since the early 1980s. Based on September U.S. Bureau of Labor Statistics data, the ratio of job openings to unemployed people in the U.S. was about 1.9:1. The labor participation rate has also flatlined below pre-pandemic levels at around 62% in recent months. Economists are considering factors such as aging populations in developed countries and changing immigration patterns to understand the current situation. Given the shortages, surveyed company leaders are saying that they plan to slow hiring while retaining current workers because of how tough it was to hire in the first place, even as they face darker economic times ahead. This reality makes it difficult to find clues about the impact of Fed hikes and the near-term economic trajectory from labor data, which is traditionally expected to soften as demand tapers. Bloomberg economists expect unemployment to rise by about 3.3 million in developed economies in 2024, which is low compared to prior downturns. Still, white-collar workers are expected to be relatively more vulnerable to cuts, foreshadowed by recent technology and financial services mass layoffs.

Day ahead. Tomorrow will be relatively quiet ahead of a jam-packed Wednesday schedule, with S&P home price data (released at 9 AM ET) being the highlight. Consumer confidence for the month of November and crude oil stock change data will follow at 10 AM and 4:30 PM, respectively.