Commodities | Equities | FX | Global | Rates
Markets to Watch This Week: Short-end USD Rates Close to Pricing 50bp May Hike
- By Bilal Hafeez
- Sign-up to discuss on Slack
- 1 min read
We standardise price changes across different markets to allow for cross-market comparisons.
Short-end yields were the biggest vol-adjusted movers of the week. 2Y UST yield led the rise to briefly break 2.5%, its highest rate since early 2019. The market is pricing 45bps of hikes for May, meaning there is room for further weakness ahead if (as we expect) the Fed hikes 50bp. The UST 2s10s has followed 5s30s negative, sparking renewed interest in recession risk. Our model, based on US yield curves places the risk of a recession in the next 12 months at 60%. Short-end NZ and Swedish yields also rose strongly.
This article is only available to Macro Hive subscribers. Sign-up to receive world-class macro analysis with a daily curated newsletter, podcast, original content from award-winning researchers, cross market strategy, equity insights, trade ideas, crypto flow frameworks, academic paper summaries, explanation and analysis of market-moving events, community investor chat room, and more.
In this report, we standardise price changes across different markets to allow for cross-market comparisons.
Short-end yields were the biggest vol-adjusted movers of the week. 2Y UST yield led the rise to briefly break 2.5%, its highest rate since early 2019. The market is pricing 45bps of hikes for May, meaning there is room for further weakness ahead if (as we expect) the Fed hikes 50bp. The UST 2s10s has followed 5s30s negative, sparking renewed interest in recession risk. Our model, based on US yield curves places the risk of a recession in the next 12 months at 60%. Short-end NZ and Swedish yields also rose strongly.
Asian stocks were the big winners of the week, with the CSI-300 and Nifty-50 seeing the largest vol-adjusted gains. The Chinese index has bounced 7% from its mid-March low, but remains over 13% down YTD. Meanwhile, the Indian Nifty-50 is just 2.5% off the all-time-highs it saw in mid-January.
Commodity prices saw the biggest falls last week. Soy is down 6% since the start of last week, 10% off the brief spike it saw on the invasion day. We see upward price pressures for agricultural commodities continuing. Meanwhile, Brent crude is back below $110bbl after briefly touching $124 two weeks ago. The announcement of US releases from the strategic petroleum reserve (SPR) drove much of the move. We, however, remain bullish oil, and do not expect the SPR releases will have a long-term impact.
EUR HY CDS prices fell again, taking the price down into the top-end of its typical trading range. Credit spreads have remained well-anchored across the bloc, with beta-adjusted EUR HY/IG at the lower end of its typical range. While this remains the case, the ECB should be able to stick to its accelerated AP winddown.
US 10Y B/E inflation fell back from the almost 3% level it hit the week before last. It remains elevated, versus historic levels at 2.8%. Continued hawkish tone from the Fed could see this fall back further.
This week, it’s a quieter one for data. ECB and Fed minutes, as well as a range of central bank speakers will likely drive the most interest. We are watching for a bounce in oil and commodities on account of the supply dynamic and any further anti-Russian policy action. In rates, there could be room for more short-end UST weakness on the Fed minutes, while the ECB minutes may do just the opposite for ECB pricing.
Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.