Last week, yet again, we saw more of the same trends in the capital markets. It was a bit of a bear steepener, with rates moving up across the curve. 2-year Swap rates rose 3 BPS and 10-year Swaps rose 5 BPS. It’s worth noting that 2-year Swaps are now 18 BPS off their recent highs from October. This rate drives a ton of what we see in the market daily. With inflation firmly back on the radar, we’ve come full circle from the Fed finishing their hiking cycle.
GDP figures came in lighter than expected on Thursday, but there tend to be heavy revisions with the 2nd and 3rd ratings. More than the headline numbers, the market was spooked by the GDP Price Index figures that showed a big acceleration of inflation in the 1st quarter. On Friday, PCE annualized numbers came in a bit higher than expected. It wasn’t a shocking increase, but what’s significant is that we’re moving in the wrong direction. The Fed is looking for a move closer to 2%.
Will the Fed be forced to change directions and increase rates again? With no Fed speak or major Treasury auctions early this week, all eyes will be on the FOMC meeting on Wednesday. There’s a lot of concern that the Federal Reserve will be considerably more hawkish than before. Despite inflationary concerns, it’s too early to worry about stagflation. The economy is still growing incredibly quickly with the government injecting trillions of dollars.
Friday, we’ll get new Nonfarm Payroll numbers. An increase of roughly $250k is expected, but there are whispers it could wind up being much lower. ISM data also comes out Friday, but the focus will be on any inflationary data this week.
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