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NYSE MAC Desk - October 21 Weekly Recap

Heading into the open Friday morning it looked like the recent trend of early week strength fading in the back half of the week would continue. The S&P 500 had fallen in 8 of the last 9 weeks by an average of 1.4%, including a 2.4% selloff last week.

Michael Reinking
By Michael Reinking · October 21, 2022
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NYSE MAC Desk - October 21 Weekly Recap

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STRAIGHT FROM THE TRADING FLOOR

So much for a quiet fall Friday. Heading into the open this morning it looked like the recent trend of early week strength fading in the back half of the week would continue. The S&P 500 had fallen in 8 of the last 9 weeks by an average of 1.4%, including a 2.4% selloff last week. Part of last Friday's weakness was related to concerns about the functioning of the UK Gilt market as the BoE emergency bond buying program was set to end. Those concerns abated on Monday as newly appointed finance minister Hunt said that he would be scrapping much of the fiscal agenda. This coupled with another round of better-than-feared results from financials and a sharp drop in natural gas prices in Europe helped equity markets recoup all of Friday's losses.

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Before I move on let's wrap the UK situation. Earlier this week the BoE announced that it would be moving forward with its QT program at the end of the month but that it would be focused on short/medium term maturities, which had been less effected by the most recent episode of volatility. On Thursday, PM Truss resigned and we should see new leadership next week. Local 10/30yr yields were lower by ~40bps/75bps this week so markets functioned well. What is clear is that the financial markets/”bond vigilantes” have won the day. Assuming that a fiscally conscious candidate emerges next week, this hopefully fades to the background. As I've said before,  this episode is a reminder about the risk of volatility especially in FX/fixed income markets as it exposes leverage in the system often in places you don't expect to find it.

Read the full recap here

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