Ready for some fun and not-so-fun games? Stock mischief, strain variations, and doves flying with the Fed
Client Relationship Management
Corporates | Kennett Square, PA
SummaryInvestors played games with all major asset classes this week, causing ripples in equity markets and creating a weeklong seesaw for stock prices.
Investors picked up their joysticks last week and played games with all the major asset classes. The biggest game of the week was played by a group of amateur investors who purchased large blocks of targeted stocks. That action took those selected stocks to unthinkable price levels, forcing hedge funds to cover their naked shorts. We also learned about some not-so-fun high scores related to new variants of COVID-19 that popped up in South Africa and the United Kingdom and that COVID-19 cases eclipsed 100 million globally. And finally, the Fed suited up for their January FOMC meeting and Fed Chair Press Conference. This time around, their statement changes contained a dovish tone suggesting asset purchasing and low rates are likely going to continue. The events above caused ripples in equity markets, creating a weeklong seesaw for stock prices. The biggest winners of the week were tech stocks as they continued to outperform based on success realized during the pandemic.
Rates, while still near post-pandemic highs, erased some of the early January gains as the 10-year U.S. Treasury fell more than 5 basis points on Monday. As the week progressed, rates remained range-bound despite the Fed’s dovish tone on Wednesday but were propped up by investors’ flock to equities later in the week. It was a mixed bag in terms of economic data; the initial reading for 2020 Q4 GDP came in at 4.0%, lower than an expected 4.2%, while U.S. initial jobless claims posted slightly better than anticipated. With 10-year yields continuing to float around the 1.00% level, we are seeing an increase in corporates contemplating and executing Treasury locks or forward-starting swaps to hedge their future fixed-rate issuances.
The U.S. dollar (USD) continued to play the role of underdog and banks are suggesting that could be the trend for years to come based off their projections. Against the USD, The British pound (GBP) traded at a two-and-a-half-year high of 1.373, while the Euro (EUR) was down from its early January peak (which was north of 1.23), trading at 1.212.
(Related insight: Watch the on-demand webinar, “An Altered Currency Landscape and Impact to Corporate Hedging Programs")
Last week, fluctuations in oil prices remained muted. WTI traded between $52 and $54 per barrel. Steel and aluminum continued to remain strong on the back of Chinese demand and are currently more than double the price compared to their 12-month lows.
In the coming week, all will be watching to see how the drama in equities continues to unfold. On the economic data front, we will see a variety of indicators, including manufacturing PMI, factory orders, and durable goods. Make sure to register for our “Semiannual Market Update for Corporations” webinar on Wednesday, February 3 at 2PM EST.
Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.
Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved.21-0032
Our featured insights
Markets price in latest Federal Reserve news as inflation, energy prices continue to rise
Global stock indices fell last week amid persisting inflation fears and subsequent expectations for more aggressive rate hikes. Domestically, fears that the Fed’s attempts to curb inflation will push the U.S. economy into a recession exacerbated investor concerns. Markets temporarily rebounded in...
No peak in sight as CPI hits fresh 40-year highs
A dark dose of reality greeted markets Friday morning as May CPI data topped expectations yet again. U.S. inflation reached its highest level since December 1981 as the consumer price index surpassed 8.6%. Investors and consumers alike are now looking squarely at the Federal Reserve and Chairman...
The Wall Street Journal asks Amol Dhargalkar why companies are keeping LIBOR debt on their books
The Wall Street Journal spoke to Amol Dhargalkar to understand why companies are keeping LIBOR debt on their books rather than replace it with SOFR when they refinance their loans.
Corporations are stuck between increasing interest rates, an appreciating dollar, and declining revenue
Unlike in typical expansions, a strong labor market and consumer spending are leading to market volatility and turmoil. Stuck between either rising interest rates or falling consumer demand, many companies are being forced to lower earnings estimates and make difficult decisions.
A hawkish Fed, volatile U.S. economy, and strong U.S. dollar
Across interest rate, equity, and commodity asset classes, the U.S. continued its rollercoaster of volatility. Despite this, the Fed attempted to soothe market participants with prospects of tightened monetary policy. Globally, the U.S. retained its position as the haven currency.
Amol Dhargalkar and Kevin Jones speak in Global Treasurer about corporate treasury's transition to SOFR
Despite some operational issues, global corporate treasurers have embraced SOFR and are working to transition their debt to the new benchmark. Speaking to Global Treasurer, Amol Dhargalkar and Kevin Jones discuss the progress of corporate borrowers making this transition.
Rates uncertainty continues as investors interpret consumer data
Interest rates continued their choppy trajectory last week as market data offered mixed narratives; retail sales data suggested continued strength in the U.S. consumer sector while manufacturing data portended future weakness in the economy. Meanwhile, dollar strength continues unabated.
Inflation continues to rise as crypto plunges
Inflation numbers are hot off the press and exceeding expectations as reports that the price of goods and services rose by 8.3% since last April. Although there is hope that we are falling from the peak numbers seen in March, consumer fears of a recession are growing and permeating the market —...