Not all Fed hiking cycles are equal.
Historically, the higher the inflation when the Fed begins to hike, the worse equities have performed. The faster the tightening cycle, the worse equities have performed. Source: David Marlin, UBS, Factset
US equites usually struggle around first hike
Source: RBC, Bloomberg
Foreign investors are now buying more U.S. Stocks than Treasuries, for only the 3rd time this century (Global Financial Crisis and Covid)
Source: Barchart, FT
Every major government bond market is selling off at once.
Japan's 10-year just hit 3% for the first time this century. US yields are the highest since 2007, the UK since 2008, Germany since 2011. Source: Kurt S. Altrichter, CRPS
Using the past seven tightening cycles as a guide, GS notes that the S&P usually struggles at the start, falling an average of 2% over the first three months.
Using the past seven tightening cycles as a guide, GS notes that the S&P usually struggles at the start, falling an average of 2% over the first three months. The pinch typically does not last long, however, with the index gaining an average of 9% over the following 12 months. The bruising exception was 2022. Ultimately, earnings growth determines the market’s trajectory, but the speed and volatility of the move in rates can heavily influence stocks along the way. Source: TME, GS
Dear Donald, the "no war no peace" with Iran doesn't work here. You need to try something new...
Brent is closing in on $110 after Houthi strikes shut the Saudi East-West pipeline, with Riyadh’s output at a 30-year low of roughly 6m b/d and Hormuz and Bab el-Mandeb presenting a two-front chokepoint risk. This is a supply shock, which means it doesn't fade on its own, and the WTI/10Y correlation has hit 0.96. Every barrel higher is a basis point in the long end. Then there's the quiet second claim on the same buyer pool: the AI build out. Hyperscaler capex now runs >100% of operating cash flow, implying ~$1.3tn of debt by 2028, with tech leading the $380bn 2026 bond supply, competing directly with Treasuries while bidding up chips, power and labor. The trade funding the equity bull is now financing the tightening cycle. Source: TME
Once the Fed starts tightening, it rarely stops after one move.
Historically, hiking cycles persist for some time, with the 10-year yield generally rising by more than 100bp along the way. Judging by the history surveyed by DB’s Jim Reid, investors should brace for the 10-year to reach 6% before the Fed is done. Source. TME, DB
Oman Crude pushes further above $150!
$155.14 This is the only Middle Eastern crude that does not have to pass through either the Strait of Hormuz or Bab el-Mandeb. That means oil prices in the rest of the world will eventually have to catch up with Oman. Source: Karel Mercx
