Although still relatively muted compared with the banking blowup in March, borrowing premia on U.S. corporate junk bonds are creeping higher again and have widened almost 40bp from the impressive lows set just two weeks ago.
And the Fed shows no sign of concern about the disturbance yet – repeating to fade its mantra on higher-for-longer interest rates and even the chance of one more hike.
With job openings in the wider economy rising again counter to all expectations for August, it’s easy to see why the Fed is not for turning yet. Alongside another heavy diary of Fed speakers on Wednesday, we get ADP’s September rally of private sector payrolls and service sector business surveys for the month.
The gloomy rates picture is starting to floor stocks too – with a growing feeling that dysfunction in Washington and a Fed seemingly intent on tightening until something breaks all spells a rough end to the year just as another earnings season unfolds.
The S&P500 dropped more than 1% on Tuesday to its lowest since May and the tech-heavy Nasdaq plunged 1.8%.
And the selling rippled out across the world through Asia and Europe again on Wednesday – with MSCI’s all-country stock index hitting its lowest since April and S&P500 futures remain in the red.
Overseas, the dollar remains king despite suspicions of BOJ intervention at 150 yen in Tuesday’s session. Japanese officials continue to equivocal about the chances of yen buying.
The Reserve Bank of New Zealand held policy rates unchanged.
