Weekly Capital Market Update (10/2)
Thirty Capital Financial
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Last week, the GDP growth figures released showed a slightly slower expansion than previously anticipated. Following this, the month-over-month core and headline PCE numbers were revealed, which slightly missed expectations. Despite the somewhat unexpected numbers, the market's anticipation of an additional interest rate hike in 2023 remained at around 50%. During the past week, two-year swaps dropped by four basis points, while ten-year swaps increased by 12 basis points, resulting in a steepening of about 16 basis points.
Upcoming releases including ISM manufacturing data, JOLTS (Job Openings and Labor Turnover Survey) figures, and non-farm payroll and unemployment numbers should have indications on chances of a rate hike later this year as well as forming a consensus on whether they will remain elevated for the foreseeable future. One factor that will have an impact will be the potential government shutdown and the budget agreement that was recently reached. Many feel this is temporary, and a shutdown could manifest later this year. Concerns around a short-term fix and their potential to erode market confidence are principally at play. The ever-increasing issuance of treasury bonds, its potential effect on rates, and the possibility of a US sovereign debt rating downgrade play a major role in those fears.
In the swaps market, things have been quiet as of late. There is an evident struggle in the market to adjust to a 5% SOFR rate. The curve diversion and difference between short- and long-term rates is driving much of this stagnation. The real estate market continues to face challenges particularly the limitations banks are now placing on financing, leading to not just a lack of transactions but also a deficiency in the debt market overall. This relates as well to the CMBS market as challenges persist with current rate scenarios and the expensive nature of lending at the present time. Overall sentiment is one of caution as many uncertainties and challenges still exist. Ideally, government shutdown avoidance coupled with positive economic data, should hopefully lead to a more positive overall outlook and sense that rate hikes will subside.
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