It didn’t last because it couldn’t.
The bid for risk catalyzed by the Bank of England’s emergency intervention in the UK bond market fizzled Thursday, as US yields resumed their upward march and the curve bear flattened.
It was just as well. Wednesday’s rally was counterproductive for a Fed bent on engineering tighter financial conditions. In all likelihood, US policymakers were displeased with the sugar high from the BoE’s pension rescue operation.
The S&P gave back all of the prior day’s gains — and then some. The Nasdaq was lower by more than 3% into late afternoon trading, the worst day since August’s CPI report sparked a rout (figure below).
Apple dropped sharply amid demand concerns, dragging down the broader market. The shares were on track to fall 6% for the week, the worst showing in months.
Shares of the company formerly known as Facebook fell nearly 4%, as Mark Zuckerberg reportedly told employees Meta will freeze hiring and implement a team restructuring initiative in a bid to cut costs and, one imagines, cut losses, which have piled up for the shares since Zuckerberg’s infamous pivot to the metaverse.
He blamed, in part anyway, the macro outlook. “I’d hoped the economy would have more clearly stabilized by now, but from what we’re seeing it doesn’t yet seem like it has, so we want to plan somewhat conservatively,” he remarked.
Meta sounds like it’s moving forward with previously tipped plans to reduce headcount. Zuckerberg employed an absurd euphemism while discussing the soon-to-be unemployed. Meta, he said, will “manage out people who aren’t succeeding.”
Forgive me, but one person who you might fairly suggest isn’t succeeding is Zuckerberg himself. Or at least not according to the stock (figure above).
Facebook never really recovered from catastrophic losses incurred in February, when the shares suffered one of the largest single-session value destruction events in US market history (figure below).
Fed speak was hawkish, as expected. Jim Bullard suggested the outlook for the US economy won’t be materially affected by drama across the pond. “This is mostly about financial markets needing to price in the volatility that you’re seeing in the UK, so we have some movements in the US because of that,” he told reporters, over the phone apparently. “I don’t see this really impinging on US inflation or real growth developments.”
Meanwhile, Loretta Mester said rates still aren’t restrictive in the US. The Fed, she said, isn’t at a point where officials should consider a pause. A recession, should it occur, wouldn’t stop the Fed from hiking rates, Mester emphasized.
I could go on. And believe me, I’m tempted to. But I fear there’s not much left to say. The BoE’s intervention was designed to address a specific problem (a potential crisis for UK pension funds), not lift global risk assets out of a bear market. Nothing has changed. The macro picture is foreboding, the Fed is hawkish, inflation is high and a war is raging in Europe.
Commenting Thursday afternoon on recent meetings with clients, BMO’s Ian Lyngen and Ben Jeffery said one key theme was dollar strength “and the fact that resulting strains haven’t been limited to emerging markets.”
“A coordinated effort by the G7 to depreciate the US dollar shouldn’t be taken completely off the table, although the path to execution has already proven challenging,” they wrote, adding that “on net, there’s a great deal of investor (and strategist) uncertainty at the moment as global policymakers continue pushing the restrictive rate regime.”