US equities were stronger Monday, S&P 500 up 2.6%, helped by better earnings reports. UK gilts rallied, 10-year area down 36bps after new Chancellor Hunt announced plans to scrap two-thirds of the October mini budget and indicated that he would reveal more savings measures. US 10-year yields were unchanged at 4.01%.
Interestingly, the broad rally was led by higher beta - something that did not happen last week when stocks bounced. However, investors are still searching for the elusive fundamental support behind these rallies. Not finding that absolute macro needle in a haystack suggests these rallies still fall into the technical squeeze category rather than one where investors are boarding the rally wagon on mass.
Financials are also rallying in line with the broader market as headlines out of the UK ease some of the current rate and currency volatility that was exacerbating macro uncertainty. It is conducive that the MOVE Index (a measure of the bond market volatility) is easing, but the Index can only truly settle when the Fed settles.
Bank of America (NYSE:BAC) was one of the stars of last night's performance, up 6%, which sees investors toe dipping into the previously underweight money center banks. The essence is that the elevated deposit costs have not started to eat into the net interest income benefits that rates rising so rapidly have sparked.
Oil
The International Energy Agency, which joined OPEC and the US Energy Information Administration downgrades last week continues to cap bullish top-side ambitions in oil.
Without a step down in Covid policy, medium-term questions about China's recovery remain. In the near term, however, President Xi Jinping's commitment to boosting reserves of crucial commodities is supportive and should provide an additional price plank.
On the near-term horizon, the clash between the US and OPEC+ continues to heat up and underscores the political nature of some potential bearish for oil catalysts. Given OPEC's current stance on production, the US has every incentive to progress talks with Iran and Venezuela, especially ahead of the US midterm elections.