“This is going to hurt”

“I wish there was a painless way. There isn’t.”

Fed Chair Jay Powell told reporters this as the central bank raised US interest rates this week, and the markets are listening.

The resulting strength of the dollar helped to crush the pound along with all that other stuff. And after at least six additional rate hikes by the central bank (plus a Japanese currency intervention that likely accompanied the sale of the dollar to buy the yen), the pain is extending even to US large-cap stock indices, with a decline of more than 2 percent per pixel.

Or, as Bank of America puts it, “This is going to hurt.”


“Central banks will rise until something breaks. . . Thin liquidity increases the risk of overdraft and tighter financial conditions,” the bank’s rate strategy team wrote in a note dated Friday.

Of course, when interest rates rise and the markets sell out, there’s a chance it’s driven by maturity rather than a broader risk-out panic. . .

Just kidding, not this time! US junk bond ETFs (HYG and JNK) are down more than 1 percent, while the investment-grade corporate ETF (LQD) is down about 0.7 percent.

Tony Pasquariello of Goldman Sachs stars in:

[Two-year yields] are looking for the biggest annual backup since the infamous bond market massacre of 1994 (an event that very few of today’s risk takers witnessed… By construction, everything that’s happening now in real time – drastically higher policy rates, the undercurrent from the contraction of the Fed’s balance sheet and tighter caps on US banks’ capital – points clearly in the wrong direction for liquidity, and furthermore, as you can see in the first chart below, it can be argued that this bend is only While liquidity is just one input into the fundamental equation, it’s clearly an increasing headwind for risky assets – and once again has created a sense of “abandonment” within the stock market.

According to another BofA team, investors have snatched cash from every asset class except money market funds in the past week.

But hey, at least 10-year-old gilts are now yielding more than treasure chests! (Currency adjustment not included.)

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