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The S&P 500 closed higher, propelled mainly by Apple (NASDAQ:AAPL), while the equal-weight index ended the day essentially unchanged, highlighting the lone standout in an otherwise uneventful session.
Despite the upward move, the S&P 500 spent the afternoon stalled at the 61.8% retracement level, effectively revisiting Tuesday’s highs.
There were 121 more decliners on the NYSE yesterday than advancers.
The 10-year minus 2-year spread is once again setting up for a potential upside breakout, opening the door for yield curve steepening. While the exact timing remains uncertain, the opportunity is clearly there if the breakout finally occurs.
I’ve generally maintained the view that the yield curve would steepen via a bear steepener. Considering rising inflation expectations and the recent uptick in the ISM Services Prices Paid index, a bear steepening remains my base case.
However, that doesn’t rule out the possibility of a scenario where the steepening arises from a combination of the 2-year yield declining and the 10-year yield rising, particularly if stagflation concerns begin to surface.
The 30-year minus 3-month spread is in a similar situation, consolidating around 60 bps and positioning itself for a potential breakout.
The spread between the US 5-year and 5-year JGB contracted yesterday and is nearing a breakdown below its August 1 low. The tighter this spread becomes, the more likely it is that USD/JPY will continue strengthening against the US dollar.