The markets are no strangers to delayed reactions as investors digest many different influences on a post-pandemic economy. And one arrived in the bond market in earnest yesterday. Treasury yields surged back to levels last seen in the middle of the summer. After taking the Fed's hawkish tilt, telegraphing tapering and pulling forward rate liftoff expectations on the dot plot, pretty much in stride on Wednesday, traders went the other way yesterday.

The curve, as measured by the gap between the 2-year Treasury and the 10-year, had flattened after Fed chief Jay Powell's press conference, with the gap narrowing about 4 basis points. Yesterday saw steepening, with the gap jumping more than 10 basis points. It now stands around 117 basis points. The 10-year yield saw its biggest one-day move since February, pushing above 1.4% for the first time since early July. It's seen a ceiling of about 1.8% this year.

"Take a step back and just think about how low yields are even relative to where we were in the first quarter of this year," Zachary Griffiths, Wells Fargo macro strategist, told Reuters. "We do have very high inflation, high economic growth forecasts and it's really been kind of hard to justify where yields have been up to this point."

The 30-year Treasury yield surged more than 13 basis points for its biggest one-day move since March 2020 when the Fed announced QE round one. (NYSEARCA:TBT) (NASDAQ:TLT) Real yields, the difference between nominal yields and inflation, were a driver of the move, with the 10-year TIPS now at -0.9%. (NYSEARCA:TIP). That puts the 10-year breakeven inflation expectation at 2.33%, around the lowest they've been since the highs in May.

LPL Financial's Ryan Detrick says the 10-year yield could break out of its range this week, with today's trading crucial to the weekly chart. It's "on the verge of moving higher," he says.

Delayed Reaction: The run-up in yields didn't really start until just before stocks opened on Thursday, underscoring the argument that investors should be wary of Fed-day moves. A lot of short and long positions are unwound in a very short space of time right after the FOMC statement is released. But by the next day, the market began to look at a global landscape where central banks, the ECB excluded, are removing historically high accommodation.

"A hawkish Fed meeting, with the dots increasing and the end of QE potentially accelerated, didn’t quite have the ability to move markets but the global dam finally broke yesterday with Norway being the highest profile developed country to raise rates this cycle (expected), but more importantly a Bank of England meeting that saw the market reappraise rate hikes," Deutsche Bank's Paul Reid writes in a note. In addition, as bond prices fell, sell stops were triggered, adding to the technical impact of the move.

Stocks holding up: Even with the pressure higher yields puts on megacaps and other stocks with high valuations that have underpinned the stock market, the major averages closed higher thanks to reflation plays. The S&P 500 (SP500) (NYSEARCA:SPY) is now in positive territory for the week and closed above its 50-day moving average, providing some support for today's trading. Equity investors appear to be looking at the Fed moves as a sign of confidence in the recovery and a commitment to combat inflation.

“While we are far from the end of QE and near-zero rates, the tide seems to be beginning to change," Anu Gaggar, global investment strategist at Commonwealth Financial Network, told Bloomberg. "So far, the market had welcomed bad news as good news, but a market reacting to signs of an economy able to stand on its own without the monetary policy crutches is a refreshing change.” (2 comments)

NIKE trips

NIKE (NYSE:NKE) shares are down premarket after the company's fifth consecutive earnings beat. Revenue for the quarter ended Aug 31, 2021, was slightly below expectations at $12.2B (+16% Y/Y), missing by $220M, and down $100M sequentially due to global supply chain issues and the Vietnam lockdown.

The company reports that its owned physical retail stores have surpassed pre-pandemic levels, growing 24% Y/Y. Digital sales were up 25%, led by a 43% increase in North America. Gross margin expanded 170 bps from last year and 70 bps from the prior quarter to 46.5%, driven by NIKE Direct business margin expansion and fewer promotions, offset by higher freight costs. (13 comments)

iFootball

The NFL is leaning toward Apple (NASDAQ:AAPL) as the new home for the premium Sunday Ticket programming package, The Athletic reports. That's a report contrary to conventional wisdom, which points to Amazon.com (NASDAQ:AMZN) putting in a strong bid for the out-of-market games, or ESPN (NYSE:DIS) taking it on.

And that may be due to changes the league might like to see from the traditional one-price, all-the-games menu. Apple is reportedly considering allowing fans to pay for just one team's out-of-market games - or even individual games a la carte.

There's still a while to go in negotiations, but one thing that seems clear is that DIRECTV (recently divested by AT&T (NYSE:T), which maintains an interest) won't keep the Sunday Ticket rights it's held for decades.
(80 comments)

China plane demand

Boeing (NYSE:BA) slightly raises the 20-year forecast for China's airline market, forecasting the country will need 8,700 new aircraft valued at $1.47T by 2040 to meet rising air travel demand. In its annual commercial market outlook, Boeing notes the Chinese market's resilience during COVID-19 and estimates the market opportunity for commercial aviation services in the region at nearly $1.8T.

China's economic fundamentals and a middle-income demographic that is expected to double in two decades underpin the anticipated increase in air travel, Boeing says. (34 comments)

Buybacks rebounding

"Despite remaining cautious with their buyback expenditures," S&P 500 companies' stock buybacks for Q2 rose 11.6% Q/Q to $198.8B, up 124.3% from the year-ago period, S&P Dow Jones Indices says. Buybacks are 11% off the all-time high of $223B set in Q4 2018. (18 comments)

China crypto crackdown

China's crackdown on cryptos is escalating, with the People's Bank of China taking aim at transactions and Beijing making more moves to curb mining, Bloomberg reports. Bitcoin (BTC-USD) is down 1.7% and Ethereum (ETH-USD) falling 6%. (2 comments)

Today's Markets

In Asia, Japan +2.1%. Hong Kong -1.5%. China -0.80%. India +0.30%.
In Europe, at midday, London -0.16%. Paris -0.72%. Frankfurt -0.51%.
Futures at 6:20, Dow -0.11%. S&P -0.23%. Nasdaq -0.40%. Crude +0.31% at $73.53. Gold +0.33% at $1756. Bitcoin +1.4% at $44493.
Ten-year Treasury Yield +1 bps to 1.42%

Today's Economic Calendar

8:45 Fed's Mester: “Bouncing Back in the Post-Pandemic Economy”
10:00 New Home Sales
10:00 Jerome Powell: “Fed Listens: Perspective on the Pandemic Recovery”
10:00 Fed’s Bowman: “Fed Listens: Perspective on the Pandemic Recovery”
10:00 Fed’s Clarida: “Fed Listens: Perspective on the Pandemic Recovery”
10:00 Fed’s George: U.S. Economic Outlook and Monetary Policy
12:00 PM Fed’s Bostic: “From Policy to Progress: Partnering to Create Equitable Community Development”
1:00 PM Baker-Hughes Rig Count

Companies reporting earnings today »

What else is happening...

Twitter (NYSE:TWTR) to add Bitcoin payments in its mobile app.

Costco (NASDAQ:COST) reports double-digit sales growth in all segments.

Federal agency calls for more regulation of Texas power grid, natural gas.

COVID-19 test maker Cue Health (NASDAQ:HLTH) prices 12.5M-share IPO at $16.

Brent crude (CO1:COM) settles near three-year high; WTI (CL1:COM) best since July.

HIVE Blockchain Technologies (NASDAQ:HIVE) reports full year results.