With event risk about as high as it gets this week (just look at the S&P implied vol term structure)…
…today’s market action had a feel of anxiety, FOMO, and low liquidity about it.
Equity markets managed solid gains ahead of tomorrow’s CPI with Dow and Small Caps leading. A sudden late-day burst of excitement started around 1500ET (was CPI leaked) which sent stocks vertical-er. Notably, The Dow and S&P ran up to erase all the loses from Friday’s PPI print and the Nasdaq got within a tick or two…
VIX jumped above 25 intraday…
Treasury yields were higher on the day with the short-end underpeforming (2Y +5bps, 30Y +1.5bps) but they all followed the same pattern of buying bonds in Asia and selling in Europe and US…
Source: Bloomberg
A really ugly 10Y auction – with a huge tail – sparked some chaos around 1300ET – pushing the yields up to their post-payrolls peak…
Source: Bloomberg
Rate-trajectory expectations rose on the day with the terminal rate back up to 5.00%…
Source: Bloomberg
The dollar rollercoastered lower overnight and then higher to close the day green…
Source: Bloomberg
Bitcoin was dumped overnight but managed to scramble back above $17000…
Source: Bloomberg
NatGas prices soared today as colder than expected weather hit the US (and a big freeze struck Europe for the first time this winter)…
US Crude prices jumped on the day, rebounding from a $70 handle to a $74 handle intraday (best day for WTI since 11/4)…
Gold tumbled back below $1800…
Finally, we note that ahead of this week’s CPI and FOMC, the market is pricing in a dramatically different picture than The Fed’s ‘higher for longer’ projections…
Source: Bloomberg
With 185bps of rate-cuts priced in from Jun23 to Dec24…
Source: Bloomberg
Bear in mind that US Financial Conditions are now the same as they were 6 months ago (and The Fed has raised rates significantly since then so that’s not what Powell wants to see)…
Source: Bloomberg
Will Powell push back against this dovishness like last time?
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