Well that was quite a day.
A slight softening in CPI (like the slightly better than the worst case scenario in SLOOS) was enough to spark a panic bid in stocks, bonds, gold, and crypto (and tank the dollar) as rate-hike odds tumbled.
But, by the end of the day, things had changed quite dramatically with the chance of a June rate hike completely removed by the market (from 20% odds at the start of the day)…
Source: Bloomberg
…with the extension of the dovish move driven by a late-day note from WSJ Fed whisperer that we may be on hold for the summer…
Federal Reserve officials were already leaning toward taking a summer vacation from interest rate increases to see if they have done enough to slow the economy and inflation.
Wednesday’s inflation report makes that easier because it showed price pressures aren’t worsening and might soon be slowing as muted growth in rental-housing costs feed through to official inflation gauges.
More important, Fed officials have focused more on the impact of recent banking-system strains, which will take time to slow economic activity, including hiring and inflation.
The market sees no more rate-hikes in this cycle…
Source: Bloomberg
Nevertheless, the stock market was total chaos today – spiking on the soft CPI then waking up to reality that it was marginal at best and not enough to change anyone’s mind and then pumping again after Timiraos suggested The Fed will be on hold (which they had said they would be). Nasdaq was best on the day. The Dow ended in the red…
Most Shorted stocks were squeezed… twice…
Source: Bloomberg
Regional bank stocks pumped and dumped (again)…
Another big pump and dump in bank stocks overall…
VIX and 1-Day VIX both tumbled on the day (after the latter spiked up to the former yesterday)…
Source: Bloomberg
Treasury yields plunged today with the short-end notably outperforming (2Y -11bps, 30Y -3bps) dragging all buy the 10Y and 30Y lower on the week…
Source: Bloomberg
The 2Y Yield broke back below 4.00% and extended…
Source: Bloomberg
The dollar ended lower, dumping on the CPI print (to 4-week lows), before bouncing then dumping again…
Source: Bloomberg
Bitcoin rallied on the CPI print, back above $28,000 then suddenly puked hard around 1305ET back below $27000 (no obvious catalyst) before bouncing back to unch…
Source: Bloomberg
Gold ended marginally lower after spiking hard on the initial CPI print reaction…
Oil prices ended lower with WTI testing down a $71 handle before bouncing back (big crude draw but another SPR drain and recession risks continue)…
Finally, while the market appears to be pricing in rate-cuts, it is really pricing in a bifurcated outcome of a high probability of no rate-cut (high for longer) and a low probability of large emergency cuts (banking crisis bailout or debt-ceiling crisis rescue), e.g. 70% odds of high for longer around these levels and 30% odds of panic cut to 2.25% leaves around 4.3% ‘average’ implied rate …
Source: Bloomberg
And the only way The Fed does that kind of cut is if something really bad is happening (and by bad we mean the market has collapsed – so the dovish implications of the forward curve can’t happen unless the stock market crashes).
Tyler Durden
Wed, 05/10/2023 – 16:00
