Stocks Close At Highest Since April 2022, Yen Tumbles As BOJ “Tweak” Fizzles

It was a day defined by the “shock” BOJ decision to tweak the central bank’s yield curve control, yet as we have said all along, the BOJ can’t normalize, and today’s half-assed attempt to both widen the YCC band and pretend like it is doing nothing, would end up backfiring. One look at the reaction in the USDJPY shows that we are well on our way there, because while Ueda’s unexpected intervention was really meant to crush the yen, after an initial jump in the Japanese currency, the yen gave up all the gains from both the BOJ and the Nikkei leak and proceeded to tumble to 141 vs the USD, 300 pips off  overnight levels.

But while the YCC intervention was completely wasted on the yen, which will now drift ever lower as carry traders pile in with aggressive shorts to pick up a historic yield differential, when it comes to the all important Japanese bond market, the 2nd biggest in the world, the fact that the BOJ is now in the process of pilling the rug on its own JGB holdings (which amount to over 100% of Japan’s GDP), and the broader bond market in general, was not lost on anyone, and 10Y JGB futs kept sliding all session …

… and pushing the 10Y JGB yield to 0.56%, the highest level since 2014.

For now, Japan’s bond rout has been relatively contained, and after spiking as high as 4.04% overnight, the 10Y Treasury saw its yield slide back under 4%.

The lack of a bond market rout, in turn, allowed the levitation to return – just as we said it would in yesterday’s market wrap, and following yesterday post-Nikkei rout which sent futs tumbling 80 points, spoos managed to recover almost the entire slide in a move that pushed the S&P to close at the highest level since April 2022…

… a meltup that saw broad-based participation from almost all sectors (except REITs, utilities and energy where both CVX and XOM shat the bed with their latest earnings)…

… as the VIX was once again proper clubbed and reversed yesterday’s entire spike and on its way to a 4-year low…

… as even the VVIX – which briefly seemed poised for a breakout after yesterday’s gamma-driven spike – was snuffed with impunity.

And while we don’t usually care about micro events in market wrap, we present the following hilarious chart of $12.5BN market cap ROKU, which saw its stock explode 30% higher, trading like your plain vanilla penny stock in a market where everything is now disconnected from fundamentals and only trading flows and short squeezes matter. Yes, we get it earnings were good, but a billion-dollar market cap stock repricing by 30% overnight on what is just management commentary confirms that the Fed’s attempt to eliminate excess liquidity from the market has been a colossal failure.

Of course, as it always does, as the market melted up it was planting the seeds of its own destruction because not only have gasoline prices hit a 2023 high as wholesale gasoline has exploded, assuring that the Fed will have to do a lot more tightening in coming months as CPI comes in far hotter than expected…

… with Brent rising to $84.80, the highest since mid April and about to steamroll the countless shorts who are still using this asset as a recession hedge.

And so it’s only a matter of time before markets freak out about the return of inflation all over again, but first we will get a few more days of melting up in the post-CPI blow off top we discussed two weeks ago, before traders realize that Powell will have to do much more and promptly tumble back to square one.