This is turning into a remarkable day and it’s only half over.
Have a look at intraday emini futures:
The market was in a very good mood ahead of CPI but imploded on the data, falling 130 points.
For one, the 3500 level held in futures, so that might have attracted some buyers. There was also a WSJ report that didn’t float a 100 bps hike. The implied odds of that have drifted to 9% from 13% post-CPI.
There’s also talk of Russia-Ukraine negotiations but for me that’s the biggest stretch.
In short, none of this adds up to a justification for an enormous reversal in equities and FX. The euro fell as low as 0.9632 but is now trading at 0.9763 — a 130 bounce.
So what explains it?
What I can tell you is that there’s no mystery headline behind it.
There’s no easy answer to explain the market moves. One thing I would highlight is that sentiment right now is as negative as it’s been since 2008. There aren’t many bulls out there and people are feeling pain. The liquidation trades in utilities and telecom show mom & pop puking stocks, which is generally a sign of the bottom.
Along the same lines, JPMorgan was talking about a 5% decline in stocks if CPI was hot today. When serious people are talking about a 5% daily fall, sentiment is awful.
So the best you could say is that this is something of a short squeeze or those on the sidelines with cash stepping in. The UK pension system also doesn’t seem to be imploding so the ‘Fed will hike until something breaks’ crowd will have to move onto the next target.
All that said, I still don’t love what’s happening in bonds. US 2-year yields hit 4.50% and are back to 4.45% but that’s still up 16 bps on the day. I don’t think we get a sustainable rally in stocks until yields begin turning lower.
Also, I would have much preferred this kind of rally into the close rather than midday.
