Crypto Jumps But Bonds Dump As FCI Doom-Loop Looms
Today's (better than expected) retail sales data plus yesterday's (cooler than expected) CPI reading, suggest the growth outlook remains resilient. But, as Goldman's Chris Hussey notes, if Tuesday's CPI reading raised investors' hopes that the Fed would begin cutting sooner-than-expected, today's more resilient growth data partially reversed those hopes...
Source: Bloomberg
Yesterday's massive surge in stocks and bonds (and weakness in the dollar) prompted one of the largest declines (easings) of financial conditions in the last few years. Critically, it has erased all of 2023's 'tightening' (now at the same level as hen Fed funds were 150bps lower)...
Source: Bloomberg
...certainly not "doing The Fed's job" as November is setting up to see the biggest monthly easing of financial conditions since Nov 2020, which is perhaps why we saw bonds reverse yesterday's moves today.
Stocks managed to hold on to yesterday's gains. The cash open saw stock rocket higher (squeeze) but it ran out of ammo quite quickly. The Dow outperformed on the day, and Nasdaq lagged, but both ended green...
Source: Bloomberg
Goldman Sachs points out the 'FCI Loop is making a comeback' - rising bond and stock prices prompt easier financial conditions which could plead to a reaccleration in growth, impeding progress towards the inflation target... which leads The Fed to jawbone (or take action) leading to tighter financial conditions and a retracement of stock and bond prices gains... rinse, repeat.
The end result of the FCI Doom Loop - a rangebound market that can't get too hot or too cold, but must say just right or The real-world or The Fed will intervene...
Source: Bloomberg
The short squeeze in stocks continued at the open, with "most shorted" stocks up a stunning 13% from Monday's cash close. But, we have seen this pattern before and it did not end well for the shorts...
Source: Bloomberg
Defensives and Cyclicals rallied tick for tick suggesting there is no discernment for now... just squeeze/catch-up flow...
Source: Bloomberg
Yesterday's 'Stocks Up, VIX Up' move (after the initial thrust at the cash open) continued...
Source: Bloomberg
BUT... 0-DTE traders unwound their aggressive call-buying flow from yesterday, while put flows were stable...
Source: SpotGamma
While stocks were steady, clinging to yesterday's gains, crypto ripped with Bitcoin bouncing back above pre-CPI levels...
Source: Bloomberg
And Ethereum rebounding to where it all started...
Source: Bloomberg
After yesterday's panic-buying, bonds were offered today with yields higher (up around 7-9bps across the entire curve). 30Y yields did their best to recoup yesterday's yield decline but all yields remain lower post-CPI. The belly (5-7Y) remains the best performer post-CPI...
Source: Bloomberg
The dollar did not bounce back from yesterday's losses...
Source: Bloomberg
Despite a flat dollar, Gold gave back around half of yesterday's gains...
Source: Bloomberg
Oil prices extended their post-CPI-spike trend lower, with WTI back to a $76 handle, almost perfectly mirroring its move from Monday...
Source: Bloomberg
Finally, is it possible? How many times have you said in the last 23 years "I would have known when to exit that wild ride in '99..."
Source: Bloomberg
Do you feel lucky, punk?
