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Stocks & Crypto Soar To Record Highs As Fed Taper Sparks Hawkish Surge In Rate-Hike Odds

Tyler Durden's Photo
by Tyler Durden
Wednesday, Nov 03, 2021 - 04:00 PM

The dollar plunged and stocks soared after The Fed unveiled its taper and raised concerns about the transitory nature of inflation, prompting the market to send rate-hike odds notably higher (and sooner).

The taper is on...

But Curvature notes:

"The tapering announcement was generally as expected, but at the same time, a little different. Yes, the FOMC announced the Fed will purchase $15 billion fewer securities beginning in November. Basically, as expected.

However, here's the interesting part. The Fed pre-announced a second tapering of $15 billion in December. That means that beginning in January, tapering is still a "wild card." We will expect another cutback of $15 billion in January, however, it's not guaranteed.

Theoretically, they could stop tapering in January or they could increase the pace of tapering.

Overall, it looks like the December FOMC meeting will be important for the markets"

Market reactions sent mixed messages:

  • Dovish: USD down, Stocks up, Breakevens higher.

  • Hawkish: Implied rate-hike odds up, TSY yields up, gold down, oil down

  • And crypto was up - is that dovish or hawkish (they're gonna hike, break the world, and resume QE to save us all again?)

The USD plunged 'dovishly'...

Source: Bloomberg

July 2022 rate-hike odds surged 'hawkishly' despite Powell desperately talking down the "liftoff" multiple times during the press conference...

Source: Bloomberg

“We clearly are setting ourselves up for a policy error,” Scott Minerd, global CIO at Guggenheim, summed things up perfectly:

“There is no way that we have engaged in the scale of asset purchases in the pandemic where there’s going to be a policy which ultimately is going to be perfect and not cause some sort of interruption to asset prices or something else that would be destabilizing. I think that would be in the realm of practically miraculous.”

Stocks kneejerked higher and then extended that momentum led by the maniacal bid for Small Caps. Nasdaq was close behind followed by the S&P and even The Dow scrambled back into the green...

All of these majors hit a new record high today.

Another day, another short-squeeze...

Source: Bloomberg

Here is Powell explaining...

And along with stocks, cryptos surged with ETH hitting a new record high...

Source: Bloomberg

Bond markets were the most 'tantrumy' today.

Treasury yields were up across the curve on the day (Japan was closed overnight). For the week, 30Y is notably underperforming (30Y +7bps, 2Y -4bps)...

Source: Bloomberg

30Y Yields spiked back up through 2.00% once again, testing Friday's yield spike high stops...

 

Source: Bloomberg

The yield curve steepened notably after The Fed, but 5s30s accelerated steeper in the last hour after Powell stopped speaking...

Source: Bloomberg

Breakeven inflation rates surged..

Source: Bloomberg

As the dollar tumbled, gold rallied back from its earlier pummeling but remained lower on the day...

Oil prices were already sliding before The Fed, on the heels of OPEC+ pressure, rising crude inventories, and Iran talks headlines, but the taper and rate-hike-odds shift sent WTI briefly back below $80...

Finally, with perfect irony, on the day The Fed announces its Taper, stocks are at record highs and market "greed" soared near recent record highs...

Will The Fed's taper tamp down the rational exuberance?

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