Trader Positioning Ahead Of Powell Hints At Another Delta Squeeze

Stocks closed lower, with JPM writing in its EOD recap that ahead of Powell's speech tomorrow at 12pm Tuesday at the Economic Club of Washington, markets turned to a risk-off tone amid expectations of a hawkish speech from Powell as the Fed chair is expected to offset some of the dovish euphoria from last week's FOMC presser where the Fed chair failed or refused to push back on comments about easing financial conditions, while using the word "disinflation" some thirteen times, hinting that the Fed is now on the lookout for lower prices.

As an aside, some are some thoughts from JPM's Michael Feroli on what may have prompted Powell to omit the critical financial conditions language which sparked last week's market meltup:

The statement’s inflation language was softened some to note that inflation had “eased somewhat.” In his prepared remarks at the press conference Powell repeated verbatim many of the things he said at the December press conference, though he didn’t repeat the two sentences about financial conditions. This theme, however, was resurrected in the press conference Q&A. When asked about the recent easing in financial conditions, Powell didn’t seem too concerned. In fact, he didn’t think conditions changed much over the past six weeks and he continues to believe conditions have “tightened significantly” over the past year. In a similar vein, he wasn’t concerned about the divergence between the dots and the market pricing of the Fed, saying it reflected a “difference in perspective,” and most importantly that the market has a more benign inflation outlook than the Fed.

Perhaps Powell was in no mood to fight the market because he wasn’t convinced the market’s inflation outlook is wrong. He favorably mentioned the ongoing or expected “disinflation” 10 times in the press conference. While Powell’s assessment of financial conditions and market pricing of the Fed were dovish, his remarks about the near-term path for policy were more balanced. He stood by the statement’s language that ongoing hikes will be appropriate. He was also concerned about the risk of doing too little, and he doesn’t want to find out in six to 12 months that they were “close but didn’t get the job done.” Whereas the risk of overtightening seemed less worrisome—they “have tools that would work on that.” However, he did tease the idea that the FOMC could go every other meeting, though it’s not something they’re exploring now. He also hinted that the minutes would relate the Committee’s discussion about the conditions for pausing.