Powell Breaks The Market

"Everything was awesome" and then Jay Powell said...

Some years ago, we took away the lesson that the markets were very sensitive to news about the balance sheet, so we thought carefully about how to normalize it and thought to have it on automatic pilot, and use rates to adjust to incoming data. That has been a good decision, I think, I don't see us changing that.... we don't see balance sheet runoff as creating problems"

And everything broke...

Artist's impression...

*  *  *

Overnight futures show hopeful buying - "surely The Fed will deliver and capitulate... for goodness sake, someone has to rescue my FANG portfolio!!??" - But The Fed did not - cutting their rate outlook by a mere one hike, with plenty still seeing 3 hikes ahead in 2019...

The market now expects 18bps of RATE CUTS in 2020!!!

And Futures collapsed...

 

An ugly day...

 

An ugly week so far...

 

And an ugly month...

 

Dow futures fell 910 points from its immediate post-Powell highs... (The Dow took out the Feb lows back to Oct 2017)


 

Banks were battered to their lowest since Nov 2016...

Early gains in credit markets were devastated as HY and IG blew out to new cycle wides...


And high yield bond prices plunged most in 8 months to the lowest since April 2016...


Treasury yields tumbled...


With 10Y below the key 2.80% level...


And the yield curve plunged...

 

The dollar surged back above pre-Payrolls levels...


Offshore yuan tumbled...

 

Cryptos also fell as the dollar gained and stocks slumped...


The spike in the dollar sent commodities lower...


But WTI managed a mechanical rebound holding gains after the fed...

 

Finally, everything is now in the red for 2018 (with Nasdaq Composite down 4%):

This is the market's worst year since 2008, worst quarter since Q4 2008, and worst December since 1931!!

As Scott Minerd warned:

"this market sell-off risks becoming a systemic problem."

Indeed...