The US CPI data today was another shocker as the YoY rate moved from 7% last month to 7.5% this month. That topped the 7.3% estimate. The ex food and energy core measure also was higher than expected at 6.0% (est 5.9%). That was up from 5.5% last month. The year on year gain was another 4 decade high.
Diane Swonk in her CPI notes said that “The only thing that looks a good deal is ice cream”.
BTW Ice cream prices did fall -0.6% on the month, but it wasn’t the only winner (it was more to make a point).
- Men’s pants and shorts fell -5.1%,
- Tomatoes fell -3.0%,
- Potatoes fell -2.9%, and
- Car and truck rentals fell -7.0%.
On the topside,
- Fuel oil rose 9.5%
- Women’s outerwear rose 6.5%
- Infants and toddlers apparel rose 4.2%
- Electricity rose 4.2%
- Canned fruit rose 3.9%
PS. Ice cream still rose 1.1% for the year, but men’s pants and shorts did decline -0.8%.
The initial reaction saw the dollar move higher, yields move higher, stocks move lower, crude oil move lower, and even bitcoin moved lower.
However, after the initial reaction started to fade, so did the fear of future inflation. Traders started to think “This HAS to be it. Things can only get better. Right?” Yes, the odds of a 50 basis point hike did move up toward the 50% level in March, but maybe that was a good thing.
So
- stocks started to move higher with the Dow, S&P and Nasdaq all trading back in the black.
- Yields moved off highs, with the two year stalling just under 1.5%, and the 10 year just under 2%.
- Crude oil moved back to the upside and erased all the losses and traded higher on the day.
- Bitcoin snapped back higher as well and traded to a new session high.
It was a fast break in the other direction as shorts (or longs) got squeezed.
Just when things were looking pretty good, the Fed’s Bullard, a voting member in a Bloomberg interview, got on his soap box, and hit the panic button saying:
- I am in favor of 100 basis points before July
- I am in favor of 50 basis points in March (but will defer to Powell)
- I am in favor of quantitative tightening, the sooner the better.
- I am in even favor of acting between meetings (heck, the next meeting is not until March 16, and everyone knows its at least 25 basis points.
Moreover, it does seem somewhat weird that the Fed today continue to buy 3.25B of 7 to 10 year bonds as part of their QE program, a day after the treasury sold $30B of 10 year notes and ahead of the sale of $20B of 30 year bonds.
I don’t know it is right to raise rates as fast as a bat at of hell, but the market is doing the pricing of the hikes, so get on with it. There is no surprise.
Anyway…
US stocks closing sharply lower with the
- Dow industrial average -526.47 points or -1.47%.
- S&P index -83.12 points or -1.81% at 4504.07
- NASDAQ index -304.72 points or -2.10% at 14185.65
- Russell 2000 down -32.33 points or -1.55% at 20551.16
In the US debt market, the two year yield surged 25.5 basis points. The 30 year was up nearly 10 basis points as well and the two – 10 year spread tumble to 44.6 basic point from around 58 basis points at the close yesterday.
Looking at the strongest weakest currencies, the snapshot near the end of day showing the GBP is the strongest and the JPY is the weakest. The USD is stronger with gains vs all the major currencies with the exception of the GBP (the USD is near unchanged vs the EUR).
Some technical levels to watch in the new day for the major currency pairs:
- EURUSD. The EURUSD is trading right around its 100 day moving average at 1.1416after trading as high as 1.1494 and as low as 1.1374. The 100 day moving average will be a barometer for the buyers and sellers in the new trading day. Stay above is more bullish. Will below should be more bearish
- GBPUSD. The GBPUSD is trading right around its 100 hour moving average at 1.3543 and its 200 hour moving average 1.3538. The current price is trading at 1.3543. Like the 100 day moving average for the EURUSD, the 100/200 hour moving average will be the barometer for the buyers and sellers in the new trading day
- USDJPY: The USDJPY moved up to test the January 4 high at 116.347 and stalled right near that level. The price decline did stay above the January 28 low at 115.671, and the price has rallied into the end of day and trades at 116.087. In the new day if the price can get above the 2022 high, it will be trading at the highest level since early 2017 (five year highs).before the high price watch the 116.178 for clues. Get above (the current price is trading at 116.07), and a run toward the highs will be eyed.
Bullard hit the panic button and so did the markets in what was a wild ride for all.