- Gold down $8 to $1664
- US 10-year yields up 5 bps to 3.95%
- US 10-year yields up 18 bps to 4.46%
- UK 10-year yields down 13 bps to 4.18%
- WTI crude up $1.78 to $89.05
- GBP leads, JPY lags
Today had it all but don’t expect a clear explanation for the market moves. It was a day reminiscient of 2008 when rip-your-face-off moves would go against the trend.
Certainly, market participants were covering shorts ahead of CPI. The US dollar was down and US equity futures were strong. Some of that was on a mysterious rally in the gilt market that started with rumors of a Truss U-turn. It could also be symptomatic of gilt market participants getting a handle on the LDI pension problems and deciding it will be ok.
In any case, the main event was CPI and everyone was strapped in. The numbers were hot on headline and core; the market reaction was swift and precisely what you would expect: The dollar soared and equities crumbled. That mode continued through the equity open but — tellingly — the dollar was failing to make new highs.
From there some talk about Russian negotiations crept in and Timiraos kept 75 bps in November as the baseline. Some economists also dug into shelter inflation and made the case that it’s so laggy to be immaterial to the current outlook, especialy with house prices now falling.
Add all that up and …. you still don’t have nearly enough to explian the magnitude of the 5% reversal in stocks and total reversal (and more) in the dollar. A short squeeze makes sense, pricing in peak inflation or cash on the sidelines. Certainly the mood was extremely bearish with JPM predicting a 5% stock market decline on the kind of print we got.
Later in the day a bid found its way into bonds (despite a poor auction) and that added another leg to the move, though that one faded.
Into Asia-Pacific trade all eyes will be on USD/JPY, which hit 147.67 before falling back 20 pips. There was a brief spike lower in the pair that looked like intervention or a fat finger but it lasted only minutes. A BOJ pivot would the ultimate rug-pull on the bond market and with inflation so high everywhere, they’re fighting a tough battle.