Is stagflation rearing its ugly head again – hotter than expected PPI today mixed with disappointingly weak housing data and a collapse in Philly Fed while jobless number remain around one-year highs. Inflation swaps have turned notably higher in recent days (after weeks of disinflationary declines) while Industrial data has serially disappointed…
Source: Bloomberg
Cleveland Fed’s Mester (a well known hawk) dropped the hammer on the market after a slew of macro data this morning, saying that she saw a compelling case to hike by 50bps at the last meeting…
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*MESTER: LATEST CPI DATA IS ‘CAUTIONARY TALE’ FOR POLICYMAKERS, GOODS PRICE DISINFLATION SEEMS TO BE SLOWING
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*MESTER: GOOD TO SEE FINANCIAL CONDITIONS TIGHTENING
After Mester had clubbed stocks lower, shorts were squeezed and stocks ramped higher…
Source: Bloomberg
But, later in the day – after stocks had melted up to unchanged – another Fed hawk (St.Louis’ Jim Bullard) dropped a headline bomb, echoing Mester:
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*BULLARD: MORE RATE HIKES NEEDED TO LOCK IN DISINFLATION
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*BULLARD: FED RISKS REPLAY OF 1970S IF CAN’T LOWER INF. SOON
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*BULLARD SAYS HE WOULDN’T RULE OUT SUPPORTING 50-BP MARCH HIKE
Nothing really new from him, but The Fed’s message remains clear and that wiped all the lipstick off this market pig with Nasdaq the big laggard but all the majors closed at the lows of the day…
The S&P is back to unch on the week (Dow red)…
Tech stocks continue to lead the charge in February (and Energy lag)…
Source: Bloomberg
But, most notably Goldman’s Prime desk reports that over the past 12 trading days, net buying in US Tech stocks was mainly driven by short covers and to a much lesser extent long buys that made up ~80% and 20% of the notional net buying, respectively.
In cumulative notional terms, the short covering in US Tech stocks from Jan 31st to Feb 15th is the second largest in magnitude over any 12-day period in the past decade and ranks in the 99.5th percentile (only the period from late Jan to early Feb ’21 saw more intense short covering by hedge funds amid the meme frenzy).
Which means that this rally is likely not over since this is more ‘max pain’ covering than it is funds chasing/reloading exposures.
TSLA had quite a tumble (initially on the recall then on the broad market)…
Treasury yields ended the day higher across the curve with the short-end outperforming (2Y +0.5bps, 30Y +6.5bps) as Bullard’s late comments sent the entire curve higher. On the week we note an interesting pattern to the buying and selling by region…
Source: Bloomberg
The dollar ended the day higher after the late-day bounce…
Source: Bloomberg
Bitcoin surged above $25,000 today, its highest since June 2022…
Source: Bloomberg
Volatile day in gold saw the precious metal end higher, back above $1850…
Oil prices fell on the day with WTI unable to hold above $79…
Finally, we note that March rate-hike odds rose modestly today (after Bullard and Mester) with a 13% chance of 50bps hike (conditioned on a 100% chance of 25bps hike)…
Source: Bloomberg
But financial conditions have started to tighten once again…
Source: Bloomberg
Will Powell actually care this time?
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