Soaring CPI Sparks Fed ‘Policy Error’ Panic Across Markets

The yield curve – short and long – is screaming ‘policy error imminent’ as its aggressive anti-inflation fight will inevitably trigger anything but a soft landing and spark a new round of easing/QE that will once and for all crush the central planners’ credibility.

2s30s has now inverted…

Source: Bloomberg

2s10s is the most inverted since 2000…

Source: Bloomberg

STIRs are inferring a greater than 66% chance of a 100bps hike in July (and September almost a lock for a further 75bps hike)…

Source: Bloomberg

While rate-hike expectations for 2022 are rising, the subsequent rate-cut expectations – as The Fed bails us out of a deep recession – are soaring too (with over 100bps of cuts now priced in beginning in Feb 2023)…

Source: Bloomberg

And Q1 is pricing in a full rate-cut…

Source: Bloomberg

Overall, the market is now pricing in a more aggressive hiking cycle than The Fed’s Dots in 2022, and then a dramatically more dovish Fed in 2023 and 2024…

Source: Bloomberg

2s10s -22bps. pic.twitter.com/b0o9joN9yp

— zerohedge (@zerohedge) July 13, 2022

The bond market was very volatile today with a big spike in yields at the CPI print which rapidly rolled over, leaving only the 2Y yield higher on the day (+9bps) and the long-end drastically lower at the long-end (30Y -9bps, down 14bps from the highs)

Source: Bloomberg

And before we leave bond-land, here’s what the yield “curve” looks like now…

Source: Bloomberg

The euro tumbled to parity against the dollar for the first time in 20 years after the CPI print…

Source: Bloomberg

Stocks plunged on the CPI print (hawkish) then bounced on a WSJ report suggesting a 100bps hike is off the table, but when Fed’s Bostic put it squarely back on the table, things rolled over again and stocks went negative.  This is the 4th straight down-day for the Dow and S&P 500…

And if you think stocks are pricing in what STIRs are – think again. Stocks are still bipolar and squeeze driven as well as hoping beyond hope that the subsequent easing after The Fed pushes the economy into recession will save the day… The issue is whether they can withstand the path-dependent trajectory required to get that easing…

Source: Bloomberg

Crypto also had a chaotic day, ending just marginally higher after puking on the CPI print…

Source: Bloomberg

Oil ended the day marginally higher, despite demand destruction signals from the inventory data and a growth-threatening hawkish reaction to the CPI print…

Gold managed gains, rebounding strongly after puking on the CPI print…

US and EU NatGas prices ripped higher today (EU now triple the cost of US)…

Source: Bloomberg

The good news continues with US gasoline prices continuing to fall, but they remain up dramatically YoY…

Source: Bloomberg

Oh and President Biden spewed the same shit against gas retailers!!!

It’s time for gas retailers to pass the cost declines they’re feeling in the market onto American families at the pump. pic.twitter.com/ZvprQzWYBY

— President Biden (@POTUS) July 13, 2022

…and as we noted earlier, the US price is drastically higher than that in Mexico…

Source: Bloomberg

Finally, a Chicago Fed survey on the outlook for the US economy decreased to minus 60 in June, the worst reading since the survey began and worse than at the depths of the COVID lockdowns in 2020…

Source: Bloomberg

Do you really think that will lead to a ‘soft landing’?