Aaaand It’s Gone…

No-show from The Bank of England this morning to ‘save the world’ and some ‘good news’ from US labor markets – not at all what The Fed wants to see – and the result is a plunge-gasm in US equity markets, erasing all of yesterday’s meltup/short-squeeze gains…

…as rate-hike expectations are on the rise again (Fed must try harder to hammer the jobs market).

Elsewhere things are relatively quiet: Bonds are only up around 3-5bps in yield, the dollar is flat, and gold is down only modestly.

Why are stonks down? Markets want Fed to pull a BOE next.

— zerohedge (@zerohedge) September 29, 2022

Academy Securities’ Peter Tchir notes that the market weakness was driven by a slew of data overnight (and this morning):

German inflation was high. 

Really? A country that is preparing for rationing energy this winter is experiencing inflation? The “signal” in that information, for U.S. or even global rates seems low.

The UK Prime Minister spoke and neither the gilts nor the pound liked her message.

The pound is already higher and gilts off the lows, indicating how much is already priced in. gained ground, highlighting how much was already priced in.

Why do we all care so much about England? According to World Bank GDP data, the UK was $3.2 billion in 2021. The 6th largest economy at 3.3% of global GDP. The US at 24%, China at 18.5% dwarf the UK. Yet people fixate on the UK and Bank of England (and the Royals) with a disproportionate amount of energy. Italy at 2.1% has a new leader that barely anyone is discussing. There are literally no searches for the Bank of Canada, despite being 2.1% of global GDP and being the U.S.’s largest trading partner with $664 billion of total trade in 2021 compared to the UK’s $117 billion. Mexico, will barely over 1% of GDP represents almost the same amount of trade as Canada, yet markets aren’t wringing their hands about Mexico policy and I’m willing to bet that fewer than 10% know who is in charge of the bank of Mexico! Since the pound averaged 1.37 in 2021, and not all Brexit issues had kicked in, their economy is even less important than it was. The gilt market at $1.78 trillion is large, but again, the awe with which we watch it, seems disproportionately large.

Jobless claims were strong.

That currently qualifies as bad news (please see The Good, The Bad and the GoodBad). Will that strength show up in next week’s job data? That would weigh on markets.

PCE Data.

The Core PCE rose at a 4.7% rate. That was revised up from 4.4%. You could take that as a sign that the PCE data will be higher tomorrow than expected, but the “comps” will be easier now.

Much of this falls under the same category as having yet another market sell-off on the exact same Fed statements, but some (like the UK) seems to be an over exaggeration of the importance of some news. Understandable in a very nervous, very illiquid market.

Company news and signs of a recession worry me far more than most of what is driving the market today, and I’m still stuck in the mode that a lot of negativity is priced in, and we might just get a glimmer of a “soft landing” that creates the next decent bear market rally. It won’t last as the soft landing will be an illusion that likely takes us to full on “risk-off” mode, but we aren’t there yet and I think as people really digest the data and how we are reacting to it, cooler heads may prevail.

All of this in an environment where small positioning and option usage is the best I can come up with (no pound the table, all-in, positioning).