Banks Dump, Bitcoin Pumps, Bullion Slumps As Inflation-Recession Battle Builds

PPI followed CPI’s lead and smashed expectations to the upside – panic!! Stocks tanked, long-end bond yields tumbled, rate-hike odds jumped higher – basically all the worst parts of the bible…

So, The Fed ‘released the Waller’ to save the world.

Did Waller just hint at where the “Fed Put” is?

Waller started off sounding hawkish – signaling base case 75bps and could be more…

While the June consumer price index report released Wednesday was a “major league disappointment,” Waller stressed that his vote is contingent on additional data due before the July 26-27 Fed policy meeting, citing retail sales and housing.

“With the CPI data in hand, I support another 75 basis-point increase,” Waller said Thursday in remarks to a Global Interdependence Center event in Victor, Idaho.

“If that data come in materially stronger than expected it would make me lean towards a larger hike at the July meeting to the extent it shows demand is not slowing down fast enough to get inflation down,” said Waller.

BUT… within an hour, during the Q&A of his address, Waller walked the stock market back from the edge by taking a 100bps hike off the table.

Waller said a 75 basis-point hike is “huge” and that if the Fed opts for such a move, it wouldn’t mean officials are failing to confront price pressures.

“Don’t say because you are not doing a 100 you are not doing your job,” he said, adding “you don’t want to really overdo the rate hikes.”

Did Bullard just signal The Fed’s pivot?

Bullard suddenly suggests ‘neutral’ rate is at 2.25% (basically done after a July 75bps hike).

“So far, we’ve framed this mostly as 50 versus 75 at this meeting. I think 75 has a lot of virtue to it” because it brings the benchmark rate to roughly the neutral level as seen by policy makers, Bullard was quoted as saying in a Nikkei interview on Wednesday that was published Thursday. “As of today, I would advocate 75 basis points again at the next meeting.”

“If we made this move at this meeting, that would get us all the way till the long run neutral value. And obviously we’ve got more steps to take in meetings ahead, but we can assess as we go through the rest of this year,” he said in an interview with Nikkei.

“I’ve said it would be a good idea to get to 3.5% this year, and that would put downward pressure on inflation. A lot of that’s already been priced into the markets, so we’ve already got the market pricing we need,” Bullard said.

All in all, The FedSpeak managed to talk down the odds of a 100bps hike in July from 75% to around 30% (and we suspect if tomorrow’s retail sales print disappoints, the odds will drop to 0%)…

Source: Bloomberg

However, what many desks were chatting about as the driver of today’s mass psychology reversal in stocks was comments by BofA’s top Rates strategist, and former NY Fed analyst, Marc Cabana who warned that The Fed will be forced to end GT much sooner than expected.

And that sent stocks soaring off their lows with Nasdaq managing to get back into the green.

Energy and Financials were the ugliest horse in the glue factory today with Tech outperforming…

Source: Bloomberg

The weakness in Financials was led by JPMorgan after ugly earnings. Notably Morgan Stanley managed to scramble back to unchanged after a relatively ugly earnings print also…

Source: Bloomberg

Lots of chaos in Europe today thanks to Italian politics as EURUSD oscillated around parity (rallying after the president rejected Draghi’s resignation)…

Source: Bloomberg

And FTSEMIB futures rebounded after Draghi was not allowed to quit…

Source: Bloomberg

Treasuries were mixed today with the belly underperforming and the wings actually rallying (2y and 30Y -2bps), but late in the day, as stocks extended gains, bonds also rallied and yields fell across the curve. NOTE bonds were bid after JPM’s results and then yields spiked on the PPI print, before sinking back…

Source: Bloomberg

The Bloomberg Dollar Index (broader weighting than DXY) broke above its COVID highs

Source: Bloomberg

The DXY Dollar Index surged to its highest since June 2002…

Source: Bloomberg

The Thai Baht was trampled to its lowest since 2006

Source: Bloomberg

Cryptos rallied on the apparent Fed Pivot with Bitcoin back above $20,500…

Source: Bloomberg

…and Ethereum surged back above $1200…

Source: Bloomberg

One thing we noted over the last 24-36 hours is the decoupling of crypto and Nasdaq (though the rip higher today was very synchronous)…

Source: Bloomberg

Oil crashed back down below its 200DMA and Brent to levels below those when Putin invaded Ukraine…

Source: Bloomberg

….then ripped higher as stocks surged on hints at a Fed pause and closed higher on the day (which they will only do if the f**king economy is in a nasty recession)…

Notably, the physical market continues to signal tightness compared to futures…

Source: Bloomberg

Gold plunged back below $1700 after the PPI print but bounced back above (still ending down 1.5% on the day)…

Finally, with regard to Waller’s jawboning of the market getting ahead of The Fed’s hawkishness in July, we are reminded of when Fed’s Bostic hinted at a ‘September pause’, sending rate-hike odds notably lower… briefly….

Source: Bloomberg

Only for all of that to be unwound and dramatically more (as Bostic walked back his own comments and committed to full hawk-tard once again).