Bonds Battered, Stocks Slide As Powell Channels Volcker; Crude Surges

FedSpeak dominated the market action today in stocks and bonds with a very hawkish and tone consistently narrated by first Raphael Bostic, then Tom Barkin…

*BOSTIC SAYS HE’S NOT WEDDED TO ONLY MOVE RATES IN 25 BPS STEPS

*BOSTIC SAYS FED SHOULD GET MOVING `QUICKLY’ ON BALANCE SHEET

*BARKIN: CAN MOVE AT 50 BP CLIP AGAIN TO TAME INFLATION

*BARKIN: WE COULD MOVE FASTER, BUT ALREADY IMPACTING BOND MARKET

Then the Chair ‘dropped the mic’… Powell’s prepared remarks and Q&A confirmed he was open to 50bps hikes (“we may well conclude that we need to move more quickly”) and that The Fed is a long way from an equilibrium balance sheet (suggesting more aggressive QT). This did remind us of his comments in Oct 2018 (“we are a long way from neutral”) that sparked the plunge that forced Powell back into uber-dovish ‘rescue the world’ mode. Of course, the ubiquitous buying-panic in the last few minutes polished the turd on the day. The S&P magically made it back to unch…

The yield curve inverted at numerous points, screaming that The Fed will not make it to their target and thus will commit an error…

Source: Bloomberg

POWELL: TEND TO LOOK AT SHORTER PART OF YIELD CURVE, NOT 2S TO 10S

If you don’t look at it, it’s fine pic.twitter.com/JBgt4hB0qp

— zerohedge (@zerohedge) March 21, 2022

As the more The Fed hikes in the short-term, the more immediate rate-cuts are being priced in soon after…

Source: Bloomberg

Treasuries were unceremoniously dumped across the curve with the short-end underperforming dramatically (2Y, 5Y up almost 20bps on the day)…

Source: Bloomberg

2Y Yields soared back above 2.00% to their highest since May 2019. Today was the second biggest yield jump for 2Y yields since June 2009…

Source: Bloomberg

DoubleLine’s Jeff Gundlach puts the move in context: “The 2 Year US Treasury Yield is up 86 basis points over the past three weeks alone.  If that pace were to continue (which of course is pretty darn unlikely) the 2 Year would top 17% by March 1, 2023.”

Bond traders barely walked away…

🏍👀 HOLY SH*T!!

~ How’s he walked away from that?? pic.twitter.com/K45fS3iOsW

— PiQ  (@PriapusIQ) March 21, 2022

S&P rallied up to its 200DMA and fell back. The Dow fell back below its 50DMA as did Nasdaq while Small Caps managed to hold above the 50DMA…

Oil prices soared today, with (May) WTI back above $110, on fears of EU sanctions on Russian oil (as India buys more) and anxiety caused by Saudis raising threat of escalating Houthi attacks on energy infrastructure…

Crypto was lower with Bitcoin fading back from its Friday spike above $42,000…

Source: Bloomberg

The dollar inched higher on the day…

Source: Bloomberg

And it’s not just Russia that’s in trouble, the cost of insuring against default in emerging-market nations to the highest since the pandemic turmoil of 2020…

Source: Bloomberg

Gold managed gains today after a kneejerk punch lower at the US equity cash open…

Finally, as we recently noted, the current market’s analog with 2018 is still loosely holding and we suspect that path lower is where we end up as investors realize that until further downside is reached, Powell will keep pushing the hawkishness to ’11’…

Source: Bloomberg

And as we noted above – the longer he pushes that angle, the quicker the recession, and the sooner after that rate-cuts arrive. The problem for investors is simple – all the time you are ‘looking thru’ the imminent recession to the rate-cuts (and not selling), you are delaying the inevitable rate-cuts as why would Powell fold on his 50bps-at-a-time trajectory is the market is soaking it all up hopefully (in the face of a real world recession).