Banks & Black Gold Bounce As Bonds & Bullion Breakdown Ahead Of Fed

Yellen says the economy is strong enough to withstand a rate hike, and everyone believes her?

A poor Philly Fed Services print was countered by rising home sales data, thanks to a short drop in mortgage rates. However, risk appetites continued growing today with stocks and bonds up (in price) ahead Powell's big day tomorrow. Naturally.

Yellen stated that the US financial system is "all good."

We'll be sorry if you don't believe her...

First Republic's shouting volume was more than 50% at the peak today (which has some technical significance).

Today, Regional Banks saw a 5% increase in activity, surpassing the upper limit of the most recent range...

Most importantly,

Today's rate-hike odds are astronomical

With a 25bps increase tomorrow, it's now priced at an 80% plus chance...

Source: Bloomberg

The wild ride that was Fed Fund futures has been leading up to the March meeting was quite remarkable.

With 77.5 bps between implied high rate and low rate

These were the only months that saw such extreme volatility in Fed Fund futures since 1994.

January and September 2001, January and Oct of 2008, and March 2020.


The trend in hawkish trading was significant

The STIRs market was unchanged. The terminal rate rose from here to +36bps, but perhaps most important is the shift in December from -110bps (below the current rate) to -20bps within the last 24 hours. This erases 3 25bps cuts by the year-end )...

Source: Bloomberg

Today's jump in Treasury yields was extended by yesterday's bounce. The short-end performed poorly with 2Y +20bps and 30Y +6bps respectively. The 2Y Yields are up 34bps over Friday (30Y +10bps), however, it is the magnitude of the swings which continues to be confusing (

2Y up 55bps compared to yesterday's lows

It is interesting to note that

The European session saw the bulk of the selling again...

Source: Bloomberg

Chris Hussey, Goldman's Goldman Securities Analyst, notes that yields on 2-year Notes have risen 24bp to 4.155% - quite a remarkable increase.

Reflecting the ease in financial tensions

However, the increase in yields may also indicate that

Markets expect that the disruption to the economy we've seen in the last 2 weeks will not cause enough to slow growth.

To suppress inflation.

Source: Bloomberg

German 2Y yields rose 26bps, the largest jump since 2008 and 52bps higher than yesterday's lows.

Source: Bloomberg

Spreads at Deutsche Bank and UBS were both reduced by UBS... but they are still high on the credit side.

Source: Bloomberg

Today saw rallies in all the major US equity markets, led by Small Caps (Dow lagged, but was still green). We noticed that a lot of buying occurred during the European session, which stalled just after the US cash close.

It felt like a classic squeeze day, with stocks that were'most shorted’ up nearly 5%...

Source: Bloomberg

Today, the S&P 500 rallied perfectly to its 50DMA.

Positive delta flow from 0DTE traders helped to speed up the afternoon ramp to 50DMA

VIX was today clubbed like a baby Seal, bacxk under 22...

Dollar fell to its lowest level in one month for the fourth day in succession (8th consecutive day of decline in the last 9 days).

Source: Bloomberg

Bitcoin has managed to reclaim $28,000

Source: Bloomberg

Ethereum has risen above $1800 again today...

Source: Bloomberg

Oil prices rebounded to the top-end of their current range, with WTI testing at $70 before tonight's API print...

Today, gold fell further and is now back below $1950...

Finally, although the Bond rate volatility has slowed slightly, it remains extremely uncertain about Treasuries.

Source: Bloomberg

Powell's statements tomorrow will either further reduce the tensions or inflame fears.