Yesterday the market was busy adjusting positions ahead of the CPI release, with Bloomberg reporting a record SOFR futures block trade at the NY open followed by higher prices/lower yields, suggesting buying money in the trade, while the 2-year Treasury yield held steady at the key 4.75-4.80% and has yet to break further.
At the same time, White House economic adviser Brainard said in an interview with CNBC that the government still "expects inflation to continue to progress steadily in the coming months." Some people believe that she already knows the data results in advance, so traders interpret this as the upcoming inflation data may be close to market expectations, or just slightly higher.
At the same time, large asset management company State Street predicts that the earliest rate cut will be 50 basis points in June. The market currently predicts that the possibility of a rate cut in June is still close to 50-50. State Street's forecast appears to be more radical, and is in stark contrast to Apollo's view that the Fed will not even cut interest rates this year. It can be said that there is a considerable divergence in the market's views on the Fed.
The stock market was on a roller coaster ride, with the SPX falling more than 1% from peak to trough, causing traders to wonder if anyone had been notified of today’s CPI data results in advance, before prices slowly recovered and accelerated into the close, with the SPX once again holding above its 200-day moving average as traders positioned themselves for the inflation data release.
Prices across many asset classes are currently trading around important technical levels, with the SPX hovering and holding its 200-day moving average, 2-year yields holding steady around this year’s highs around 4.80%, and the Bank of Japan’s recent reaffirmation of hawkish comments (UEDA: (hoping to eventually reduce Japanese government bond holdings), USD/JPY also held near two-year highs around 152. While we have no particular view on the CPI data, we believe that traders should be fully hedged by now, and it is rare for multiple asset classes to break through important technical levels at the same time, so we are inclined to believe that the data results will be close enough to market forecasts. Allowing the asset to maintain its current trend. Let’s see what the market looks like in 12 hours, good luck to you all!
