We have something to get off our chest that it appears no reporters had the balls to ask Jay Powell during the presser:
Based on the taper/dotplot/SEPs, how exactly will tighter financial conditions lead to faster GDP growth, higher inflation and lower unemployment…?
Money markets now see a 90% chance of an April rate hike…
Source: Bloomberg
Additionally, the market is pricing in a regime-shift back to rate-cuts in late 2024, early 2025…
Source: Bloomberg
Powell did the usual ‘walk-back’ of the statement’s hawkishness in the press conference (throwing out every caveat imaginable)…
The usual good cop/bad cop combo – hawkish statement, means now Powell will be dovish during the presser
— zerohedge (@zerohedge) December 15, 2021
…but the dollar was the arbiter of truth and shifted rapidly from stronger to weaker as he spoke…
Source: Bloomberg
This shift, along with the ‘inversion of the forward curve, signal The Fed will make a policy mistake and be forced to reverse its rate-hiking path sooner than later. And, we wonder out loud, if that is what prompted the gains in the stock market against this uber-hawkish statement. Nasdaq literally exploded higher, ending up a stunning 2.3%, while The Dow lagged, up only 1% on the day…
While cyclicals outperformed from 1430ET (FOMC), Defensives outperformed easily on the day…
Source: Bloomberg
As we tweeted:
Market Rate Expectations Below Every Dot in 2024
Traders basically getting ready for the next easing cycle.
— zerohedge (@zerohedge) December 15, 2021
Graphically it looks like this – The Fed is now ‘more hawkish’ across the entire curve than the market…
Source: Bloomberg
The entire yield curve rose around 2-3bps on the day…
Source: Bloomberg
With the yield curve itself dramatically flattening then retracing…
Source: Bloomberg
Cryptos stormed higher after Powell said “cryptos are not a threat to financial stability”…
POWELL: Crypto isn’t a threat to financial stability pic.twitter.com/5LgctVs2Bv
— Blockworks (@Blockworks_) December 15, 2021
And Bitcoin jumped up above $49k on it…
Source: Bloomberg
And Ethereum surged up to $4100
Source: Bloomberg
Commodities lifted on The Fed and accelerated as the dollar dived.
WTI ramped up above $71.50…
Gold puked as it does on Fed day but the dollar’s drop on policy-error fears sent gold spiking higher…
Finally, is this the analog to trump all analogs – comparing Cathie Wood’s ARK Innovation ETF to the late-90s/early-00s Nasdaq 100…“You Are Here”…
Don’t forget, big OpEx on Friday with lots of gamma to ‘unclench’.
The other interesting scenario here is that the market catches a bid from Powell’s appearance. Typically the Fed tries to placate markets, and implied volatility (“event volatility”) subsides.
In this case the vanna/charm flows may kick in pre-OPEX, leading to a sharp rally into Friday (after 4 straight down days for Goldman’s ‘most shorted’ stocks).
This scenario could be the trickier one, as a short cover relief rally could lose steam post OPEX.
Time having second thoughts pic.twitter.com/suRlUpSzJC
— ForexLive (@ForexLive) December 15, 2021
