Yesterday was a day of reversal led originally by fixed income, where a retrace of Tuesday’s post-CPI bear-flattening accelerated into a larger rally on the back of a geopolitical risk-off move (Russia’s new nuclear capabilities in space) and benign economic data. US PPI revisions eased down to -0.2% on headline and -0.1% on core, leaving the annualized rate at 1% for headline and 1.8% on core, a welcome relief after yesterday’s CPI disappointment. Furthermore, a big miss in UK-CPI (-0.6% MoM vs -0.3% MoM expected), BoE’s Bailey comments that “falling inflation will feed into pay bargaining” and exceptionally strong demand to new fixed income supply (2.27x bid-to-cover on 30yr Germany paper, $85B in demand for $13B of Bristol Myers’ 9-part IG deal) added fuel to the bond rally.

Additionally, Fed’s Goolsbee delivered a surprisingly direct and dovish statement that the market should “not get amped up on one month of CPI”, and that “one month of data is not MONTHS”. Moreover, he stated that the Fed’s inflation target is based on PCE rather than CPI, and that there has been “six to seven months in a row where hte flow rate of inflation has been approaching the target”. This explicit dovishness is somewhat in contrast to the close door meeting between Powell and the lawmakers on Tuesday, where Powell stated that wage growth has been above inflation for lower-income workers, and that is “now increasingly true for most income earners”. Furthermore, in response to the CPI surprise, Powell apparently reiterated that inflation data was “consistent with what they had been anticipating,” and that the Fed would look to the upcoming PCE report to give the Fed “more intel”, while refusing to share any hints on when the Fed would cut rates.

Equities also recovered around 60–70% of their losses from yesterday, boosted by continued stock buyback announcements after a quiet Q4. Recent buyback announcements include the likes of Las Vegas Sands, Ford, GM, RTX, Airbnb, and of course Uber and Meta. Uber was the latest company to announce an inaugural $7bln share buyback plan after reporting its 1st full year of operating profit, while Meta had earlier announced that it plans to buyback and additional $50bln in shares with its first ever quarterly dividend.

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