‘You’re Going The Wrong Way!’

I’m not sure I would have done that if I were you.

Remember that scene, in Planes, Trains, and Automobiles, where Steve Martin and John Candy end up driving down the wrong side of the highway and the couple in car tries to warn them that they’re “going the wrong way?”

 

If you were buying stocks on Wednesday after that CPI print, you’re John Candy. 10Y yields are the couple in the other car.

“Oh, they’re drunk. How would they know where we’re going?”

The knee-jerk reaction to the blowout CPI print was predictable and probably “correct” where “correct” means that if the bond selloff and the looming fear that an inflation shock is about to bring forward the end of the cycle and force the Fed’s hand, well then it’s time to get the hell out of dodge. But again, “how do bonds know where you’re going?”

Stocks surged on the day. This was the 9th SPX 1% move of 2018 – as far as I can tell, that’s more than all of 2017:

Fourth straight day of gains for the benchmarks.

Yeah. I sincerely hope you people know what you’re doing.

Because before the cash open, folks were singing a decidedly different tune. Have a look at this:

And here are your Dow futures on a hot CPI:

If you’re worried about the bond selloff, you should stay worried, because Treasurys plunged. Summarizing (via Bloomberg): By close, 5Y and 7Y yields were higher by 10bp, while 10Y ended 8.5bp cheaper after topping at 2.917%; belly-led weakness pushed 5s30s flatter by 3.6bp, reaching as low as 51.1bp during peak morning sell-off.”

But apparently no one is worried in stock land. Put prices diving:

SPX put prices in the ~2650 area absolutely collapsing pic.twitter.com/ieuNakX5Id

— Luke Kawa (@LJKawa) February 14, 2018

As noted first thing this morning, overnight was all about the yen as USDJPY broke below the 2017 lows seemingly presaging more yen strength ahead. “The yen, which no-one is focusing on, makes me more nervous. Huge speculative yen shorts have also been accumulated (v the $), at a technically important moment,” Albert Edwards wrote on Wednesday, adding that “the yen positioning makes it far more likely the dollar will fall below Y107.90, and the yen could quickly surge once this key trendline is decisively broken.”

Well consider that already in the books. The dollar tried to rally after the CPI report but ultimately that did not work out, suggesting that there are underlying problems here that cannot be “fixed” with an above-consensus read on inflation and rising yields.

Have a look at this:

pic.twitter.com/Xrsa9P12Ut

— Heisenberg Report (@heisenbergrpt) February 14, 2018

And remember, the yen-Japanese equity link is starting to reestablish itself:

The dollar was down versus all of its G-10 peers after the CPI rally was faded “big league”. “Traders were hard-pressed to explain the sudden downdraft in the dollar, which came around 10:15am ET, as U.S. stocks reversed steep losses shortly after FX option-expiry and left the USD plumbing fresh session lows,” Bloomberg writes, recalling the action.

Big day for crude after the EIA report showed a smaller than expected build (Cushing supplies fell by the most in four weeks). 

Gold surged:

As far as Europe goes, let’s play “spot the U.S. CPI print”:

Emerging market equities rose again. The EM ETF is up a massive 8% since the lows on Friday (emerging market shares had fallen into a correction last week):

The CBOE EM ETF Volatility Index plunged the most in six months.

As noted first thing this morning, Hong Kong shares rallied sharply on Wednesday in a continuation of the reprieve from last week, which was the worst stretch since the crisis:

Finally, for your moment of zen, here is Mick Mulvanely explaining how much Trump’s military parade will cost under different “lengths” and conditions….

NEW: OMB Director Mulvaney says President Trump's military parade would likely cost between $10 million and $30 million. pic.twitter.com/DnHTHjjMTG

— NBC News (@NBCNews) February 14, 2018