High Note.

And so the holiday-shortened week comes to a close and it delivered everything that could have been reasonably expected of it.

We got the supply deluge from Treasury and that was digested with varying degrees of alacrity depending on the auction and depending on which internal you wanted to zero in on. All in all, it went ok.

The Fed minutes came and went and that delivered more fireworks than some folks were probably expecting. A dovish knee-jerk gave way to the ‘real’ization (get it?) that the still-tenuous outlook for inflation doesn’t trump the Fed’s desire to capitalize off the robust (in the post-crisis sense of the term) economic backdrop to squeeze in as many hikes as possible in order to replenish their counter-cyclical ammo ahead of the next downturn. All eyes now turn to March.

 

Real rates and stocks (lhs is inverted, but Jesus, I hope you would realize that without me saying it):

Any questions?

Nominally speaking:

This week was also defined by stocks’ inability to sustain an intraday rally with gains fading into the close amid waning risk appetite tied to jitters about inflation or, more to the point, jitters about the extent to which the Fed will be predisposed to hiking aggressively in an effort to head off an expected uptick in inflation catalyzed by Trump’s misguided decision to pile fiscal stimulus atop an economy operating at full employment.

That curse was snapped on Friday as Wall Street stormed ahead in the final hour to close the week on a high note:

Overall, stocks were up for the second straight week:

Speaking of Trump, he followed up on his weekend tweet storm with a series of comically ridiculous “suggestions” for how to go about preventing mass shootings. Basically, we’re now going to have Mr. Dirty Harry teaching social studies.

We also got the ECB minutes this week and the market took that generally in stride, probably thanks to what certainly seemed like a dovish lean.

The dollar rose on the week amid a cacophony of debate about exactly what’s going on with the greenback which is caught between reckless fiscal policy and an administration that wants to talk the currency lower on the one hand and rising yields/ a hawkish Fed on the other. Basically, no one seems to know what’s next:

You’ll want to keep watching HY. The ETFs have seen a veritable exodus of late as investors looked like they were going where the liquidity is (i.e. ETFs and CDS indices) to express their view on the space in the wake of this month’s turmoil. In light of that, it’s probably worth watching CDX and Xover versus the VIX and the VStoxx:

€ credit still has a powerful technical behind it as CSPP flows ultimately trickle down to speculative grade, not in the form of actual ECB purchases but rather as the crowding out effect drives private investors down the quality ladder.

Notably, HYG was lower for the week, coming off its best week since early 2016, suggesting that while it weathered the outflows reasonably well, we’re not completely out of the woods yet. Obviously the economic backdrop is still solid and the default environment still benign, so “yes”, there is still a bull case for high yield.

Oil was up for a second week as bullish inventory data conspired with a production halt at El-Feel to buoy prices into the end of the week. Here’s the bigger picture:

China was back from the Lunar New Year holiday and mainland shares rallied hard on Thursday and shook off the Anbang headline on Friday to close the week on a positive note. Going back to before the holiday, the SHCOMP has risen for five straight sessions:

In Hong Kong, the Hang Seng rose for a second week. You’ll recall that the index (one of this year’s big winners headed into the correction), logged its worst week since the crisis earlier this month:

Finally, for your moment of zen, here is Donald Trump explaining how Democrats are “always fighting for the criminal aliens”…

Trump calls undocumented immigrants "criminal aliens" at CPAC and says Democrats are "always fighting for the criminal." pic.twitter.com/feK5aTuxVs

— BuzzFeed News (@BuzzFeedNews) February 23, 2018