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‘More Work To Do’
Market participants weren't amused with the hottest read on US core inflation in 40 years, even as markets themselves oscillated wildly during a volatile session on Wall Street.
The initial reaction to another disconcerting CPI report out of the world's largest economy was predictable. Risk assets cringed, the dollar firmed and Treasurys bear flattened sharply, before what looked like systematic flows and programmatic buying of some kind triggered a manic reversal, alongside reports that Liz Tr
The dynamics of this market are truly something to marvel at. If I have learned one thing from your writing, it’s that systematic flows can cause the market to behave in strange ways as exemplified by the huge rebound we saw off this morning’s lows. All I can think is that folks had shorted the indexes ahead of the CPI print and when it came through hotter than expected, everyone rushed to cover their positions. But what do I know. According to your post earlier this week, nothing.
The Truss news is what turned the tide today.
This, from BBG… “At one point, the index had given back 50% of its post-pandemic rally, triggering programmed buying. A wave of put options bought to protect against such a rout moved into the money, and as profits were booked, that prompted dealers to buy stocks to remain market neutral.”
… is plausible, but any explanation that doesn’t include UK rates and sterling is incomplete.
Short covering was evident by 9:50 am, I closed my puts and entered new ones by market close, I suspect we’ll revisit today’s lows soon, may be even this Friday depending on how the UK standoff evolves.