Yield Curve Dis-Inverts As ‘Ummm-flation’ Sparks Surge In Rate-Cut Odds, Ethereum, & MAG7 Stocks

‘Cooler-than-expected’ PPI (along with lower inflation expectations from NYFRB’s survey) trumped ‘hotter-than-expected’ CPI this week and opened the floodgates for traders to bet on The Fed being dovish-er than they expect to be in 2024.

Source: Bloomberg

Will The Fed comply?

The odds of a cut in March have soared above 80% (despite all the FedSpeak jawboning away from that)…

Source: Bloomberg

Expectations for 2024 rate-cuts exploded to new highs at 170bps (now fully pricing in 6 cuts and a 65% odds of a 7th cut)…

Source: Bloomberg

And as rate-cut expectations soar, so the spread between 2Y yields and current Fed Funds nears record highs…

Source: Bloomberg

Of course, as a reminder, the real reason The Fed will be cutting rates is to avoid a banking crisis which looms large in March…

March will be lit:

1. Reverse repo ends
2. BTFP expires
3. Fed cuts (allegedly)
4. QT ends (allegedly)

— zerohedge (@zerohedge) January 8, 2024

…as the pace of liquidation at The Fed’s RRP is accelerating…

Yields tumbled across the entire curve this week,,, except for the long-end (which was unchanged)…

Source: Bloomberg

With 10Y back below 4.00%…

Source: Bloomberg

..and the 2y Yield at its lowest since May ’23 (and the same level as it was in Sept ’22)…

Source: Bloomberg

Sparking a massive bull-steepening in the curve – dis-inverting the 2s30s segment…

Source: Bloomberg

For context, this is the ‘steepest’ and most un-inverted the (2s30s) curve has been since July 2022…

Source: Bloomberg

However, while inflation was on many people’s minds, crypto also dominated the headlines with Gensler dragged kicking-and-screaming across the finish-line of spot bitcoin ETF approval.

Bitcoin ended the week marginally lower (after early week gains evaporated on ‘sell-the-news’ flow)…

Source: Bloomberg

…as Ethereum soared 16% (its best week since January 2023)

Source: Bloomberg

IBIT – the iShares BTC ETF – is err underperforming (to say the least) since the open yesterday…

Source: Bloomberg

Nasdaq surged over 3% on the week (best week since early Nov ’23) while The Dow and Small Caps were unchanged (S&P closed up almost 2% on the week)

Nasdaq’s strength was driven by the ‘Magnificent 7′ stocks’ best week since early Nov ’23…

Source: Bloomberg

Thanks to MAG7, Tech was the best performer on the week as Energy lagged heavily. Financials ended the week lower…

Source: Bloomberg

Microsoft overtook Apple as the world’s most valuable company (as TSLA faded this week)…

Source: Bloomberg

‘Most Shorted’ stocks were down 4% (AGAIN) on the week, erasing more than half of the Fed-driven short-squeeze from December…

Source: Bloomberg

Bank earnings today prompted quite chaotic trading among the big names with most generally disappointing by the close …

Source: Bloomberg

Gold (spot) rallied significantly in the last two days (from below $2020 to above $2060), finding support at the top of December’s FOMC spike…

Source: Bloomberg

Amid tanker attacks by the Houthis and retaliatory missile strikes by US allies, oil prices were lower on the week – of course they fucking were… as the $71-$74 range remains glue, no matter what is going on in the real-world…

Source: Bloomberg

Finally, we note that on both the day that ETFs have been trading, the spot cryptocurrencies themselves have been aggressively sold from the US equity open to the European equity close – at which point selling stops…

Source: Bloomberg

A suddenly tumbling crypto universe would be very convenient for Liz Warren, Gary Gensler, Jamie Dimon, Christine Lagarde, and a whole host of naysayers who were quick to point out Bitcoin’s lack of worth for anything but the enablement of terrorism or child sex-trafficking… and all the worst bits of the bible.

These three words seemed perfect for all that bullshit…

Oh shut up https://t.co/b7cggVqf0q pic.twitter.com/yETRcVuYtR

— zerohedge (@zerohedge) January 11, 2024

Remember to remember MLK on Monday as US markets are closed.