Job Gains & Powell’s Pains Demolish Dovish-Dreams, Spark Market Turmoil This Week

With a ‘malarkey’ of Fed Speakers all singing from the same hymn sheet – no pivot, we’re battling inflation, don’t expect rate-cuts next year – this morning’s 6-standard-deviation beat in payrolls really stole the jam out of the exuberant donut the market had been hoping for as ‘good news’ was definitely ‘bad news’ from hoping for a dovish Fed to return imminently. The Hawkmen (and women and cisgender types) were back this week…

Rate-hike expectations soared this week (interesting subsequent rate-cut expectations also rose)…

Source: Bloomberg

With the odds of a 75bps hike in September spiking to 80% (from 25% earlier in the week), and the market is also pricing in positive odds of a hike for Dec and Feb…

Source: Bloomberg

Interestingly, today saw the market start pricing in a risk of an inter-meeting rate-hike (August Fed Funds futs saw heavy volume and an additionally 6bps of hiiking priced in). Bear in mind this contract expires shortly after the Fed’s J-Hole meeting…

Source: Bloomberg

All of which sent bonds, stocks (except Nasdaq), crypto, crude, and the gold lower on the week as the dollar soared.

The Nasdaq outperformed this week but The Dow could not get back to even…

Quite a roller-coaster today though with Nasdaq underperforming and Small Caps leading. The plunge on payrolls was immediately met at the cash open with a wall of buying which briefly lifted The Dow and S&P into the green but the algos ran out of steam then. A late day panic bid lifted The Dow green but Nasdaq and S&P ended the day red…

All the US Majors closed back above their 100DMAs this week…

This week’s violent surge higher was driven by the biggest weekly short-squeeze since Jan 2021

Source: Bloomberg

Treasury yields all ended the week higher with the short-end underperforming dramatically as hawkish reality was priced back in…

Source: Bloomberg

That meant the yield curve flattened (inverting even more significantly) on the week, with 2s30s at its most inverted since Oct 2000…

Source: Bloomberg

The dollar ended the week higher, spiking notably today on the jobs print before fading back a little, seems like it stalled at the gap on FOMC day…

Source: Bloomberg

Cryptos were modestly lower on the week with bitcoin and thereum losing around 3-4% after a massive gain last month…

Source: Bloomberg

Gold ended the week modestly higher but fell back below $1800 after the jobs print…

Crude was clubbed like a baby seal, crashing 10% and trading back to Putin invasion levels…

Finally, given this week’s hawkish shift in the STIRs market, either stocks have to fall a long way back to reality or The Fed is about to embark on the greatest flip-flop in history…

Source: Bloomberg

Simply put, all that jawboning this week by Fed Presidents galore did nothing to damped financial conditions that are easier than when The Fed started hiking and nothing at all too dampen the desperate FOMO sentiment of retail panic-buyer piling back into big-tech.