This week saw several major inflation prints. Strong March CPI yesterday (see our First Word on this), today March PPI +1% (ex-food, energy), both 40-year highs YoY. Yet, two things are happening this week:
- Odds of a Fed hike by YE 2022 have dropped from 9 to 8 in just the past 3 days
- Yield curve 10Y less 2Y is dramatically steepening
- And extra credit, equities managing to show surprising strength
As we have said previously, a lot of bad news seems to be priced in. And also, if T+2 applies, today is the last day for Americans to sell stocks in front of tax day (4/18).
- we believe capital gains taxes owed for 2021 will be the largest ever in history
- Crypto capital gains of at least $500 billion
- Several trillion for US equities
- Yup, that explains, in part, the selling pressure of the last two weeks
BOTTOM LINE: Investors tend to think the bond market makes views "cast in stone" -- the hawkishness building in the past month has been due to mounting pressures. But this doesn't mean the bond market can't change its mind. This is what seems to be happening.
- this is positive for equities
Biggest PPI print in 40-years... is bad news baked in?
Fed hike odds have dropped from 9 to 8 in just the past two days... Dovish incrementally