Stocks, Bonds, Bullion, & Bitcoin Dump; USD Jumps As Fed Looms

Anxiety ahead of tomorrow’s Fed decision (and Powell’s presser) was amplified by Germany’s “hyper” PPI and surprise 100bps hike by the Riksbank… and still the dollar strengthened back to the top of its recent range…

Source: Bloomberg

And the yuan weakened (along with most Asian FX) even with the relative strength of the yuan fix…

Source: Bloomberg

And EM FX overall continued to collapse to record-er lows (against the greenback)…

Source: Bloomberg

All setting the scene for Powell to go full ‘Leeroy Jenkins’ on global markets tomorrow…

US equities were ugly again, erasing all of yesterday’s post-OpEx rally and then some. They did rally again late in the day – some suggested after headlines noted that Putin would not be addressing his nation today – but unlike yesterday’s late melt-up, today’s did not last…

Put volume relative to call volume has surged above June peak levels in recent days…

Source: Bloomberg

All of last week’s short-squeeze gains have now been erased…

Source: Bloomberg

Judging by the ongoing surge in real yields, there is a lot more room to the downside for stocks…

Source: Bloomberg

It wasn’t only stocks that were slammed lower.

Oil was down today…

Gold was down today…

Crypto was down today…

Source: Bloomberg

Russian stocks were clubbed like a baby seal on fears that Putin was escalating the war…

Source: Bloomberg

Bonds were where a lot of today’s focus was with yields higher across the curve as the belly underperformed (5Y +7bps, 2Y30Y +3bps)…

Source: Bloomberg

Intraday, the yield on 2Y US Treasury bonds neared 4.00% (which would be the first time since October 2007)…

Source: Bloomberg

The market is assigning a 20% or so chance of a 100bps hike tomorrow, and if they go 75bps tomorrow, a 75% chance of The Fed going 75bps again in November…

Source: Bloomberg

Meanwhile, the terminal rate for Fed rate-hikes has risen to 4.49% this morning, expected in March 2023…

Source: Bloomberg

Do we really think The Fed can get there without folding to political pressure or flip-flopping to abate risk-asset carnage?

As we noted earlier, how do we think Elizabeth Warren is going to react to this?

When the Fed hikes to 3.25% from 2.50%, it will be paying banks $460MM in daily interest on IOER/Reverse Repo.

When the Fed hikes to 4.25% by year end, it will be paying $600 million in daily interest to BANKS.

Think that won’t be a political issue? Think again

— zerohedge (@zerohedge) September 20, 2022

Finally, which would you rather own: 2Y notes backed by the US govt paying 4% or the S&P 500 paying 1.7%?

Source: Bloomberg

TINA is dead.

What to expect from the markets tomorrow? With the exception of May, stocks rallied after the meetings.

As Bloomberg’s Ye Xie notes, the buy-the-rumor-sell-the-fact type of price action is evident. Granted, it’s a small sample. But, with the markets pricing in a terminal rate of 4.5%, the bar is high for the Fed to surprise on the upside.

Nevertheless, none other than Dr.Doom himself, Nouriel Roubini, told Bloomberg this morning that he sees a stagflation like in the 1970s and massive debt distress as in the global financial crisis.

“It’s not going to be a short and shallow recession, it’s going to be severe, long and ugly,” he said.