• Gold up $2 to $1816
  • US 10-year yields down 7 bps to 2.89%
  • WTI crude oil down $2.96 to $106.64
  • S&P 500 -4.0%, Nasdaq down 5.1%
  • JPY leads, GBP lags

It's tough to look past US retailer Target as the catalyst for the rout in markets today. The company badly missed on earnings and was down 25% in the pre-market. The problem for the company was margin compression. Sales held up but costs escalated far beyond expectations and the market is sensing that pricing will need to rise. The issue is that will push more people towards spending on staples rather than discretionary goods. It will also add to the case for central bank tightening.

Powell yesterday signaled a determination to hike until inflation is under control and with costs set to rise on the US retail side, the timeline for that has gotten longer.

There's also a growing sense that a recession is more likely. That can become a self-fulfilling prophecy as companies scale back capex plans or downsize on staff.

In any case, once the selling started there were almost no bounces. It was a punishing move that was accompanied by a flight to safety in bonds and JPY. It was the worst day for the S&P 500 since June 2020 as tech and retail were crushed.

Economic data underscored the issue as Canadian CPI was hot -- particularly on the core. In the US, housing starts modestly undershot expectations.

USD/CAD initially fell to session lows on the CPI report but the direction reversed as stock and oil fell. Crude had touched as high as $112.39 but finished $5.50 lower.

AUD, EUR and GBP all tracked the risk trade and are slated to close at the lows. UK GBP wasn't quite as hot as feared but the knives are out for the MPC with inflation running at 9%.

There's a growing sense that the Emperor isn't wearing any clothes as faith falters in central bankers and politicians.

Elsewhere in FX, there was an idiosyncratic move in the Swiss franc after SNB chairman Thomas Jordan said they're ready to act if inflation strengthens. He also warned they must be vigilant on prices. It's the first hint that they're ready to join the rate-hiking party. If so, it would lead the BOJ alone as the last holdout; and Japanese CPI is due on Thursday.

FX wrap