- US initial jobless claims 200K vs. 179.75K estimate
- Q1 prelim US labor costs +11.6% vs +9.9% expected
- BOE's Bailey: Risks to inflation are skewed to the upside
- ECB Holzmann: We will discuss raising rates and will probably do it in June
- ECB's Rehn says the central bank should hike in July
- Hungary's Orban confirms that he doesn't support EU ban on Russian oil
- US to open bids to buy back 60 million barrels for the SPR in the autumn
- Gold down $1 to $1880
- US 10-year yields up 12 bps to 3.04%
- WTI crude oil up 29-cents to $108.13
- S&P 500 down 3.6%, Nasdaq down 5.2% (worst since June 2020)
- Bitcoin down 9.5%
- USD leads, GBP lags
This was no a pretty picture as broad deleveraging led to a brutal selloff in stocks and also a drop in bonds. The FX market responded with a flight to the safety of the US dollar -- even against the yen and Swiss franc.
What caused it?
There's no easy answer. The big rally yesterday was inspired by a less-hawkish Fed but today's price action in bonds and Fed funds futures is saying that Powell is wrong and that he will need to hike 75 bps. The market is now pricing an 83% chance that Powell walks back the 75 bps talk and hits the brakes harder.
Futures weren't particularly lively before the open. The labor cost data might have been a catalyst but I don't think it was a big one.The Caixin China PMI earlier was terrible.
The Bank of England was certainly a reminder that a soft landing will be tough as they now forecast 10% inflation and a recession early in 2023. Cable was certainly the laggard as it crumbled through the May low to 1.2335 in a 300 pip decline.
The move was a real bleed rather than a sharp move, making it all the more intimidating. FX followed that path as AUD/SUD steadily lost all of the post-Fed rally and dug into the post-RBA pop.
If there was any kind of sliver of optimism it was some moderate selling in the US dollar late in the day. EUR/USD recovered to 1.0550 from a low of 1.0494. It was able to hold the May lows as the ECB sends mixed messages and we await the EU decision on banning Russian oil.