As the universe of stock index futures continued its celestial ascent from the previous session, investors found themselves eagerly anticipating the unveiling of more profound inflation figures.
The Nasdaq 100 futures (NDX:IND) graciously soared by 0.7%, S&P futures (SPX) elegantly surged by 0.3%, and Dow futures (INDU) majestically climbed by 0.3%.
Yesterday’s market exuberance, fueled by the gentle descent of yields in response to the soft CPI number, provided a compelling spectacle as it led traders’ sights beyond tightening, all the way to envisioning the first Fed rate cut — a mesmerizing trajectory.
“The seasonal Santa rally started early this year, as last,” remarked strategist Ben Laidler while emphasizing the unexpected emergence of FOMO (Fear Of Missing Out) among cautiously positioned investors.
Laidler continued, “This year, the convergence of superior fundamentals and robust technicals has bestowed upon December the honor of being the best month of the year, accounting for a fifth of returns. The naturally receding vice of 5% ten-year bond yields and $90 oil gracefully intermingled with the tech-led conclusion of the US earnings recession.”
Notably, the spirits of stock sentiment were lifted by the euphoria surrounding the prospects of the U.S. gracefully sidestepping a government shutdown.
However, as the champions of equity charged forth, there loomed a sense of cautious contemplation about the impulsive CPI maneuver in the bond, currency, and swaps markets.
Though minute, the odds pivoted to a 5% likelihood of a Fed hike in December, after having transitioned, as of yesterday, into pricing in the modest possibility of a quarter-point cut. The market’s anticipation for cuts to commence in May remained unwavering, yet the odds dwindled from 85% to 65% at the close of yesterday’s trading.
UBS’ chief economist Paul Donovan reflected, “There is no harm in markets pricing three rate cuts in 2024; it seems the most probable outcome. However, the abrupt reactions to a single data release underscore the perils of excessive reliance on ‘data dependence’.”
Following their spectacular nosedive, rates gracefully ascended once more. The 10-year Treasury yield (US10Y) gracefully ascended by 3 basis points to 4.47% after culminating at its lowest level since September. Meanwhile, the 2-year yield (US2Y) gracefully ascended by 4 basis points to 4.85%.
The dollar index (DXY) humbly inched upwards after gracefully concluding at its lowest level since August yesterday.
Before the opening bell heralded the arrival of the October PPI, the forecast pundits foretold a headline rise of 0.1%, accompanied by a downfall in the annual rate to 1.9%. Simultaneously, it was anticipated that the core PPI had blossomed by 0.3%, with the annual rate poised to remain steadfast at 2.7%.
Ian Shepherdson from Pantheon Macro opined, “The headline will be cast into melancholic shadows by tumbling energy prices, but the essence lies within the core.” He ruefully added, “Alas, the core PPI is a tempest of capriciousness in comparison to its CPI counterpart.”
“Only a handful of the components boast reliable precursory indicators, and the preeminent component of the core — ‘trade services’, which measures gross retail and wholesale margins — is an unruly force of nature.”
Simultaneously, the unveiling of retail sales numbers for October added another dimension to the unfolding spectacle. Economists prophetically anticipated a 0.3% decline in sales, with the core retail sales modestly sliding by 0.2%.