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Tech Tops, Dow Drops, Bonds Flop As Hawkish Inflation Signals Send Rate-Hike Odds Soaring

US economic data surprised to the upside this week - but most notably in terms of inflation signals that showed now signs of trending lower...

Source: Bloomberg

And while core inflation NOWCAST did drop a smidge, it remains a mile away from The Fed's mandated levels - and the drop has stalled...

Source: Bloomberg

That saw the market very hawkishly reprice the entire short-term rate curve with 100% odds of another hike by July and pricing in rates being only 25bps lower by Jan 2024 (from 125bps lower right after the FOMC)...

Source: Bloomberg

But, realistically, the drivers of action this week in markets were debt-ceiling headlines and the AI-bubble's euphoria stage.

The Debt-Ceiling Fear-o-Meter soared to start the week but eased a little today (even though a deal remained absent)...

Source: Bloomberg

And that helped stocks a little into the weekend, but the real driver was NVDA and any mention of AI that sent Nasdaq literally to the moon

0-DTE traders were caught offside in NVDA with massive covering of puts this morning and then buying of calls late on...

Source: SpotGamma

Just one thing to remember, we've seen these massive hoarding orders of chips before (during COVID)...

Source: Bloomberg

And thanks to the knock-on from FOMO-chasing AI, Nasdaq is up over 5.5% from Wednesday's close. The Dow ended the week down 1% with Small Caps and the S&P around unch...

On a side-note, 0-DTE traders were selling the whole day with massive negative-delta flow

Source: SpotGamma

Tech - obviously - massively outperformed this week, with only Consumer Discretionary joining them in the green. All other sectors were red on the week with Staples and Financials lagging....

Source: Bloomberg

This was the biggest weekly outperformance of Nasdaq over The Dow since early March (and this is the 5th week that Nasdaq has outpaced The Dow)...

Source: Bloomberg

The last time Nasdaq traded at more than 8x Small Caps did not end well...

Source: Bloomberg

The equal-weighted S&P 500 is now underwater for the year while the cap-weighted S&P is up around 10%...

Source: Bloomberg

This is the biggest divergence in at least 30 years for this time of year...

Source: Bloomberg

Regional Banks squeezed up to resistance but faded back later in the week ahead of tonight's deposit data...

1D-VIX surged higher today, once again recoupling with VIX as the debt ceiling doubts remain...

Source: Bloomberg

Treasury yields were dumped all week, but today saw some buying come back into the long-end, leaving the short-end (2Y) up 30bps on the week while 30Y yields were up only 3bps...

Source: Bloomberg

And that shift led to the biggest weekly curve (2s10s) flattening since April 2022 to its most inverted since the peak of the SVB crisis...

Source: Bloomberg

Before we leave bond land, there's this - the traditional relationship between higher yields and tech performance (long-duration equities) has completely blown up...

Source: Bloomberg

The dollar rallied for the 3rd straight week (5 of last 6), but ended the week with selling pressure...

Source: Bloomberg

Bitcoin ended the week unchanged, hovering around $26-27,000...

Source: Bloomberg

Oil managed modest gains on the week but NatGas was clubbed like a baby seal as copper and PMs

Source: Bloomberg

Overall, commodities are screaming recession... stocks not so much (or are stocks screaming recession-implied QE?... in which case why aren't commodities doing the same?)...

Source: Bloomberg

Finally, as optimism builds of a debt-ceiling deal, remember, remember, the summer of 2011...

Source: Bloomberg

Will we get 'sell the news' next week on a short-term deal?... then a bounce, then a reality check that the short-term extension won't last?

Tyler Durden Fri, 05/26/2023 - 16:01
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