Stocks finished higher, rebounding from an early-morning decline after the hotter-than-expected PPI report. Rates also fell sharply, and I don’t have much new to add beyond the fact that I think positioning and perhaps a bit of a flight to safety amid the recent volatility in the AI trade have driven much of the move.
Rates fell globally today, suggesting that the move was about more than just the inflation report. Markets move together, and falling US rates can certainly have an impact around the globe. But with Kevin Warsh speaking later this evening at the IMF conference, it’s really unclear to me exactly what’s driving the move, other than an unwind of positioning in a bond market that had become overextended.
Certainly, at this point, a 38.2% retracement of the move that took the 10-year Treasury yield from around 4.6% to 5.37% doesn’t seem out of the ordinary.
Nothing in the data suggests inflation is cooling, with core PCE estimates running around 0.3% to 0.4% at this point. The only thing that stands out from my vantage point is that gasoline prices have fallen somewhat, and oil appears to be trading more closely in line with gasoline prices these days.
The AUD/JPY is back at the lower end of its trading range, a level we last saw on October 1. This remains one of the more important risk gauges in the market and bears watching closely. A break below support at these levels would suggest a shift toward a stronger yen regime and, more importantly, could signal a broader shift in liquidity conditions across global markets.
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