The week of Feb. 13 is significant, with CPI, PPI, retail sales, a ton of Fed speakers, a 20-year bond auction, and a 30-year TIP auction. Last week, rates broke out after a 30-year bond auction didn’t perform well.

The auction results ended up sending rates sharply higher across the curve, along with Fed Chairman Jerome Powell indicating that the Fed has more work to do and that rates would have to stay higher for longer. Depending on the data, he even noted that the Fed might have to go higher than thought at the December FOMC meeting.

All of this led to a dramatic move higher in the Fed Funds Futures, with the August contracts peaking at 5.18%. That rate is higher than the Fed’s terminal rate in the December summary of economic projections of 5.1%. Meanwhile, the December contract is trading at 4.98%, as the market has quickly shifted to the Fed’s point of view on rates.

SOFR Futures

As I highlighted earlier this week, some traders are placing bets that the Fed’s terminal rate peaks at 6%, based on SOFR September 94 Puts, which have seen their open interest levels explode in recent days.

CPI

This week’s CPI report will have a big say in what happens, and while analysts are looking for CPI to climb by 0.5% month-over-month and 6.2% year-over-year, the Cleveland Fed sees CPI climbing by 6.5% year-over-year and 0.65% month-over-month.

If we get numbers that look like the Cleveland Fed’s estimates, it will be a massive blow to the hopes of many that inflation was cooling because the 6.5% year-over-year rate would match that of the December inflation rate.

30-Year Rates

A lousy 30-year auction on Thursday caused the rate to surge and push above at least one downtrend line, setting up a battle with a second downtrend at 3.9%. The break of the second downtrend quickly sets the 30-year up to re-challenge the 4% barrier.

10-Year Rates

For the 10-year, it appears to have already broken both downtrend lines, and it seems to be on a path to challenge the 3.9% level.

Corp. Debt (LQD)

Additionally, the LQD has broken down and appears to be heading toward 105.30.

High Yield (HYG)

The HYG has not broken an uptrend yet, but it has broken support at $75.75. It appears to be heading to the uptrend line to test whether or not it can hold at around $74

S&P 500 (SPX)

The S&P 500 has fallen below a short-term uptrend and below its 10-day exponential moving average. When the index has risen above or fallen below its 10-day EMA, it has often marked a change in trend.

In this case, it has only dropped below that moving average for two days, which is not long enough to verify a change in direction. But if the index is trading below that 10-day EMA at Tuesday’s close, I think it would confirm that the trend has shifted to bearish.

Nasdaq 100 (QQQ)

The QQQ ETF has broken an uptrend that trails back to the beginning of January, and it is also trading below its 10-day EMA. So, like the S&P 500, the QQQ is in danger of a further drop, especially if that CPI report comes in hotter than expected.

Volatility (VIX)

I recently noted that the VIX has broken out, along with the VVIX. The breakout has caused the ratio of the VIX to VVIX to drop significantly and move back to a range that falls within the historical norms. I noted, “The ratio is now at levels not typically associated with market stress. However, I am not sure that the relationship should drop back to its lows, as that would imply a state of tranquility, and I don’t believe we are currently in a tranquil period.”

Since then, we have seen the VIX ratio break out of its downtrend, which could mark a significant change in trend now that volatility appears to have been reset.

Dollar Index

What is also taking steps to break out is the Dollar index, which broke one downtrend and is now testing both its 50-day moving average and a secondary downtrend. A rally beyond the moving average and the downtrend would push the dollar higher toward $108.

Financial Conditions

By the way, rising yields, a strengthening dollar, increasing volatility, and falling stocks are not evens that are happening simultaneously purely by chance. No, these are all interconnected as financial conditions begin to tighten, as noted by the GS Financial Conditions Index.

More By This Author: