Yesterday's trading was a hint of what was to come.
There's money on the sidelines that is more worried about missing the bottom of the market cycle than next month's CPI report. There was also all the money that ran scared late last year on recession fears that's now having a rethink.
That's competing with a bond market that's pricing in more rate hikes and the possibility that inflation will be sticky.
Ultimately, we don't have many clues yet on what 2024 inflation will look like and if the Fed is willing to tolerate, say, 2.6% inflation in 2024 rather than hiking further to get it all the way back to 2% faster. My guess is they're happy to stay at 5% so long as they're reasonable confident that pricing trajectory is lower.
In any case, it's a massive tug of war right now and the FX market is along for the ride.
My bias is still better for risk trades but not necessarily lower for the US dollar.
The price action lately screams that there's money on the sidelines. You would think that would favor bonds but now that the risks in bonds are more two-sided, it's flowing into stocks instead.
As Bank of America wrote in today's monthly fund manager survey, the pain trade for risk assets is still up.