- US January PPI 6.0% y/y vs 5.4% expected
- US February Philadelphia Fed business index -24.3 versus 7.4 estimate
- US initial jobless claims 194K versus 200K estimate
- US January housing starts 1.309m vs 1.36m expected
- Bullard: At this point, sees policy rate in the range of 5.25-5.50% as appropriate
- More from Bullard: Fed risks are replay of the 1970s if it can't control inflation soon
- Fed's Bullard: Inflation 'remains too high' but has come down recently
- BOC's Macklem: Inflation is turning the corner
- BOC Macklem: Labor market is too tight and needs to get better balanced
- BOE's Pill: Tuesday's release pointed to signs of some labour market loosening
- Fed's Mester: Recent data show demand side of economy not softening as expected
- Mester: More upside inflation surprises could make Fed policy more aggressive
- Fed's Mester: Fed will need to go above 5% and stay there for awhile
- ECB's Lane: Much of the ultimate inflation impact of our measures is still in the pipeline
- Bank of Mexico's Heath: Sees terminal interest rate between 11.25% and 11.75%
- Saudi energy min: Current OPEC+ deal will continue until year end
- Atlanta Fed GDPNow estimate for 1Q growth ticks up to 2.5% from 2.4% yesterday
Markets:
- WTI crude oil down 60-cents to $77.99
- US 10-year yields up 5 bps to 3.85%
- Gold up $1 to $1837
- Bitcoin up 1.4%
- S&P 500 down 1.4%
- JPY leads, CAD lags
The market once again looked like it would be immune to hot US economic data as PPI initially caused a flurry of US dollar buying and selling in risk trades only to slowly reverse throughout the day. However, late in the day some comments from Bullard finally tipped the mood.
I'd argue the timing of that turn along with the comments could be coincidence because he didn't really say anything new. He said he advocated for 50 bps at the latest meeting but that was something he was openly advocating for in public beforehand. Moreover, he said his top is still 5.25-5.50%, which is where it was before.
Similarly, Mester didn't take a clearly more aggressive stance in her comments earlier. She's also a hawk and might have pushed for more but instead the Fed seems to be languishing in one-upping the market as the Fed funds futures market converges with what the FOMC has been forecasting for months.
With all that, until the final hour of trading it looked like the bulls had fought off yet another tough attack. Instead, the bottom fell out of stocks after Bullard and Treasury yields pushed back to the highs of the day.
To be fair, the FX market was more measured with the dollar only climbing around 20 pips and remaining around 20-30 pips from the PPI extremes. The dollar did break the February highs against the loonie and Australian dollar but doesn't look like it will close there. The Feb extremes were also challenged in EUR and GBP but held.
USD/JPY rose to 134.46 but the mix of hawkish US news and risk aversion balances out and today tilted in favor of selling, with the pair finishing modestly lower after touching a new high for Feb.
The upcoming Asia-Pacific calendar is quiet and so is Friday's US calendar so it will be a chance for the market to sort itself out.
