Time for a bit of context? The forecasted funds rate for the end of 2022 at the end of 2021 was 0.9%. Point being, prognostications can change. And in a big way. But therein may lie the problem. The Fed is contending with some credibility issues due to their lagged reaction to the plague that is inflation. After a roundly interpreted as dovish speech last week, with a series of disinflationary data points that followed (PPI notwithstanding-ish), the week was set up for that narrative to continue.

Not so fast, Santa..! (*Or whatever holiday jolly figure you fancy). Markets began the day drifting marginally higher with little additional catalysts ahead of the main event scheduled for 2pm. And then!.. A slowing in pace now set in stone, shifting from a series of 75bps raises, with the Dec rate hike of 50bps coming in as widely expected and the total count for 2022 coming in at 425bps of hikes!

Investors have had today circled on their calendars since November 10th, hoping for a continuation of CPI prints that are decelerating y/y. The importance, especially ahead of the FOMC tomorrow, could be seen by the early what-if’s that had been cycled via strategy desks. One had broken down how the S&P 500 would react depending on the actual print, while others looked at previous performances on CPI days.

Investors expressed their optimism ahead of this week’s action, by buying US equities today. The S&P saw its best session in nearly 2 weeks and the CCMP/ RTY also enjoyed a day in the green, with the VIX up nearly 10%. Additionally, Oil was higher by almost 3.5%, pulling the XOP and XLE out of their 5-day losing streaks (XLE -8.4%, XOP -11.8% last week). And although Cons Disc (XLY +25bps) was dragged down by TSLA (-6.3%) initially, it was balanced out by a recovery in Amazon’s stock throughout the day (it started down approx. 1.1% and closed up +1.3%).

It is surprising that the Webster Dictionary word of the year is gaslighting, considering how much attention inflation has received. It seems impossible to be anywhere without inflation being present, and therefore that may have been a more suitable word. With the next FOMC only 3.5 sessions away, there are two more datapoints that could sway the committee from their 50bp current leanings.

The consensus across the Redburn desk is that approximately 80% of corporate holiday parties likely take place this very evening (the last Thursday before Christmas/Hannukah obligations kick in). To that end, this View from 5th should have stellar readership (probably for the best). I’m confident in saying today felt like the holidays had truly arrived.

A lack of economic data during today’s session led to a choppy day in the markets as the S&P 500 closed down for the fifth day in a row. This will be the sixth time this has happened this year, as it holds just above the 100d avg. Making the biggest moves today were US treasury yields. The 10yr (-3.1%) closed at its lowest level since September.

Market causing you a bit of heartburn? Well do I have the drug for you…The afternoon perked up some on the ruling by the judge in the Zantac case to grant summary judgement ie dismiss the case.*** While not binding on the Ninth Circuit, it was a stunning rebuke of the plaintiffs case and unequivocally good news for the parties involved ie nearly everyone in the pharma/distribution channel.

Swimming amongst a ‘sea of red’ as they say.. A decidedly down day for almost everything the eye can see, that is unless you are the USD (DXY strengthening back above 105) or the VIX (+8.8%). Needless to say, breadth was heavily skewed to the negative with ~95% of SPX down on the day, which also means that the SPX is back below the 4k/200dma.

It’s complicated trying to slow down the economy, and therefore inflation, and the Fed is finding that. Investors/ Powell have received mixed signals this week from the busy economic data that has been released. While the ISM manufacturing print on Thursday fell below 50 for the first time since May 2020, amid a sequentially declining PCE, JOLTS and Nonfarm payrolls continue to show demand for workers.