Markets took the highest rate hike since 1994 in stride today. At first. But as the initial dust settled, major indices fell right back to where they started before the decision was announced. It was seemingly bang in line with expectations –75bps was already priced. And Esther George dissenting – already priced. Not much new to report. However, as Powell calmly delivered the hawkish message of 3.4% by year end —175bps more to go, he also pacified investors by saying jumbo rate hikes (like 75bps) won’t be common going forward. Except for July. And even though he utterly dismissed the possibility of any 75bps hikes a mere 6 weeks ago. Nonetheless, bonds and stocks celebrated into the last hour of the day. Goodbye uncertainty, hello optionality?? After all, outsized moves now apparently leave the door open to slow and reverse beyond that point. Flexibility is good, except there was very little color on how they will orchestrate a so-called soft landing —higher, faster is bound to lead to a recession…? But again, that seemed to be ignored for the time being. There were a couple of major changes to the statement: 1) a line was added saying The FOMC is “strongly committed” to returning inflation to its 2% objective” and 2) they removed prior language that said the FOMC “expects inflation to return to its 2% objective and labor markets to remain strong.” Meanwhile, the dollar saw a reversal lower and crude fell over 2.5%, leaving energy stocks as the worst performing sector in the S&P. How now, brown cow? Markets ended the day off highs while bonds ripped (yields closed on lows at 3.31). Yields moved aggressively going into today so a bit of a bond bounce back may have been warranted, but when the macro players return tomorrow, things could look a little different. And lest we forget the massive expiry on Friday which will likely bring another wave of volatility. 3700 is a big level to watch for Gamma players (or so they tell me). As Macro Man said today “getting The Fed right doesn’t necessarily mean getting the trade right…”

In what has to be one of the quickest rates of change in FOMC communication history, estimates have moved from 50, 50 and 50 for the next three meeting to 75, 75 and 50… and under 24 hours. All without the Fed saying a thing. The WSJ started the conversation, and many economists have jumped on, now markets just need to see of Chairman Powell comes through. The increase in expectation did little to offset nerves of traders today however. Producer Prices data was mixed sequentially (higher m/m, lower y/y), and after four very red days for the broader indexes, it appeared that traders were prepared to take some stock. But bear markets are prevailing, and Yields continue to price in the aggressive Fed, and therefore appetite for risk remains minimal. Treasuries fell once again, and the 2-yr is back to 2007 levels. Considering it was at 2.81% on June 9th, today’s closing yield of 3.437% shows how quickly the market is changing. Equities were a bit more steady today. The S&P 500 fell another 38bps (after losing 10% the last four sessions), but Nasdaq was able to gain 18bps. Transportation stocks outperformed after FedEx (+14.4%) raised their dividend and came to an agreement with activist DE Shaw. Staples lagged, led by Coca-Cola (-3.4%) on news they would delay their Coca-Cola Africa bottling public listing. Overall though, today’s lack of movement in the broader indexes felt more like an indecision ahead of the FOMC tomorrow. Volumes were still slightly elevated (+9% vs June average), and the breadth stayed negative for both the S&P and Nasdaq. So investors now have a half a day until they find out the Fed’s intention. Recession indicators are building, but not flashing yet. The Oil price remains high, University of Michigan dropped to its lowest ever, yields are close to inverting (2-10yr spread at 4bps), and the Leading Index on Friday is expected to drop for a third month in a row. Powell and the Fed have their hands full as they confront attacks on all sides, some of which they cannot control. It won’t be long until we see how the market responds to an aggressive Fed.

Friday’s blistering CPI upside shocker, alongside horrible U. of Michigan sentiment and inflation expectations, basically crystallized the market’s worst fears – the Fed has a lot of work to do. And after the bleakness in crypto markets this weekend, it wasn’t a surprise to see a continuation of the gruesome play out today. There was nowhere left to hide except for USD—even the seemingly bulletproof commodities gave back a bit today as crude traded lower until the last few hours of the day in which it snuck into positive territory.

Yesterday’s sell-off into the close was that more prescient once 8:30am rolled around today. Peak inflation had been discussed amongst the Street after the PCE data on May 27th dropped from the previous month. That was for April however, and today’s CPI for May showed that inflation has not peaked, and now there are worries that June may follow the same tune (multiple components rose).

Not a good day for the markets, as traders pared risk into the biggest economic datapoint for the week. The headline CPI figure tomorrow certainly is what investors are keeping an eye on, especially as the Fed is set to hike rates another 50bps. Futures started higher this morning, but rolled over after Lagarde & Co announced they plan on raising rates next month (first time in 11 years).

Systematic buying in equities ran rampant yesterday, giving bears a run for their money and leaving some positive data points to be pondered. The SML, MID & RTY all went above their 50d moving averages. That said, The RTY still wasn’t able to sneak above 1930 and the Nasdaq 100 stayed well below 13000, the levels we would need to get excited. Meanwhile, the S&P remains in a tight sideways range between 4100 and 4200 (zzzz) with today’s move lower bringing it closer to the former.

Investors are aware, or at least they should be at this point. Inflation is here, and central banks around the globe are going to raise rates. The next two weeks are busy with cb meetings, and Australia last night “surprised” the markets by raising their rate 50bps (instead of the 40bps expected) to 0.85. With the ECB on Thursday (although July a likely start), the FOMC next Wednesday (50bps), and then the SNB/ BOE next Thursday, traders understandably are happy to move cautiously.

If you were hoping the summer would offer some rest for the weary volatility-wise, you can likely think again. This past Thursday felt like we could be on the verge of a new bull market, while Friday’s slide moved the recent move higher into ‘bear market rally’ territory and today? It seemed like a bit of both.

Not the end to the week we wanted, but perhaps it was the one we were expecting. As a large number of polos populated the thinned out streets of Midtown Manhattan today, it was clear the summer Fridays are in full swing. S&P volumes down 27% vs. the 20 day average could have told you that too though… Early on sentiment was strained as Elon “I have a bad feeling about the economy” Musk announced that Tesla would be joining Microsoft and Meta with a hiring freeze.

Perhaps this is more than simply a bear market bounce. With the Queen’s 4-day rager kicking off today, it seemed like an opportune time for markets to rest on their laurels some a few days into the summer and ahead of key economic data. But today has seen the opposite. And while we didn’t see the levels of volumes we’d prefer to signal something substantial, it’s hard to deny sentiment at least is starting to match some of the positive signs emanating from the market. It’s not often a top 5 biggest company in the world cuts guidance as one of the more dovish members of the Fed spreads their hawkish wings and yet we finish firmly in the green, but here we are.