To The Moon

The market could break out of the current lackluster phase if inflation data proves to be benign, raising hopes for a Federal Reserve pivot in June. The immediate concern is regarding a potential resolution for the debt crisis impasse.

⚠️ Looking at calls above 413.24 and puts under 411.5 on Friday. Consumer sentiments data at 8:30am.

Dip buying shows a strong market

The Federal Reserve’s target rate is finally above annual headline inflation, following the central bank’s decision to tighten policy this month and the April CPI data reported this week. 

Looking at Thursday’s strong sale of the most inflation-sensitive Treasuries — 30-year bonds — adds to the impression that investors are signaling “game over” to the Fed in its battle against cost pressures.

Even setting aside the the lowest jobless rate since the 1960s, that continues to seem like an overly optimistic reading. The Fed has usually kept hiking, and then held policy even with its target well above inflation in previous cycles, most of which came with inflation rates lower than the current one. 

Indeed, the negative real yields on the Fed’s target and for 10-year Treasuries had been extremely rare until the post-2008 era of quantitative easing and global disinflation. Policymakers may see their job as something like halfway done at this stage.

Another good trade

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