To The Moon

Yes, you heard it right! But don't fight the Fed 🥳

According to CME Group data Wednesday morning, there is a 58.7% chance of a pause at the Fed's next meeting and a 41.3% chance of a 0.25% rate increase. A 0.5% hike is completely off the table. The central bank's next decision on rates is due March 22.

Chances for a sharp 0.5% hike steadily climbed last week amid the Fed's semiannual Monetary Policy Report and hawkish comments from Fed Chair Jerome Powell before a series of bank runs completely changed market expectations.

Bloodbath in the financial sector

Lingering uncertainty surrounding banks tilted projections away from a 0.5% hike earlier this week. The market was pricing in a greater likelihood of a 0.25% increase, but following the Credit Suisse news and a cooler-than-expected PPI print, the market is now tilting toward a pause.

The SPDR S&P 500 (NYSE:SPY) is facing heavy selling pressure Wednesday morning as a result of contagion fears in the banking sector sparked by new developments from Credit Suisse Group (NYSE:CS), but Wednesday's print is likely another sign that the Fed will opt for a less aggressive rate hike at its next meeting later this month.

Buying the dip on extreme fear?

U.S. producer prices fell more than economists had expected last month in a sign the Federal Reserve's aggressive response to high inflation is starting to take hold.

The producer price index (PPI) fell 0.1% in February, according to new data the Labor Department released on Wednesday.

The number was down from a 0.3% increase in January and came in below average economist estimates for a gain of 0.3%.

On a year-over-year basis, PPI came in at 4.6%, well below average estimates of 5.4%.

Excluding volatile food, energy and trade prices, PPI increased 0.2% in February, down from a 0.5% gain in January. The core number came in up 4.4% on a year-over-year basis. 

Good for traders, bad for investors 

JPMORGAN: "CPI doesn't really matter. What happened over the last 3 days has done Powell's job for him. Credit creation at banks will collapse & the economy will slow. Inflation will taper off as a result. Any rally on the view that the Fed doesn't need to raise anymore is silly. If they don't raise, it's because of systemic risk to the banking system. Not a positive."

⚠️ Trading Tips: Please avoid bank sectors. Hot money is now flowing into another sector. Will be posting some potential play later. Be sure to check back! Looking at SPY calls above 392 and puts under 389.39. Get ready for the pump 😉

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