US equities were stronger Thursdaywith S&P rising 2.6% despite initially opening weaker after US CPI beat expectations, gaining ground later in the session. US10yr yields up 6bps to 3.96%, 2yr yields up 18bps to 4.47%. UK Gilts rallied amid media speculation that the UK government will reverse more of its proposed tax cuts, possibly as much as GBP24bn of the GBP43bn still on the table; the 10yr gilt yields fell 23bps.

And despite the market now favouring back-to-back 75 bp FED hikes into yearend, risk sentiment ripped higher, leaving investors struggling to make sense of it all given their hotter-than-expected CPI playbooks had everything going in the opposite direction (stocks lower, the dollar higher)

One factor for the risk rally is the building expectations for a UK policy U-turn, squeezing Gilts and sterling higher, easing global bond market angst, and providing breathing room for risk assets.

But I would also suggest that from a risk rally perspective, the market is priced to a terminal rate that aligns with the FED. As we approach that point where the Fed and market pricing suggest, ultimately, they will pause and see how all of the hiking and active QT they have been doing will filter into the system; then, as we near that point, there is light at the end of the tunnel from the vicious rate hike cycle.

Front-end loading gets us to that terminal rate quicker and the ultimate pause. So, while the hurdle to ” pivot” is high, the hurdle to “pause” is in sight.


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There was a bit more “panic” today on the way up than what was seen over the past few days on the way down. Bearish positioning and widespread negative sentiment are the main factors for the painful short-position squeeze. But with some better-than-expected earnings and the UK U-turn, it was seemingly enough to spook the bears. And while nobody believes in potential Russia-US negotiations rumours, I would not wholly write that off either heading into midterms.

Even though most folks do not believe in the rally and are looking to fade again, rates markets are settling down, 10-year US yields are flat, and the 4% resistance level is coming into play. The USD is also moving in the right direction.


Post-CPI in the foreign exchange world saw some dizzying price action which has caused more than a few participants to shred their CPI playbook.

The market feels exhausted from chasing the US dollar higher. It’s still great carry being long dollars, but momentum feels like it is reversing. Maybe there is some profit-taking on USD longs going through and just little interest to take the other side – it could be some chips are getting taken off the table into yearend from the first in, first out crowd. I would note on the latest NFP/CPI prints, though the signalling was very clearly – USD higher – the follow-through has been well off the playbook.


Oil bounced despite a sizable non-consensus US commercial crude oil inventories build. Still, low diesel stocks are bolstering price action with the northern hemisphere winter fast approaching, so real-world concerns are driving prices overnight.

And given the sharp increase in cross-asset correlations, a weaker US dollar and higher stocks also support broader risk sentiment. Oil is no exception, given the oil price is inversely correlated to the US dollar movement.

Published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT