MARKET REACTION... Tough one today... POSITIONS ARE CLEARLY SHORT TREASURIES AND TREASURY FUTURES... EQUITY SENTIMENT IS AWFUL AND POSITIONS FROM THE FAST MONEY, LIKE CTA'S AND HF's, ARE SHORT AS WELL...so the contrarian nature tells us to expect both treasuries and equities to rally... FED ANNOUNCEMENT DATES ARE CLEAR CATALYSTS... OUR DC INSIDERS TELL US THIS IS THE MOST IMPORTANT FED ANNOUNCMENT SINCE 2013
Scenario 1... Fed announcement as expected... Powell presser neutral as to 75, but still slight Hawkish... Ranges should hold... 10 year 3.01, 5 year 3.05, and Long bond 3.08... Dollar will continue its strength. Equities rally marginally but do not hold their gains
Scenario 2... Powell is Very Hawkish... Talks up 75 for June and talks about getting inflation under control quickly... Front end of the curve gets hit hard and 2/10's invert... 2 years go to 2.97... 5 years 3.125... 10 years 3.08... And long bonds 3.15... But the recession fears will increase and expect a bounceback in the curve... Equities will sell off initially but will hold their previous lows, at least initially.
Scenario 3... Powell presser is viewed as somewhat dovish... The front end rallies and the curve steepens... Not likely... But shorts get covered in bonds... Equities rally but do not hold their gains...
Expect a volatile rest of the week with unemployment on Friday. ADP has come out at 274 with 383 expectation.. Unfortunately ADP has not been a good predictor of Fridays number...today markets could be a reversal of the moves we have seen recently... We still do not see rates in the long end significantly higher and think inflation has peaked and will subside... But only to 4 to 5 %... But sending the economy purposely into a recession makes little sense to us so we are going to keep with our view of NO RECESSION IN 2022...
Scenario 1... Fed announcement as expected... Powell presser neutral as to 75, but still slight Hawkish... Ranges should hold... 10 year 3.01, 5 year 3.05, and Long bond 3.08... Dollar will continue its strength. Equities rally marginally but do not hold their gains
Scenario 2... Powell is Very Hawkish... Talks up 75 for June and talks about getting inflation under control quickly... Front end of the curve gets hit hard and 2/10's invert... 2 years go to 2.97... 5 years 3.125... 10 years 3.08... And long bonds 3.15... But the recession fears will increase and expect a bounceback in the curve... Equities will sell off initially but will hold their previous lows, at least initially.
Scenario 3... Powell presser is viewed as somewhat dovish... The front end rallies and the curve steepens... Not likely... But shorts get covered in bonds... Equities rally but do not hold their gains...
Expect a volatile rest of the week with unemployment on Friday. ADP has come out at 274 with 383 expectation.. Unfortunately ADP has not been a good predictor of Fridays number...today markets could be a reversal of the moves we have seen recently... We still do not see rates in the long end significantly higher and think inflation has peaked and will subside... But only to 4 to 5 %... But sending the economy purposely into a recession makes little sense to us so we are going to keep with our view of NO RECESSION IN 2022...
