As expected, the CPI data ultimately resulted in a move higher in US yields yesterday although initially the market engaged in a little "sell the rumour, buy the fact"
Right now, everything suggests that the right way for yields to move is higher still
A Fed move is now (logically) full priced in for next week as the recent employment and inflation data probably do not provide enough "cover" to not look political by pausing. However,
IF this is the case (Highly likely but not a done deal if for example we got big PPI prints today) then I think we get a trade off on the dots/rhetoric etc with a very hawkish cut.
The Fed is clearly desperate to pause and expect 3-month annualised rhetoric to be part of the story next week. It is clear that with the oncoming fiscal/regulatory/tariff stories that the "Ghosts of 2021" are driving them back to refocus on the inflation side of their mandate in a less balanced fashion again.
So, what does that mean in markets?
Yields should head higher but for now not led by the shorter end
The US 2-year yield has not yest broken the 4.21-4.22% area but if it does, we should start head back towards 4.38% again
The US 5-year yield is testing 4.16% with a further good level at 4.26%
The US10-year yield is now above 4.28-4.29% and looks set to head back towards 4.49-4.50% again
The US 30-year yield is now decisively above 4.41-4.42% area and looks set to head back towards 4.65-4.67% again
The best-looking curve in this respect is the 2's 30's curve. There is good resistance around 35 to 36 bp's and above there would open up a return towards 55 to 60 bp's again
Despite the poor seasonality in December for the USD (The DXY Index has fallen 7 Decembers in a row) this yield move, if seen, should be USD supportive with the main G10 losers being the JPY, CHF and EUR and to a lesser extent GBP.
The flames could be fueled further IF we see WTI close over $71.51. That would complete a double bottom that would suggest a move to at least $75.90. Such a move would create a 2nd double bottom above $72.88 that would target around $78.70. That would potentially complete a 3rd double bottom at $78.48 which would suggest as high as $90+
While these dominoes may not fall into place, if they do, it will only serve to exacerbate the yield moves noted above (not to mention deliver the Fed's worst nightmare (again) if developing in tandem with the "Holy Trinity" of Fiscal easing/regulatory easing and Tariffs
Gold has been bid but needs to close over the $2,721-$2730 area to open up for further gains towards the all-time highs at $2,790.
Copper has continued to move higher towards a minimum target of $430 to $433
Despite Equities continuing to hold up and treading a path higher into the Fed meeting (which was the anticipated move that I abandoned a few days ago) I cannot help but feel that all of the above if combined with a hawkish Fed next week could leave us susceptible to a December 2018 like "wobble" so I am inclined to stay on the sidelines for the moment on equities. As yet there are no strong bearish developments of note in that respect