Focus yesterday was all about positioning ahead of CPI, as Bloomberg reported that a record block future trade in SOFR futures right around the NY open. Prices rose / yields fell subsequently, suggesting that the trade was a buying-flow, and coincided with the 2yr treasury holding a key 4.75–4.80% on the top-side without breaking out any further (yet).

Shortly around the same time, White House economic advisor Brainard stated on a CNBC interview that the government continues to “anticipate continued steady progress on inflation in the coming months”, which traders are taking to suggest that the upcoming is close to expectations or perhaps just a touch on the high side, as the skeptics would assume that she’s aware of the figure ahead of time.

In the meantime, mega asset manager State Street is forecasting 50bp of cuts as early as June, a very aggressive call against the current sentiment with June cutting odds still close to a 50–50 coin flip. Contrasting that call against Apollo’s belief that the Fed might not even cut in 2024, and it’s safe to say that the current market opinion on the Fed is as divided as ever.

Equities flip-flopped, with the SPX falling >1% in a hurry from peak-to-trough, causing trader chatters of whether someone has been made aware of today’s CPI print ahead of time. Prices slowly regained ground and accelerated into the NY close, with the SPX managing to hold its 200d MA again, and traders likely well-positioned (either way) into the inflation print.

Prices are at a trading at important technical levels across many asset classes, with the SPX hovering and so-far holding its 200D MA, 2yr yields holding the YTD top at around 4.80%, and even the USDJPY is holding the 2yr high at ~152 as the BoJ felt compelled to reup it’s hawkish commentary lately (UEDA: WANT TO EVENTUALLY MOVE TO CUT BACK JGB HOLDINGS). While we have no particular view on the CPI print, we would like to think that traders are relatively well hedged at this point, and it’s rare for asset classes to simultaneously break out of so many important technical levels concurrently, so we would have a small bias that the print is close enough to consensus to allow assets to maintain their current trend. Famous last words, perhaps, but let’s see where things come in in 12 hours time. Good luck!

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