CPI + MU = Relief Today

So much for the malaise of the past few days.  A bad mood is no match for positive data, and we received positive news that allayed two key areas of concern ahead of today’s open.  Micron Technology (MU) blew past its earnings estimates and prior guidance after yesterday’s close, reaffirming the health of at least one portion of the AI theme, while the November CPI report was surprisingly tame.  It’s no surprise that a wide range of asset prices soared this morning.

Yesterday we noted the propensity for overnight buyers to step in almost like clockwork at 2AM CT.  They appeared on cue this morning, but rather than leading to a head fake, or “Bluto rally”, they presaged the good vibes that followed.  After the surprising 2.7% headline and 2.6% core readings – both 0.4% below consensus expectations – stocks and bonds each rallied, though by varying degrees.  Around noon ET we have the S&P 500 (SPX) up about 1.2%, while MU’s double-digit percentage pop is pushing the Nasdaq 100 (NDX) up by nearly 2%.  One might have expected the Russell 2000 (RTY) to benefit from lower bond yields and increasing hopes for rate cuts, but that measure is up “only” 0.9%.  Bitcoin leapt as well, with the cryptocurrency approaching the $90k level at its peak.

ES March Futures, 2-Days, 2-Minute Candles with Vertical Lines at 2 AM and 8 AM CT

Source: Interactive Brokers

Fixed income traders are enthused about the CPI report, but in a more tempered manner than their stock trading counterparts.  The tame reading reduced inflation expectations, causing the yield curve to flatten modestly, with 2-year yields falling by about 1.5 basis points and the 10-year yield falling by about 3 bp.  Although this reduces the steepening pressure on the curve, it is difficult to suggest that there is not some upward pressure on the curve right now.  We see a series of higher highs, lower lows and a 30-day moving average pointing upwards – all signs that chartists look for as part of a bottoming pattern.

2-10 Treasury Yield Spread, 1-Year Daily Candles with 30-day Moving Average (green line)

Source: Bloomberg

I had a televised conversation this morning with an economist and a fixed income strategist that shed light on the more sober view taken by the bond market.  The economist said to take today’s report with a grain of salt because the shutdown impeded the Bureau of Labor Statistics’ data collection.  The fixed income strategist said it needed a bag of salt both for that reason and because much of the price data was collected in the midst of “Black Friday” promotions.  Hence, it was good news for them, but not great. 

And here’s where procrastination either helped or hurt me today.  Because of the media visit linked above, this piece got a later start than usual today.  As I’ve been writing about the stellar performance of the stock market, SPX has given back about half its peak gains.  Taking it a step further, bitcoin has plunged from its highs and is now lower on the session.  Apparently, the mood was more fragile than it seemed, and risk aversion continues to lurk in investors’ psyches.  No one will complain if stocks close at the now current levels – SPX and RTY both +0.6% and NDX, +1.2% –but the rug pull in bitcoin, if not a “Bluto rally”, is a concerning development for those hoping for a sustained bounce.  At least it has been able to hold support just above $85k.

Bitcoin, 2-Days, 2-Minute Candles

Source: Interactive Brokers