Stocks, Bonds, & Bitcoin Dump’n’Pump As ‘Meh’-Minutes Reverse Russia-Rout

Bad* Russia, Good** data, and Just-Right*** Fed Minutes left rate-hike odds lower, stocks marginally higher, bonds unchanged, gold higher, and the dollar down.

That’s a lot of asterisks!

*US/NATO claimed that Russia was not retreating (but no evidence one way or the other was offered)

**Today’s strong economic data brought to you by i) seasonal adjustments (retail sales crashed in ‘unadjusted’ data), ii) freezing January (Industrial Production jumped thanks to a record surge in Utility demand). However, import prices (up 10.8%) show inflation ain’t going wishfully away.

***Fed Minutes said nothing and looked older than Charlie Munger as since the FOMC meeting, we have had a big jobs print and 2 huge inflation numbers.

At the end of the day it was a big roundtrip for a lot of markets with stocks dumping early and pumping late to end basically unchanged on the day

And as Real yields continue to rise, the question is – when will stocks catch down (or real yields realize The Fed was just kidding again)…

Source: Bloomberg

The odds of a 50bps hike in March dropped from around 70% earlier in the day to just below 50% by the close, following the Minutes…

Source: Bloomberg

Treasury yields were all lower on the day with the short-end outperforming (2Y -7bps, 20Y -1bp)…

Source: Bloomberg

The yield curve erased a lot of the post-Bullard flattening…

Source: Bloomberg

The dollar extended losses today…

Source: Bloomberg

Bitcoin dropped this morning as it appeared Russia was not in retreat, then rallied notably as the afternoon wore on and the Minutes dropped…

Source: Bloomberg

Ethereum also rallied notably today as Twitter added the cryptocurrency to its tips feature…

Source: Bloomberg

Gold rallied back, reversing much of yesterday’s “Russia retreat” losses…

Oil was chaos today, dropping yesterday on Russia’s apparent retreat, then ripping all the way back on claims that Russia was not retreating, then dumping back down Iran nuke talks headlines….

Lumber’s gone vertical once again, back above $1300

Source: Bloomberg

Finally, we note that gold and real-yields have decoupled from their historic relationship…

Source: Bloomberg

However, as Goldman recently pointed out, historically, gold tends to increase during rate hike periods when gold’s negative correlation with long term real rates also tends to break down. This is already happening with gold displaying resilience to the most recent increase in US 10 year real rates. In our previous research, we argued that this has to do with the fact that the rate hikes themselves can lead to fears of a growth slowdown and recession and therefore boost demand for safe haven assets, such as gold. This means if inflation fails to slow down in the second half of 2022 and the Fed is forced to hike more than currently expected, gold should be resilient as this would increase fears of a potential recession. And Goldman believes believe that gold is a geopolitical hedge of last resort.