Fed Publishes Final POMO Schedule, Killing Expectations For An Intermeeting Rate Hike

Earlier today we observed that amid speculation of an intermeeting, or emergency rate hike, all eyes were on today's final POMO schedule release from the Fed due at 3PM to see whether there would be any notable changes to the Fed's QE plans, or whether the Fed would even end QE prematurely today. Well, a few minutes after 3PM ET, the Fed effectively killed any speculation for an early rate hike when it published what will be its final (for now) POMO schedule, which sees $20 billion in Treasury bonds purchased across 8 operations over the next month, with the final purchase of $4 billion taking place on March 9, in line with expectations, and one week before the March 16 FOMC meeting when the Fed will hike 50bps and just one day before the February CPI print is released and the ECB's next decision... 

While Feb Fed Funds yields hit session lows after the POMO publication as odds of an emergency rate hike imploded... 

What is notable is that March rate hikes odds are also sliding fast, perhaps in light of the latest geopolitical panic where according to the deep state, Putin is set to invade in just a few days... 

Bottom line: no emergency rate hike, 4 more weeks of QE and then we get what is almost certainly a 50bps rate hike, unless of course the Deep State has false flagged itself into a new world war....

Oil Soars; Ruble, Stocks Tumble On Report "US Believes" Putin Will Launch "Horrific, Bloody" Invasion Of Ukraine Next Week

When it comes to the geopolitical hot spot du jour, every day is Groundhog Dog with a random daily leak out of the deep state through its preferred mainstream media mouthpieces that a Russian invasion on Ukraine is imminent any second now even if there is zero evidence confirming this, and even if one never actually takes place, and today was no different, only today the deep state has been especially persistent and moment ago PBS reported that according to three (deep state) officials, "the U.S. believes Putin has decided to invade Ukraine and communicated those plans to the Russian military," with two admin officials saying they "expect the invasion to begin next week, echoing what Secretary of State Blinken has said"...

Just so Americans can focus on anything but Biden's catastrophic tenure, the PBS is throwing the kitchen sink noting that defense officials anticipate a "horrific, bloody campaign that begins with two days of bombardment and electronic warfare, followed by an invasion, with the possible goal of regime change." The North Atlantic Council, which as everyone knows is the hub of the deep state, was reportedly briefed on this new intel today, which means that a false flag attack by the CIA is now imminent. The PBS hyperbole followed an earlier report from that hotbed of deep state lies, CNN, according to which the US and allies had "new intel" that suggests Russia could be planning to attack Ukraine prior to end of Olympics, contrary to previous assessments, with CNN adding that the "new intel comes as officials have dramatically ramped up the urgency of public warnings related to Ukraine in past 24 hours" and that Kyiv is among the targets identified in the Russian planning sources. CNN also added that "the admin could declassify some of this intel today" although we doubt it since this intel does not exist, but hey, someone has to wag the dog. The report has also come amid announcements from the UK US & Europe that they are recommending staff leave Ukraine...

Bottom line, while this is just the latest in a laughable series of report originating from the US deep state which have little if any linkage to reality, the fact that the US is now committed to a strategy that sees Russia "invade" even if it means responding to a US-orchestrated false flag is why oil has just exploded higher, with WTI soaring above $94 and Brent above $95 for the first time since 2014... 

The Ruble tumbling... 

Alongside risk assets, including bitcoin... 

With only gold higher alongside oil... 

Investors seek bonds as safe-havens after puking them out yesterday... 

Biden now has two scapegoats to explain away the ongoing economic disaster: blame Putin for the explosion in gasoline prices and blame the Canadian truckers for the imminent US recession....

Nomura; If The Fed Slow-Plays Hikes After All, Rates Traders Will "Wreck Them"

It has been a whirlwind 24 hours in markets since yesterday's torrid CPI print, which confirmed the highest inflation in 40 years, which was then followed by an even more extreme commentary from the Fed's own windsock, James Bullard, who in remarks that have seen been called "immature" and "unprofessional" sparked a market panic with his calls for a 50bps rate hikes, an active sale of securities from the Fed's balance sheet and even an intermeeting rate hike. And despite a full-blown damage control offensive by both Fed speakers (Daly and Barkin), and the media - with CNBC's Steve Liesman coming the closest to slamming Bullard as effectively having no idea what he is talking about, and downplaying Bullard’s “50bps green-light” (as well as talking-down an intermeeting move), we currently see Fed Funds futs at 70% odds of a 50bps March hike, which according to Nomura's Charlie McElligott "forces the hand of the FOMC towards “hawkish asymmetry,” and who will have to “take what the market is giving them” and hike by 50bps in March, as it stands now" (although there is another CPI print before March so ‘data volatility’ remains) Why? Because anything less, according to the Nomura x-asset strategist, would not just shock markets in the other direction (in a way that would counterproductively "ease" financial conditions which is a 100 delta “non-starter” now as they are now forced “all-in” on tighter FCI, hence Real Yields to 1.5 yr highs), but would also undermine their credibility as “inflation fighters” in what has now become a massively politicized issue that is taxing all Americans and has the Fed in the crosshairs from all parties... 

* Nomura economist Rob Dent elaborates on this, noting that "one underappreciated aspect of yesterday’s surprise CPI numbers is their potential to worsen the national conversation around inflation. The press widely covered the upside surprise yesterday, and Google search activity suggests the general public also showed keen interesting. Moreover, significant increases in prices have become correlated with the percent of consumers reporting hearing bad news about higher prices in the University of Michigan survey." 

On the other hand, if the Fed wishes to avoid a 50bps initial hike shock, as it remains "scared of their own FCI shadows" with fed funds now pricing ~6.5 hikes by Dec YE Fed mtg, the “7 hikes in ‘22” option is the alternative path. With all of this said, McElligott warns that if the Fed still tries to “slow-play it” now, and only goes 25bps in March due to legacy scar-tissue from prior market “tightening tantrums,” Rates traders "would probably wreck them for it and bury them further- because this latest inflation data has now finally seen majority capitulate to the view that the Fed is officially “behind-the-curve,” should have stopped QE in January when they first had the opportunity, and are now going to have to “double whammy” us with a more aggressive tightening path running alongside BS run-off, including maybe even outright sales"...

What about the possibility of an intermeeting emergency rate hike, an option which Bullard himself brought up? According to Nomura, "it’s doubtful, because we are (really awkwardly) still in QE and buying bonds" which is why today’s 3pm POMO schedule release is a major risk-event to watch. Here Nomura repeats what we already mentioned yesterday: FFG2 trade an overnight low of 99.8525, which would imply a 43% of an intermeeting 25bps hike today (or even higher probability if the assumed date is later this month). This makes the 3pm POMO schedule extra important as the only reason to not release it would be to get ready for intermeeting hike and the Fed would likely want to inform the market before hand (not a surprise at 3pm on a Friday) and if it is released on schedule and the operations should stretch into early March and it should calm some of the intermeeting fears So keep an eye on what the Fed says (or doesn't say) at 3pm ET today: a new POMO schedule which concludes the tapering of QE on schedule some time in early March will likely spark a relief rally as at least an intermeeting rate hike is taken off the table. On the other hand, if the Fed decides to withhold publishing its final tapering timeline effectively ending QE today, then all bets are off....

Why Is The Fed Suddenly Holding An Unscheduled "Expedited, Closed" Board Meeting On Monday?

With Fed speakers and their media proxies scrambling to walk-back St.Louis Fed's Jim Bullard's calls for an inter-meeting liftoff and uber-hawkish rate-hike trajectory, it is notable that all of a sudden, The Fed has called for an "Expedited, Closed" Board Meeting on Monday Feb 14th. The goal of the meeting is: "Review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks"... 

We are sure this is 'probably nothing', right? But it got us thinking about the last time The Fed held such a meeting. In late November 2015, The Fed held an "expedited" meeting to "Review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks. " Shortly thereafter, this happened (The Fed hiked rates for the first time since 2006)... 

February rate-hike expectations have fallen today but remain elevated over recent norms... 

So, will The Fed surprise the world on Monday?

Market Update

# We saw a wild day in the market yesterday; the SPX rally into Tuesday’s close to test the 2/2 high at 4595 reflected the stock market’s hope for a weaker CPI print. 

# As it turned out, the CPI report came in hot, and the rally Tuesday was just a B-Wave test of the high and yesterday may have started a C-Wave down of an EW “flat correction” that could take us down to test SPX 4441 into Friday before ending the correction. 

# The hot CPI report gave us a gap-down open early Thursday, but the SPX quickly recovered to fill the gap. 

# It was Fed President Bullard’s comment of a 1% Fed Funds rate by July and a 0.50% rate hike in March that sparked the bears to seize control of the tape in the afternoon and to test correction lows from the 2/2 high. 

# The bears remained diligent yesterday as the Option Premium Ratio remained elevated at 1.29 after 1.33 yesterday. 

# The bears have the ammo to push the SPX down to 4441 early Friday; a break below 4403 will have us questioning our short-term bullish bias on the SPX...

# Still, even though we believe that 2022 will be a bear-market year, we believe that we are in a “final blow off” rally in stocks began at SPX 4222 on 1/24 and that a fierce short-covering rally will take both the SPX and NDX to new all-time highs in the next few weeks. 

# Be agile, cash is still our largest position (~50%) and our best asset in this volatile market, because of the macro factors facing the global economy (Chinese credit contraction, rising global inflation, and rising global rates, new Covid variant, etc) but we have some SPY shares to play the short-covering rally in the SPX into March 20. 

# The US economy is highly levered to widespread speculation in stocks, stock options and digital currencies and trading profits may be difficult this year.

# In the US, the background monetary conditions have been deteriorating for months and (see the Closed End Fund (CEF) bond sector A/D line). 

# Bitcoin gave us a “Running B-Wave” that tested its R2 resistance pivot at 45905 before reversing down on Thursday. 

# Crude oil gave us 5-waves down to $88.41 on the hourly chart and a short-term SELL SIGNAL, the BPENER (bullish percent for energy stocks) is at 100%, pretty toppy here in the short term for oil stocks. 

# Gold tested $1843 after the hot CPI report, but got slammed down to $1823 as the 10-yr US rate rallied to 2.05% and bonds got sold hard. We are expecting a strong trending move in the next few weeks and our bias is higher.. 

# Silver tested $23.73 but got slammed back to $23 late Thursday as rates firmed up; we are expecting a trending move in silver to start soon. 

# Bonds got shredded after a hot CPI report and the 10-yr US rate rallied to 2.05%, the highest since 2019. 

# The USD is climbing back to test 96 Thursday evening....

Soaring Cooking Oil Prices Could Push Global Food Prices To Record

Just days ago, the FAO (Food and Agriculture Organization) Food Price Index (FFPI), a measure of the monthly change in international prices of a basket of food commodities, printed near a record high, a level not seen in more than a decade. We theorized last week that food prices were "set to hit a record high soon. " We now expect the Rome-based FAO index could be heading for a record high sometime this quarter and or as early as this month due to a rise in cooking oil prices. Malaysian palm oil futures powered to another all-time high late last week. "This matters because palm oil is the world's most-consumed edible oil and is used in everything from cooking to chocolate, lipstick, and fuel," according to Bloomberg. Higher palm oil prices could increase global food inflation to a record high when the next FFPI is released... 

Bloomberg explains the dynamics behind soaring edible oil prices. Supplies of soybean oil are under threat because heat and drought have cut soybean production in Brazil, Argentina and Paraguay. That followed a canola crop disaster in top producer Canada last summer. So little relief is in sight for consumers until the U.S. and Canadian oilseed harvests later this year. Concerns are also rising about sunflower oil because any potential conflict between top producers Russia and Ukraine could reduce supplies from the Black Sea. All this means is that the only way for food prices is up. The United Nations index climbed close to a record in January driven by more expensive vegetable oil and dairy prices. A further rise this month could potentially push prices beyond that mark to a fresh all-time high. The threat of record-high food prices isn't hitting everyone equally. Lowest income households are crushed the most worldwide. More than a year ago, everyone's favorite permabear, SocGen's Albert Edwards, explained soaring food inflation has the risk of triggering social upheavals, especially in emerging market countries first...

Bank of Japan Offers To Buy Unlimited 10 Year JGBs To Contain Bond Rout

While Fed chair Powell may have capitulated to the relentless daily demands from the one-term president who unleashed the cloest thing to hyperinflation the US has witnessed in 40 years, to somehow contain inflation (the kind of inflation the Fed has no control over) and to hike rates no matter what the fallout in capital markets is, and judging by today's stunning 30bps move in the 2 Year we are looking at some epic carnage... 

Japan, whose debt levels blow away every other nation in the world, is not willing to take any such gambles, and on Thursday, the Bank of Japan said it would buy an unlimited amount of 10-year government bonds at 0.25% in defense of the BOJ's Yield Curve Control limits, underscoring its resolve to prevent rising global yields from pushing up domestic borrowing costs too much. The offer will be made on Monday, the central bank said in a statement posted on its website after the JGB market closed, although should the US bond crash spill over to Japan, it will have to pull forward its bond market bailout. The announcement came after the 10-year JGB yield rose to 0.23% on Thursday, the highest since 2016 and close to the 0.25% cap the BOJ set around its target of 0%. The 10-year yield briefly fell after the news and was last at 0.22%... 

Investors have increasingly expected the BOJ to step in to rein in recent steady rises in yields. But the timing came as a surprise for some players as previous such operations were all announced during JGB market trading hours. As Reuters notes, stubbornly hot inflation in the West and growing hawkishness from other major central banks like the U.S. Federal Reserve had spurred some bets that the BOJ would need to taper its ultra-loose monetary policy soon, pushing JGB yields to multi-year highs. But while Japanese inflation is edging up, slowly, it remains well below the BOJ's 2% target and the economy's recovery from a pandemic-induced slump has lagged many of its peers. Wages, in particular, are not picking up as fast as in other countries.

* "The BOJ sent a strong message to markets of its resolve to curb any rise in yield above 0.25%," said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management. By announcing its plan days in advance, the BOJ sought to contain the selloff (and shorting) and discourage players from testing the 0.25% line as well as pre-empting any breach of that level, without actually having to purchase JGBs, said former central bank board member Takahide Kiuchi. "If the BOJ announced the offer during market hours, it would have had to buy huge amount of JGBs. That would be tantamount to strengthening monetary easing, which it wanted to avoid," he said. "It's a curve ball by the BOJ." 

Perhaps, but one way or another, the selling will continue as the rate rout spreads to Japan and the BOJ will have to step in. Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities, said the BOJ probably made the announcement as a precaution to avoid yields from spiking next week after a three-day holiday in Japan that begins on Friday. "It's uncertain whether JGB yields will slide back because the recent rise was driven by growing market alarm over global inflationary risks and higher U.S. Treasury yields," she said...

According to Valentin Marinov, strategist at Credit Agricole, the Bank of Japan’s offer to buy an unlimited amount of 10-year notes is part of efforts to restore its credibility and grip on yield-curve control: “The BOJ is trying to restore the credibility of its yield curve control policy framework which has come under pressure recently following the U.S. Treasuries selloff.” He added that "the BOJ is clearly not worried about a runaway inflation in Japan and instead seems to try to maintain favorable financial conditions." Under its yield curve control policy, the BOJ pledges to cap the 10-year JGB yield around 0% to keep borrowing costs low and stimulate the economy. In a policy review conducted in March last year, the BOJ clarified that it will allow the 10-year JGB yield to move 25 basis points on either size of zero. It was intended to breathe life back into a market made dormant by the BOJ's huge presence, where days would pass without a single trade. Markets have been focusing on how the BOJ would respond to creeping JGB yields. The offer to buy unlimited amount of JGBs at 0.25% would be the most powerful weapon the central bank has to control the 10-year yield around its target....

Bullard Bombshell And Soaring CPI Spark VaR Shock-nado, Rate-Hike Odds Explode

A 40-year-high print for US CPI and bombshell comments from St.Louis Fed's Jim Bullard stole the jam out of most investors donuts today as the hawkish implications of the far hotter than expected inflation print sparked a total VaR Shock across every asset class Notably, even The White House commented that it would be appropriate for The Fed to recalibrate support for the economy (after blaming the soaring inflation on the pandemic). This sounds a lot like "meddling" with the independence of The Fed (cough Trump cough) but seems like a clear message to Powell that it's ok to crash the economy (to slow inflation) perhaps in the mistaken belief that it will somehow help his approval ratings? 

Since even Goldman admitted that the Fed has never successfully hiked its way into a soft landing, Biden is basically telling Powell to start a recession to undo the consequences of his idiotic fiscal policies that have sparked the biggest inflationary conflagration since Volcker... and having no job and soaring inflation would make matters worse for Biden's approval rating... 

As David Rosenberg (@EconguyRosie) notes, the best way to cure inflation? Recession. Yield curve getting close to inverting and making the call, 2s/10s less than 50 basis points away and 5s/10s within 10 basis points. Never mind bonds, things are getting very interesting for the stock market. Will the bulls fight the Fed? St.Louis Fed's Bullard piled on, urging a 50bps hike asap and suggesting an inter-meeting hike (and a Q2 start to QT). What the hell happened in the last 9 days to get to that from this...

The Fed has not started a rate-hike cycle with a 50bps increase since at least 1990. Rate-hike odds exploded higher with a 50bps hike by March now fully priced in... 

Even February now pricing in some rate-hike premium... 

Finally, the market is pricing in a 75% chance of 7 rate-hikes this year... 

Today saw the greatest front-month Fed Funds Futures volume day ever. The volumes were at 300,000 in late Thursday trading, that’s about eight times more than usual levels... 

The biggest drop in ED prices (increase in rate expectations) for the White pack (front 4 quarterlies) since Sept 29th 2008 when Congress failed to pass the bank bailout bill... 

With rate-hike expectations dramatically front-loaded in the white and red packs... 

Yields exploded higher across the curve with the short-end massively underperforming (2Y +25bps, 30Y +8bps)... 

Pushing 10Y yields above 2.00% and 2Y above 1.60%... 

30Y Mortgage rates surged above 4.00% today as the taper tantrum spreads to the housing market...

As the market anticipates a sooner and faster rate-hike trajectory, the yield collapses as it prices in an imminent policy error. The 5s30s curve crashed to just 35bps above inversion today...

In the last 30 years, there have been just two times where the curve inverted and in both cases it was brief. Both times a recession followed but also the curve widened as short- term rates fell more aggressively than the longer end of the curve. The last time we saw rates this jumpy was 2008/9... 

The forward market shows 2s30s has actually inverted one-year out (recessionary indicator)... 

Equity markets were an utter shitshow also today, flying around all day until Europe closed and then it was "sell Mortimer, sell!" with all the majors closing at the lows of the day. Nasdaq was the worst performer on the day but Small Caps had the wildest swings... 

Today's drop sent The Dow, S&P, and Nasdaq back underwater on the week. The S&P fell back below its 100DMA, as did The Dow... 

All the sectors ended red on the day, with financials and energy the least bad horse in the glue factory...

Notably financials are still relatively outperforming the market (as rates rise), but have dramatically decoupled from the yield curve... 

Nasdaq has a long way to fall relative to Small Caps if Real Yields are to be believed... 

Credit markets cracked wider again today and VIX started to play catch up... 

Credit anticipates, equity confirms... 

The Dollar was utter chaos: soaring on the hawkish CPI print, then collapsing to 4-week lows before rebounding on Bullard's hawkish comments... 

The dollar closed unchanged on the year...

Bitcoin was just as chaotic, dumping below $43.5k, ripping to almost $46k, and then back to $44.5k...

Gold ended the day marginally lower but also had quite a volatile day... 

WTI ripped back above $91.50 after tumbling on CPI, then fell back below $90 at the settle... 

Finally, the forward OIS market is signaling rate-cuts are coming between 2023 and 2024. The last time the market was here, The Fed folded on its monetary tightening... 

In fact OIS expect rates to top in Dec 2022 before The Fed is forced to react...