Treasury Yields Tumble, Erase PPI-Spike

Stocks are mounting a modest comeback after the pre-open dump…

but hotter than expected import prices have sparked significant buying in the long bond, which has now erased all yield gains from the CPI spike…

 

As we detailed earlier, when commenting on recent moves in the market, Nomura’s Charlie McElligott correctly said that the culprit for the sharp move higher in stocks was the ongoing recent drop in the USD:

I REALLY think that it was the USD breakdown which provided the most relief for US equities.  The Bloomberg Dollar Spot index sits on the cusp of breaking-down to a new 3.5 year lows with a frightening amount of room to fall (no support til 1065—the 76.4% retracement of the 5 year BBDXY rally—which is another -4.5% move). 

Well, following today’s barrage of data, which showed both housing starts and permits coming in way “hot”, and core import prices surging at the highest pace in 6 years, the dollar – which earlier had slumped to 3 year lows against its major peers – found a bid, in line with our musing earlier in the day…

… and with minutes to go until the market open, the BBG Dollar Index was at session highs.

And in kneejerk response, S&P futures – which no longer track 10Y yields but the dollar – erased earlier gains and traded at session lows, with Dow Futures down as much as 97 points, while S&P futures were down 7 points.

As Bloomberg adds, “the torrid recovery in American equities looked set to falter Friday as investors look ahead to a three-day weekend in the U.S. The S&P 500 remains 5 percent below its Jan. 26 record. The slowdown in the Treasury selloff eased concern that higher borrowing costs would hinder equities as economic growth accelerates. “

So as a result of the latest regime shift, keep an eye on the dollar to determine which way futures will be trading, unless of course, the algos switch correlation pairs again, and resume trading in sync with yields instead of the USD.

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