Good morning,
Markets don’t correct without a catalyst, and there’s momentum building behind a familiar one: The Fed.
Interest rates broke out across the curve on Friday, but investors shouldn’t think of this as a one-day move.
Yields have been searching for direction for years, slowly consolidating and tightening into the apex of triangle patterns when you look at everything from the 5-year to the 30-year.
The long-term technicals have said these consolidations “should” resolve higher.
The recent history of Fed cutting cycles would suggest the peak is in, and they “should” resolve lower.
Score one for the technicals.
As today’s Playbook will show, the breakout should be believed, as should the Fed funds futures pricing, which now shows a hike as the likely next move. Any fan of market behavior should appreciate the deep irony of this happening the same week as the Senate confirmation for a Fed chair explicitly nominated for his promise to bring down interest rates.
I want to keep this report high-level and actionable, but tomorrow’s Overtime piece will go more in-depth on rates, underlying drivers of inflation, and what the breakeven markets are saying.
As for today’s report, we will look at:
The most important inflation and rates charts
Major index technicals
A reversal in semiconductors
ETF movers
Commodities and the dollar
Breadth
and more!
