💣Here comes the bear🔫

A choppy trading day as our least favourite animal, the bear, visited the equity market, with the Nasdaq entering another low for the year. Although we are seeing some sign of recovery, most Dow companies still closed in the right. 

We also see expanded risk in the UK financial system. The BoE had announced a plan to purchase more than $5 billion of its indexed glits, essentially British government bonds. Indeed, as the UK government set to sell enormous government bonds, it hurt the financial stability. The BoE cannot be infinitely buying bonds to cap the yield to lower borrowing costs while taming inflation concurrently.  

The wild move in the European market and the region’s potential recession are the day’s narratives. 

💎Bond market is under stress – we need inflation to come down🎯

The bond market is showing more signs of cracks almost daily as the weakening of credit quality and tightening liquidity added to the risk-off sentiment. 

Indeed, since the start of the year, the conversation on liquidity and credit has propelled ongoing discussions on the economy’s path. As the Fed had to stop bond purchases from pushing interest rates with the end goal of cooling inflation, financial market choppiness set in. 

One can expect more volatility without stable liquidity in the US Treasury market. Already, some fixed-income strategists are calling on central bankers to moderate their pace of tightening to prevent the unleashing of animal spirit in the financial market that could swiftly soak up liquidity at times of multi-front headwinds. 

Pika World will monitor large swings in the bond market that could hint at traders’ expectations of the economic outlook. 

📮What’s on the menu today?📖

We have two critical pieces of information today. 

At 8.30 pm, we will receive the PPI data, and we expect it to rise to 0.2% from the drop of 0.1% in the prior period. 

The FOMC minutes will be released at 2 am, and market participants will expect heavy scrutinising of the tone of the FOMC members’ projection narrative. 

More importantly, all eyes are on Thursday’s CPI data which will let us know if we can have a relief rally.