Powell is closer to talking about you know what, Biden’s 200M shot goal, yields spike, FX, bitcoin’s option expiration

US stocks are dropping as investors shrug off improving growth and jobless claims data and focus on Fed Chair Powell’s comment about talking about rolling back aid.  After months of reiterating that Fed is not ready to start talk about tapering, an early morning NPR interview delivered a candid comment led everyone to think we are a few months away from hearing how the Fed will gradually change policy.  The timing of Powell’s comments and better-than-expected jobless claims data and fourth-quarter GDP painted a picture that the economy is about to see substantial progress with employment and pricing pressures.  Powell’s comments are not the beginning of the taper tantrum for markets, but did provide a reminder at how dependent stocks are for the punchbowl of stimulus.

Fed’s Clarida and Barkin also spoke, but did not really move the needle.  Clarida said downside risks to the economy are much diminished and that rising yields reflect optimism on recovery and fiscal aid.  Barkin noted that the US could see above-trend growth for some time, not just this year.

Wall Street will likely enjoy an early lunch as everyone will be back at their work-from-desks to see how strong demand is for a seven-year Treasury auction and if President Biden provides any insights to what his response will be to rising geopolitical risks with China, Russia, and North Korea.  This will be Biden’s first formal press conference as president.

Peak optimism is in the rear-view mirror and risk appetite will not bounce back without a fresh catalyst.  The cyclical rotation isn’t dead it just got overdone.

Treasuries

Treasury yields were expected to see a period of calm leading up to this afternoon’s seven-year auction, but an unexpected wave of selling saw the 30-year Treasury yield surge from 2.29% to 2.33% around 10 am EST.  It is unclear if this is just some traders trying to wrap up their month-end moves before this afternoon’s key auction or if hedges are being done.

The dollar is rallying mainly from the weaker euro and will likely strongly react to this afternoon’s auction and Biden presser.  The short-term pain for Europe is still hitting the euro but that should start to wane.

Bitcoin

Bitcoin is selling off in advance of Friday’s historic USD5.5 billion expiration in options.  Crypto option traders were confident in writing insurance for Bitcoin and happily selling puts.  The USD40,000 strike price for bitcoin has the maximum open interest according to Delta Exchange CEO Balani, so that could prove to be massive support if selling pressure intensifies over the next 48 hours.

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.