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Yellen Pulls Rug Out From Powell’s Dovish Promises: Gold Gains As Banks Bust


Yellen Pulls Rug Out From Powell’s Dovish Promises: Gold Gains As Banks Bust

Tl; dr: “Damn it, Janet!”

Nothing sums up the ‘trapped’ Fed better than today’s price action…

  • GME soaring: a legacy of record QE and helicopter money

  • PACW crashing: a legacy of the fastest rate-hikes since Volcker

Fed Chair Powell hiked rates by 25bps and maintained QT (as expected), offering a dovish tilt in the statement and his comments.

But, he summed it all up succinctly early in his press conference: “It will be bumpy” describing the process of getting inflation back down, adding that it “has a long way to go.”

But as usual, all the major price action took place as Powell spoke.

As Guy LeBas (@lebas_janney2m) commented:

“The choice to start the presser with a discussion of the banking system has a clear policy message: the mini-banking crisis is the most important thing in the Fed’s thinking right now. Second is the focus on the labor markets, which policymakers still seem to view as too tight.”

Powell claimed that “deposit flows in the banking system have stabilized”, noting their strong actions, but he fails to comment on the massive rotation likely below the surface from small-banks to big-banks (since deposit flows OUT of the banking system may have stabilized but we suspect the rotation hasn’t).

Someone forgot to tell banking system investors…

Powell says FOMC considered a pause, but hike was supported by “strong consensus”.

Powell dismissed market’s expectations: “Rate cuts are not in our base case.”

Powell said some members recognized the impact of the financial system crisis on credit tightening – which could do the job of some rate-hikes.

This prompted a ramp in stocks (and bonds) as the market smells fewer rate-hikes if the credit market tightens itself.

We have our own opinion on that relative to the impact on the consumer…

Not exactly something stocks should get excited about.

Bloomberg’s model suggests Powell’s opening remarks from the post-meeting press conference were much more dovish than the recent trend, though still slightly hawkish, according to Ira Jersey. This move was driven mostly by more dovish statements, but also less hawkish ones, he said.

“The indicator is quite close to neutral, suggesting the possibility of a pause has increased meaningfully at the May meeting compared with the recent past.”

Then Janet struck:


And that took stocks to the lows of the day…

Stocks bounced – as they do – after Powell ended his presser, but that faded too.

Small Caps (small financial-heavy) were the ugliest horse in the glue factory while big-techs (Nasdaq) was the least bad of all…

The S&P reversed around the 50DMA then plunged back below its 100DMA…

Yesterday’s short squeeze was completely erased…

Regional banks took a hit…

With First Republic Bank getting slammed…

And PacWest plunged…

So, the goal of today was to stabilize banks and instead, they blew them up… “Damn it, Janet!”

Office REITS hammered again

Source: Bloomberg

Treasury yields jumped overnight and were drifting lower into The Fed statement. The dovish bias sparked a further plunge in rates with the short-end notably outperforming (2Y -20bps, 30Y -6bps). On the week, 2Y remains the laggard (+15bps) while 30Y is up just 4bps…

Source: Bloomberg

…and the yield curve steepened…

Source: Bloomberg

The 2Y yield dropped back below 4.00%…

Source: Bloomberg

Rate-hike expectations tumbled for the latter half of 2023…

Source: Bloomberg

The odds of a 25bps hike in May dropped from around 70% to below 50%…

Source: Bloomberg

The dollar puked to 6-week lows…

Source: Bloomberg

Bitcoin was clubbed like a baby seal, down from almost $29k to below $27,500…

Source: Bloomberg

Gold spiked on the dovish statement…

Oil extended its gains from yesterday with WTI back above $70…

Finally, it is worth noting that two stocks account for over 13% of the S&P 500 for the first time since the 1970s

Source: Goldman

As goes MSFT and AAPL, so goes America.

Tyler Durden
Wed, 03/22/2023 – 16:00

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