So U.S. stocks could have done without the “Mueller indicts 13 Russians for conspiracy to defraud America” headline, but other than that, Friday was a fitting close to the second-best week for equities since 2011.
To be clear, no one was able to offer a satisfactory answer as to why stocks suddenly are immune to the very same inflation worries that triggered February’s market turmoil and threaten to push 10Y yields beyond 3%. This week brought still more evidence that price pressures are building as the closely-watched CPI print beat and Thursday’s Fed surveys and PPI data told a similar story.
For the time being, it appears the BTFD mentality and the notion that the systematic selling is behind us were enough to assuage fears and underpin a “bigly” bounce for stocks. Again, this was the second-best week for U.S. equities since 2011.
While there are undoubtedly a handful of folks out there like who are feeling vindicated after the correction and the short vol. blowup, I can’t help but think that the ardent bears are feeling a bit like Gabriel Byrne from the classic Coen brothers mob film Miller’s Crossing. At one point, he smashes a mirror in a room while arguing with his lover only to have her simply brush him off completely – “I suppose you think you’ve raised hell”…
That’s where you find yourself now if you’re a bear. Looking at the mirror you broke and swearing that “when you’ve raised hell, the bulls will know it.”
Treasurys trimmed weekly losses on Friday, as 10Y yields pared some of the post-CPI advance but as noted above, we’re not out of the woods on the bond selloff yet, especially with lingering questions about foreign demand.
The VIX pushed back above 20 on Friday following the Mueller headline. Here’s the big picture:
The yen was of course the big story in FX land this week, as USD/JPY fell below its 2017 low and multiple officials were effectively forced to either comment or refuse to comment which is of course the same thing as commenting. FinMin Taro Aso said he’s “watching” and noted that the government will intervene “when needed” while senior FX policy bureaucrat Masatsugu Asakawa called recent FX action “one-sided” before noting that Japan will “act appropriately, in line with G-7 statements.” This is the situation:
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