Volatility spikes on inflationary data

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Published Date 6/1/2022

Mohamed El-Erian, yesterday in an interview on Bloomberg, was not encouraging. He pointed out what is common knowledge that the Fed didn’t move quick enough to head off inflation, El Erian said the Fed should have begun tightening last November when the economy was doing well, waiting until now will lead to a recession or at best a softish landing. The wider sentiment is becoming more bearish toward the economy with increasing numbers of firms and analysts tilting toward the growing view that a recession is more likely.

Yesterday Pres. Biden met with Powell and Janet Yellen to emphasize that the administration is increasingly focusing on inflation. The Fed is doing what it can, increasing rates at a rapid pace and will begin lowering the Fed’s balance sheet, letting treasuries run-off as the mature and making a lot of comments about cutting MBS purchases. The Fed trying to engineer a soft landing for the economy as rates increase, the possibility of that is being increasingly questioned by more and more analysts. Janet Yellen yesterday on CNN; “I think I was wrong then about the path that inflation would take,” “There have been unanticipated and large shocks to the economy that have boosted energy and food prices and supply bottlenecks that have affected our economy badly that I didn’t, at the time, fully understand.”

At 9:30 am the DJIA opened +232 (-223 yesterday’s close), NASDAQ opened +100, S&P +27. 10 yr. at 9:30 am 2.87% +3 bps. FNMA 4.5 30 yr. coupon at 9:30 am -10 bps from yesterday and -14 bps from 9:30 am yesterday.

At 9:45 am the final May PMI, the index expected at 57.5 declined to 57.0. China's Caixin Manufacturing PMI remained in contractionary territory for the third month in a row. In the UK May Nationwide HPI rose 0.9% m/m (expected 0.6%; last 0.4%) increasing 11.2% yr./yr.

At 10 am May ISM manufacturing index expected at 54.5 increased to 56.1.

Two Fed officials speaking today; John Williams NY Fed, James Bullard, St. Louis Fed. Both have been pushing the Fed to move even quicker increasing rates.

Source: TBWS

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