Daily Market Color

Caution Exhibited in Financial Markets Ahead of Inflation Data

US equities traded within a tight range throughout the day, opening the session marginally lower before paring losses and finishing in the black.  Major US indices finished 0.2%-0.5% higher, driven by shares in the financial and retail sectors.  Treasury prices also climbed on the day, as yields/swap rates fell 1-5bps across the curve in a bull-flattening pattern.  The 10-year note yield declined 3 bps and is poised to finish the session near 2.83%.  The US dollar fell for a third consecutive day, losing 0.4% against major currencies to its lowest levels in more than a week.     

Tomorrow morning financial markets will be geared up to receive the inflation data for January, where a 1.9% YoY rise in headline CPI and 1.7% increase in core CPI is expected.  If the data were to display a faster pace of consumer price growth than median forecasts, markets may find themselves in a similar situation to that of February 2nd, where a better than expected jobs report prompted a surge in volatility.



Manipulation of the VIX?

Volatility was the buzz word during last week’s wild ride for equities, however it turns out that the dramatic swings in the VIX may have not been properly reflective of actual market movements.  Today it was reported that an anonymous whistleblower recently sent a letter to the SEC and CFTC to “contend that the liquidation of the VIX ETPs last week was not due solely to flaws in the design of these products, but instead was driven largely by a rampant manipulation of the VIX index.”  The text alluded to “unethical electronic option market makers” who were able to utilize “sophisticated algorithms to move the VIX up or down by simply posting quotes on S&P options and without needing to physically engage in any trading or deploying any capital.”  The Cboe has yet to confirm the existence of any such actions, and deemed that their was a lack of credibility in the letter.



Fed’s Mester Maintains Rate Hike Outlook

During a speech in Dayton, Ohio earlier today, Federal Reserve Bank of Cleveland President Loretta Mester (voter, hawk) outlined her preference to move forward with gradual interest rate hikes at a “pace similar to last year’s.”  That particular sentiment would align Mester’s views with three more hikes in 2018, however she specifically noted her favoring of a slightly more aggressive pace of increases.  Speaking to last week’s slump in financial markets, Mester maintained her stance that “I expect the economy will work through this episode of market turbulence and I have not changed my outlook” and further explained that “Trading has been relatively orderly, markets have remained generally liquid, and there hasn’t been a pullback in credit.”  Newly appointed Fed Chair Jerome Powell echoed a similar tone during his swearing-in speech in Washington, suggesting that the central bank move ahead for monetary policy normalization despite the recent volatility.      


Ready to start a conversation?

We offer free consultations and platform demos.

Let's Talk