Market Expects Fed Will Blow It Up

The odds of a 100 bps hike are now above 80 percent. This will unleash extreme curve inversion assuming the market sees this as the top and long-bonds rally.

Extremely negative economic outcomes should be expected in this moment should the Fed follow through. Contrast that with stocks that are bouncing between green and red today tells me the rally thesis is intact. It could take two weeks until the Fed meeting depending on how assets behave. I do expect that in a bear scenario, oil could be below $80 per barrel by the Fed meeting or shortly after.

The next Fibonacci down on USO correlates to around $80 per barrel oil.

Update: Jeff Snider calls it the most screwed up yield curve ever:

This is not normal. This is not fine. This is absolutely the end of "inflation."

Markets after today's "red hot" CPI, most inverted yet (USTs, too).

The curve has never been this f-ed up. Not even '07. pic.twitter.com/GOpHZH5fM2

— Jeffrey P. Snider (@JeffSnider_AIP) July 13, 2022