The stock market experienced another decline of approximately 75 basis points (bps) today, with the index dropping below the key support level of 5,600. This breach opens up the possibility of a further decline to the 5,400 level. However, it is important to note that a break of support is not confirmed until there is follow-through, and we will need to observe today’s trading session to assess the validity of this move.
The recent release of the CPI report adds a layer of complexity to the market dynamics. Additionally, the market closing at 30 presents a challenge in terms of predicting future movements. The upcoming news event could potentially trigger a volatility crush, although the extent to which the CPI report has already been priced in remains uncertain.
In recent sessions, the VIX 1-day has only seen a modest drop of around 8 to 10 points at the open, suggesting that a significant rally following the CPI report may not be imminent. The significance of the CPI report for February is also debatable, given the rapidly evolving fiscal policy landscape. While a scenario of higher-than-expected CPI could spark concerns of stagflation, current indications from the swaps market suggest that expectations are in line with analysts’ estimates. Swaps have been pricing at 2.9% year-on-year for an extended period, indicating a level of consistency in market sentiment.
Widening Credit Spreads
Credit spreads are displaying signs of activity, with movements suggesting a shift in market dynamics. The breakout above key resistance levels indicates a potential path for the CDX 5-Year HY index towards 400. The unfolding situation underscores the challenging nature of the current market environment, with ongoing deleveraging processes contributing to heightened uncertainty.
In conclusion, the market is facing a confluence of factors that are shaping investor sentiment and driving volatility. The interplay between economic data, policy developments, and market technicals underscores the need for a cautious and informed approach to navigating these turbulent waters. Stay tuned for further updates as the market continues to evolve.
Source: Original Post