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E-mini S&P and E-mini NQ futures rallied on the heels of the Fed’s 25bps hike and the committee’s dot plot that showed a terminal rate of 5.1%. Fed Chair Powell did not surprise markets, he emphasized stubbornly high services inflation and no plans for rate cuts in 2023. Remember, due to the market’s reaction function, even if the Fed thought there was a slight possibility of a rate cut later this year, they could not communicate it. One could extrapolate the Fed hiked by 25bps in the face of a banking crisis, and Powell was not dovish, no wonder the E-mini S&P and E-mini NQ hit resistance, trapped buyers, and reversed sharply. However, we believe U.S. Treasury Secretary Yellen had no small part in that reversal. According to Reuters, she said, small and mid-size banks across the U.S. are worried about contagion and are shoring up liquidity to protect themselves from runs. Ultimately, this means corporate and personal credit will dry up. Furthermore, she indicated, “We can debate in the future whether to raise the FDIC insurance limit above $250,000.” Her comments aligned closely with a decisive break below 4030 in the S&P, the Fed policy announcement low. The XLF, the Financial Sector SPDR ETF, was marginally negative prior to those comments and led the way lower, finishing -2.32%. The KRE, the SPDR Regional Bank ETF, was roughly -1.5% prior to Yellen’s comments and finished -5.69%. With that now fleshed out, we want to reemphasize the reversal was not only Yellen, we also did not get ‘disinflation Powell’, and the market was certainly looking for a more dovish rhetoric.

The Bank of England hiked rates by 25bps this morning, as expected. Remember yesterday’s U.K. CPI data for February was above expectations with headline reaccelerating to tap 10.4% y/y, versus 9.9%, and increasing 1.1% m/m, more than the +0.6% expected. In January, m/m disinflated by -0.6%.

Resilient Weekly Initial Jobless Claims again came in better than expected at 191k versus 197k.

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