Citi says investors have up to six weeks to continue to squeeze bears after inflation surprise

Citi says investors have up to six weeks to continue to squeeze bears after inflation surprise

Well, that was something.

Inflation is slightly lower than expected, then the rockets are out – the best one-day percentage increase for the S&P 500 SPX
since April 6, 2020 and the best one-day percentage rise for the Nasdaq Composite since March 24, 2020.

If inflation has really peaked, there are really only two questions: how fast will inflation come down and will Fed hikes designed to rein in high prices drag the economy down? in a recession. “CPI peak is here,” Warren Pies, founder of 3Fourteen Research, said on Twitter. “The question is whether the data is cooling faster than earnings are deteriorating.”

Citi strategists say the next few weeks could be quite pleasant. “In truth, it’s hard to find downside catalysts between now and December earnings, CPI and FOMC,” said a team led by Jamie Fahy.

The bank charted all the CPI downside surprises since 2008, showing that, generally, the stock market tends to rally for the next 60 days.

Markets tend to rally after CPI downside surprises.


“All of this does not mean that we think stocks are suddenly in a bull market again. [Earnings per share] is a major risk in the first half of 2023, but over the next 2-6 weeks the market may painfully tighten for the bears,” they say.

Citi, it must be said, had recommended investors sell the S&P 500 so they missed out on Thursday’s fun, although the team says their sell recommendation was bought at a price cheap enough to still be slightly profitable. They said their pattern suggests that the bulk of the shorts were initiated at 3760, which means these positions are now heavily underwater.

Fahy and the Citi team also advise taking a long position in US Treasuries BX:TMUBMUSD10Y
and short the dollar against the Norwegian krone USDNOK.
The Australian dollar, New Zealand dollar, British pound and Swedish krona also tended to rise as the S&P 500 climbs and the 10-year Treasury yield falls.

The market

The rally appears to have legs, with US stock futures ES00

upper. CL Crude Oil Futures Contracts
soared as China took a step to relax its zero-COVID rules. The DXY Dollar
was significantly lower than its rivals. Follow MarketWatch’s live blog.

The buzz

China has said it is reducing the length of time passengers will be required to self-quarantine as part of a relaxation of its strict zero-COVID rules. However, in Beijing, parks were closed as authorities responded to a surge of COVID-19 cases.

It’s Veterans Day, so there are no government economic releases, although the University of Michigan consumer sentiment report for November is due at 10 a.m. EST. . The public holiday also means a break in the results release schedule.

There are still no calls for House or Senate scrutiny. The New York Times reports that there are 222 districts where Republicans have won or led, which is more than the 218 needed for House control. In the Senate, there are indications that Democrats will take both Arizona and Nevada, meaning Georgia’s runoff will not determine control of the upper house.

FTX bowed to the inevitable and said it was filing for bankruptcy. Cryptocurrency lender BlockFi said it was suspending withdrawals following the turmoil from FTX, which provided BlockFi with a $400 million credit facility.

Tesla TSLA
CEO Elon Musk has raised the specter of the bankruptcy of Twitter, the social media service he bought for $44 billion.

JPMorgan resumed coverage on Intel INTC
with an underweight rating and a price target of $32, as the broker said it would be several years before Intel could regain technology leadership.

The White House has said President Joe Biden will announce at the 27e United Nations Climate Conference that the US Environmental Protection Agency strengthen the agency’s proposed standards to reduce methane and other harmful air pollutants from the oil and natural gas industry

Britain’s economy weakened by 0.7% in the third quarter, although this was partly due to the period of mourning for the death of Queen Elizabeth II. The European Union forecasts two quarters of negative growth, meeting the technical definition of a recession.

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