FOMC Nerves

The trade today will be about positioning ahead of tomorrow's FOMC meeting.  You got some hot CPI numbers and the bonds are getting whacked on that.  But also a lot of bond managers are hedging here ahead of a possible tape bomb coming from Yellen's lips.  I can feel the anxiousness in the bond price action this morning.

I think the Street is jumping the gun here, trying to extrapolate the BOE's hawkish talk to the Fed.  The UK has a totally different problem than the US.  They have a growing housing bubble, and they are trying to contain that by raising interest rates.  The US situation is completely different, and has much bigger ramifications for the global economy.  The Fed is well aware that being hawkish will automatically raise yields in an instant, which would be similar to what we saw last June.  Yellen will likely be much more careful with her words this time around, no more "6 months or so" like comments.

What is surprising how the stock market also got hit hard on that CPI number.  I can't remember the last time we had a drop like that on a hot CPI.  The S&P does look tired up here, and with the heavy call volume lately, we probably see sideways to down action over the coming weeks.  Also, you are coming up on some seasonally weak periods in equities.

I remain long Treasuries, which is a longer term hold for me.  That is enough risk exposure setting up for downside equity price action.  I am still not brave enough to venture into the short side.