Heads up: US bond market closed for Veterans Day as stocks face a hot CPI hangover
Talk about picking an awkward time to take a day off, eh?
Wall Street was left licking its wounds yesterday after the hotter-than-expected US inflation data sent Treasury yields surging and stocks tumbling. And just as traders are trying to make sense of the fallout, the bond market is going to be off on a holiday.
A reminder and a quick heads up that today is Veterans Day in the US, meaning the bond market will be closed while stock markets will remain open as per usual.
As such, that makes for a rather peculiar setup after yesterday's market reaction to the inflation numbers.
Headline inflation came in at 0.4% m/m in October against the 0.3% expected, while core inflation rose by 0.3% m/m versus estimates of 0.2%. And that was enough to reignite concerns over the Fed potentially having to tighten policy more aggressively in December, especially after Fed governor Waller warned about perhaps needing to move by 50 bps on stronger price pressures than anticipated.
The bond market reaction was jarring. 2-year Treasury yields jumped by roughly 18 bps to 4.74%, while 10-year yields climbed by around 12 bps to to settle at 5%. In turn, equities weren't too pleased with the S&P 500 falling 0.4% and the Nasdaq shedding 0.7%. But for a late recovery, the selloff in stocks would've been much worse.
So, what does that mean for trading today?
With the bond market and fixed income traders out of action, we won't have the usual response from Treasury yields to help gauge whether yesterday's inflation shock is being digested or repriced further.
Taking that into consideration, I suspect that could leave broader markets trading with less conviction, particularly as some institutional participants also step away for the holiday. Having said that, let's not mistake quieter conditions for being an absence of risk. Thinner liquidity can also exaggerate moves when larger orders hit the market, especially if equities continue to struggle. So, just keep that in mind.
For the European morning session to follow, I'd be keeping an eye on US futures, the dollar and whether tech stocks can find their footing before we get to the Wall Street open later.