Rates Eye Range Highs Ahead Of Inflation Data- Morning Market Squeeze

Key Tactical Takeaways:

>  The ECB's decision to keep its rates and both the size and duration of its PEEP program unch meets expectations. While EURUSD is slightly higher on this news, the euro-heavy DXY is likely in the midst of a...

> Although the VIX confirmed a breakdown in the short-term trend of rising volatility with Wednesday's close below 30.3, ... is now the supportive line in the sand that keeps the near-term trend leaning in favor of higher VIX levels.

> Both the Shanghai Composite and HANG SENG have shown meaningful signs of momentum and price deterioration in recent days, suggesting that...

Some Quick Thoughts:

This has been a very important week for interest rates, with epic levels of supply (both Treasury and corporate) weighing and key readings on inflation about to hit the tape (today's PPI and tomorrow's CPI reports). With inflation expectations rising steadily and hovering around 9-months highs of late, the latter (PPI and CPI) will demand greater attention than usual. Despite Tuesday's large slate of investment grade new issues and Wednesday's ugly, tailing 10-Yr auction, benchmark 10-Yr rates remain rangebound.

The 10-Yr Treasury’s near-term technicals do lean ..., but until the major equity indices confirm that they're able to sustain Wednesday's rebound Treasury hedges may make it difficult for rates to ....  That is, unless inflation figures come in hot or today's 30-Yr supply brings abysmal demand.

The action in both 5 and 10-Yr yields has left the two most rate-sensitive sectors, financials and utilities, locked in ranges of their own. The ratio between these two sectors often provides a leading indication of the next tradable move in rates. Unfortunately, that just isn't the case right now. Another leading indicator tends to be the ratio between copper and gold price. While this ratio is currently on an upward trajectory, which is supportive of  higher yields, the momentum behind this key ratio is currently struggling to acquire the kind of upside escape velocity needed to lend credence to the idea that rate about to break higher.

The Shanghai Composite ended -0.61%, at the lowest levels since 07/27, below its now lower sloping 50-DEMA. The Nikkei ended +0.80%, in the middle of a month-long range. The DAX is essentially unch in the wake of this morning ECB announcement. 

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