Citi says investors have up to six weeks to keep squeezing the bears after the inflation surprise

If inflation really has truly peaked, there’s really just two questions — how fast will inflation come down, and will the Fed hikes designed to tame high prices drag the economy into a recession. “CPI peak is in,” declared Warren Pies, the founder of 3Fourteen Research, on Twitter. “The question is whether the data cools quicker than earnings deteriorate.”

Strategists at Citi say the next few weeks could be quite enjoyable. “In truth, it’s difficult to find any bearish catalysts between now and the December payrolls, CPI and FOMC,” said a team led by Jamie Fahy.

The bank put together a chart of all the downside CPI surprises since 2008, showing that typically, the equity market tends to rally for the following 60 days.

“This all doesn’t mean that we think equities are all of a sudden 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 can painfully squeeze for the bears,” they say.

Citi, it should be said, had been recommending investors short the S&P 500, so they missed out on Thursday’s fun, though the team says their put recommendation was bought at a price cheap enough to still be slightly profitable. They said their model suggests the bulk of shorts were initiated at 3760, meaning these positions are now heavily underwater.

Fahy and the Citi team also advise going long U.S. Treasurys
BX:TMUBMUSD10Y
and shorting the dollar vs. the Norwegian kroner
USDNOK.
The Australian dollar, the New Zealand dollar, the British pound and the Swedish krona also have tended to rise when the S&P 500 climbs and the yield on the 10-year Treasury falls.

The market

The rally appears to have legs, with U.S. stock futures
ES00

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higher. Crude-oil futures
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climbed as China took a step to loosen its zero-COVID rules. The dollar
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was sharply lower vs. rivals.

The buzz

China said it’s reducing the amount of time passengers will be required to undergo quarantine in a relaxation of its strict zero-COVID rules. However, in Beijing, parks were closed as officials responded to a wave of COVID-19 cases.

It’s Veterans Day, so there are no economic releases from the government, though the University of Michigan’s consumer sentiment report for November is due at 10 a.m. Eastern. The holiday also means a break in the earnings release calendar.

There are still no calls made on House or Senate control. The New York Times says there are 222 districts where Republicans won or lead, which is more than the 218 needed for House controlled. In the Senate, there are indications Democrats will take both Arizona and Nevada, which will mean the Georgia runoff wouldn’t determine control of the upper chamber.

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

JPMorgan resumed coverage on Intel
INTC
with an underweight rating and a $32 price target, as the broker said it would take several years before Intel is able to reclaim technology leadership.

Cryptocurrency lender BlockFi said it was pausing withdraws in the wake of the turmoil at FTX, which had provided BlockFi with a $400 million credit facility. The Bahamas securities regulator froze the assets of FTX Digital Markets.

The White House said President Joe Biden will announce at the 27^th U.N. Climate Conference that the U.S. Environmental Protection Agency is strengthening the agency’s proposed standards to cut methane and other harmful air pollutants from the oil and natural gas industry

The U.K. economy weakened by 0.7% in the third quarter, though that was partly due to the mourning period for the death of Queen Elizabeth II. The European Union forecast two quarters of negative growth, meeting the technical definition of recession.

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