High Frequency Trading, PPI Misreads Helped Fuel a Short Squeeze... Now What

It was the best day for the market since November 2024... and it ignored the obvious about inflation's return - especially in the energy sector.

Action to Take: With inflation and jobs behind us, it’s time to shift our focus 6,700 miles west to Tokyo. The Bank of Japan appears poised for another rate hike next week, with odds now at 77%. Last August’s unexpected BOJ move sparked a massive selloff in U.S. markets, sending the VIX soaring above 60 in the sharpest drop since Covid. While this hike is more anticipated, Japan is a major holder of U.S. Treasury debt (second to the Federal Reserve.) It's time to pay close attention because the mainstream press appears to have buried the lede, and we will be vigilant.

This is already showing up in Japan’s bond market. Japan’s 40-year government bond yield hit its highest level ever at 2.755%, and 20-year yields are the highest since 2011. Japanese traders, expecting a BOJ rate hike, are likely selling U.S. Treasuries to prepare, adding pressure to global debt markets.

Monitor the VIX for early warning signals. A sudden spike in volatility could easily trigger the market downturn on the …