Midday market 10/13: CPI sends market plunging, SPY reversal raises suspicions of FED intervention

Continuing a CPI report showing inflation still on an upward trend despite the Federal Reserves' efforts. Inflation reached 8.2% year-over-year, higher than the forecasted 8.1% with core CPI hitting 6.6%, also slightly higher than the expected 6.6%.

Among them, energy and airfare prices are still the sectors increasing the most currently, with airfare up 42.9% year-over-year. However, it's also alarming that food prices have increased by an average of 20%.

Market reacts strongly after CPI report with both S&P 500 and NASDAQ dropping sharply 2% and 3%, while 10Y note yield pushes through 4.00% before open. However, both stocks and bonds rally back right at the open. This event leads many investors to speculate that the FED has officially made a light intervention in the bond market this morning, buying bonds, lowering yields, and providing necessary liquidity to the stock market, similar to what the Bank of England did in the past few days. Following that, information from ECB (European Central Bank) shows long-term interest rate expectations at 2.25%, much lower than market expectations. This creates a fairly stable psychology for investors and leads to a strong shorts-cover rally in the morning when VIX crushes all the puts at both SPY~350 put walls and then SPY~360, including puts bought in the “overreach” environment in the first minutes.