Thursday undid most of what Wednesday had done, and none of the day’s data explains it cleanly.

The anchor was the Federal Open Market Committee decision, which crossed at 2pm Eastern on Wednesday. The Committee raised the federal funds target range by 25 basis points to 3.75%-4.00% from 3.50%-3.75%, a unanimous 12-0 vote, saying inflation remains elevated and that the increase would support a timelier return to the 2 percent goal. The calendar carried no forecast against the 3.75% prior, because the decision itself was the open question. Equities took it badly, and the S&P 500 closed Wednesday with its seventh loss in eight sessions.

Then the curve fell. The two-year Treasury yield finished Thursday at 4.67%, seven basis points below Wednesday, the 10-year at 4.94% from 5.01%, and the 30-year at 5.29% from 5.35%, on the Treasury’s own daily par curve. A six-to-seven basis point decline across the entire structure, one day after a hike with more of them signalled in the projections, is the market marking down its expected policy path rather than its term premium. A committee that proves it will move buys credibility on inflation, and that credibility is worth basis points at every maturity.

Equities collected the proceeds where duration runs longest. The Nasdaq Composite rose 1.69% to 26,418 with technology leading the tape at 2.17%. The S&P 500 gained 1.14% to 7,637, the Dow 0.62% to 51,779 and the Russell 2000 0.55%. That is discount-rate arithmetic running in reverse.

What makes the session awkward is that both 8:30am releases argued the other way. Initial claims for the week ending 12 September printed 196,000 against a 209,000 forecast, down from an unrevised 206,000, with the four-week average at 203,250 and continuing claims falling to 1.73 million. Layoffs keep getting rarer. The Philadelphia Fed’s September manufacturing index came in at 37.8 against a 28.9 consensus, below August’s five-year high of 47.4 but well clear of what anyone expected. Inside the survey, prices paid climbed to 48.6 from 40.9 and prices received to 31.3 from 17.7, close to a doubling in one month. Regional manufacturers are absorbing higher input costs and passing more of them along.

A tight labour market and accelerating factory prices are precisely the conditions that argue for another hike. The bond market bought duration regardless. Sentiment offers the likeliest read: the AAII bull-bear spread had collapsed to -24.6% from -1.3% a week earlier. Thursday looks like washed-out positioning unwinding into a cleared event, with the data along for the ride.

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