Daily Stock Market Recap per ZH

Bonds & VIX Dumped, Bitcoin & Stocks Pumped As Stagflation Signals Soar

Ugly growth (GDP), uglier inflation (Core PCE), ugliest housing data (pending home sales), and ugliest-er manufacturing sentiment (KC Fed)... but hey, META beat so BTFD in Mega-Cap Tech...



META is up 15% because their earnings dropped 20% but they mentioned AI 57 times.

That helped Nasdaq extend its outperformance (best day since Feb 2nd). The S&P managed a 2% gain before limped lower into the close and Small Caps were the solid runners up in the squeeze race today... The Dow, S&P, and Nasdaq all just took off as soon as cash trading opened...



Today's rampage saw S&P and Dow get back to even on the week while Small Caps lag as Nasdaq soars. Notably, S&P and Dow stalled perfectly at unch and held it, unable to push higher...



Nasdaq is back at recent highs...



There was a notable divergence between 0DTE VIX and 'Old' VIX (the latter offered as the former was bid)...



Source: Bloomberg

Under the hood, this had the smell of 0DTE call-buying and longer-dated put-covering (both implicitly positive delta and supporting the rally). Notably, later in the day, 0DTE saw major put-covering also as call-buying faded...



Source: SpotGamma

This was also notable, given the rise in 0DTE today. Ultra-short-dated options vol has been an early warning system for 'event risk' over the last year....

Treasuries were clubbed like a baby seal today with the short-end underperforming. 30Y yield is almost back to unchanged on the week (while the short-end remains notably lower)...



Source: Bloomberg

2Y back above 4.00%...



Source: Bloomberg

And the yield curve (2s10s) flattened significantly...



Source: Bloomberg

The dollar slipped modestly lower today, back to unchanged on the week...



Source: Bloomberg

Bitcoin rebounded from last night's Mt.Gox fake news FUD crash



Source: Bloomberg

Oil prices managed small gains today but in context to the clubbing of the last few days, meh...



Spot Gold rallied back above $2000 overnight, only to be sold back below it as US GDP hit...



Source: Bloomberg

Finally, as Bloomberg notes, the concurrent breakdown in copper and the Dow Jones Transportation Average is a telling sign that expectations for an economic hard landing have some merit.



Additionally, the copper-to-gold ratio which is nearing its 2022 lows, pointing to a brewing economic storm if the path of least resistance remains down.

Hard-landing and inflation incoming!

 

Bonds, Stocks, & Bitcoin Surge Amid Week Of Stagflationary & Systemic Threats

A week of disappointment in macro with stagflation very much back on the table...



Source: Bloomberg

Increasing banking system threats with FRC literally collapsing...



...but the 'rest' surviving based on stocks, but credit markets ain't buying what stocks are selling...



Source: Bloomberg

And looming US debt defaults...



Source: Bloomberg

...was ignored by stocks this week as mega-cap tech gains dragged Nasdaq notably higher (along with the S&P and Dow) while Small Caps lagged...



Of course, the illusion of earnings 'beats' has helped... as Goldman notes, the bar was very low coming into this earnings period.

Consensus expectations were for EPS to fall by 7% year/year, the largest decline since 3Q 2020 and a significant deterioration from the -1% year/year growth posted in 4Q 2022. This is not playing out and as a result the market is hanging tough.

Good News: So far earnings have been much better than feared with 54% of companies beating consensus estimates by at least 1SD (vs historical avg of 48%). Only 10% of companies have missed consensus estimates by at least 1SD (vs historical avg of 14%).


Bad News: The companies that are beating consensus ests by >1SD are only outperforming the S&P 500 by 40bps on the trading session directly following earnings. Typically beats outperform the S&P 500 by over 100bps. The few companies that are missing these low bars are being severely punished, underperforming the S&P 500 by -290bps vs historical avg of -211bps.

But the equity market had help from its 0DTE pals the last two days as the call-grab was unleashed. Yesterday and most of today saw 0DTE call-buyers run riot, lifting the S&P easily back into the green for the week. We do note that late on today, there was some serious negative-delta flow (profit-taking) into the weekend...



Source: SpotGamma

Which sparked a remarkable short-squeeze...



Source: Bloomberg

VIX was lower on the week, down considerably from the early week tag of 20. However, 1-Day VIX (tracking 0DTE) ended notably higher with every day looking the same: an opening gap down and persistent vol bid all day...



Source: Bloomberg

On the month, Nasdaq's last few days got it back to unchanged while The Dow was the month's biggest gainer and Trannies and Small Caps the biggest losers...



Source: Bloomberg

Year-to-date, the Nasdaq continues to roar while the S&P 500 treads water at levels we've seen before...



Source: Bloomberg

While stocks were higher on the week, bond yields ended the week lower with the entire curve down around 11-13bps by the end, as mid-week underperformance of the long-end compressed...



Source: Bloomberg

On the month the picture was even less distributed with yields practically unchanged (belly modestly outperforming as wings underperform)...



Source: Bloomberg

The dollar ended April marginally lower (its 6th month drop of the last seven months)



Source: Bloomberg

Solana, Bitcoin, & Ethereum all had a solid month while Ripple was down notably...



Source: Bloomberg

Amid a very volatile week, Bitcoin was notably higher, pushing back above $29,000...



Source: Bloomberg

Oil managed very modest gains on the month having erased all of the post-OPEC+ production-cut spike that started the month off. NatGas did the opposite, soaring after a kneejerk lower on OPEC. Perhaps most ominously, we note that copper was hammered on the month as growth fears and China reopening hopes fade (that's the third straight mont of drops for Dr.Copper)...



Source: Bloomberg

Gold ended April higher (though by less than 1%) for its 5th positive month of the last six, having tested near record highs and holding around $2,000...



Source: Bloomberg

WTI managed to close back above pre-OPEC+ level thanks to today's bounce, but oil overall remains rangebound broadly speaking between 74 and 81...



Finally, we note that the top 10 stocks are responsible for 86% of the overall index return YTD...



"To infinity and beyond" for 'safe haven' mega-cap tech appears to be the mantra of the market once again, but be careful what you wish for as this narrow breadth often dangerous (see NDX vs NDXE in Nov’08, Oct’18, Dec’21)...



And talking of the future, congrats to Nico on the internship. Enjoy and soak up everything you hear.

 

Bonds, Bitcoin, & Bullion Battered After Bank Bailout, Stagflation Scare

Weak macro data, re-accelerating inflation (prices paid), no progress on the debt-ceiling, and a bank bailout that literally does nothing to calm fears of more bank runs (or superwalks).

Macro data disappointment continues...



Source: Bloomberg

ISM Manufacturing signaled stagflation with prices paid rising but activity and new orders still in contraction...



Source: Bloomberg

“Stagflation is looming,” said Bruce Liegel, a former macro fund manager at Millennium Partners LP who’s been working in financial markets since the early 1980s. He advised buying short-duration Treasuries, such as the 2-year note. Rates are high now and will remain high at maturity — so investors can pick up new debt at that time at even higher rates. He also expects value stocks to outperform growth during this time as well.

“We are set to have higher rates, and higher inflation for at least three to five years,” said Liegel, who writes a monthly global macro report.

“The growth we had seen in the past was based on low interest rates and leverage. And now we are unwinding all that, which is going to be a headwind for growth for years.”

The debt-ceiling "game" in Washington remains stagnant and the T-Bill curve's kink is becoming more and more cliff-like...



If everything's so awesome, why are big- and small-bank stocks down today...



Source: Bloomberg

JPM, of course, outperformed as its now even too-biggest-to-fail, but BofA, Goldman, and MS were all red on the day...



Source: Bloomberg

Interestingly, with banks "fixed" and stagflation scares ascendant, we saw rate-hike expectations lift modestly hawkishly today with the terminal rate in June (but very marginally above this Wednesday - hence the 25% odds of a June hike). NOTE (off the chart because of scaling) that December is expected to be 25bps below current levels!



Source: Bloomberg

So what did all that mean for stocks? Well BTFD of course - durr, as 0DTE vol plunged at the open once again. But, they could not hold it and stocks faded late on into the red as major negative delta flow from 0DTE hit the market starting around 1200ET...



Source: SpotGamma

On the day the pump was met with a dump leaving the majors basically unchanged (Small Caps spiked into the green in the last few mins)...



Another day, another VIX compression (VIX his 15.60 lows intraday) and VIX1D dump and pump...



Source: Bloomberg

Treasury yields soared, despite equity's general malaise as a holiday-thinned session was dominated by heavy corporate supply (META $8.5 billion for example). The entire curve was basically up 13-15bps...



Source: Bloomberg

Also bear in mind that Europe was largely closed today for Labor Day.

We wouldn't be betting too hard on today's yield surge holding as the corporate calendar easing up and rate-locks lifted...



Source: Bloomberg

The dollar was higher, reversing overnight weakness, pushing back up to Friday's highs...



Source: Bloomberg

Crypto was clubbed like a baby seal for no good reason again. Bitcoin tried to tag $30k again but was punished, puking back to the Mt.Gox 'fake news' spike lows...



Source: Bloomberg

Gold was crazy today - with Futs spiking up to $2105 intraday on the JPM rescue then puking it all back because we can't have the barabrous relic hinting that systemic shit is bad...



Oil was down on the day but WTI seemed to find support at $75...



Finally, well done Jim Cramer...



Source: Bloomberg

That "CNBC Pro" sub was well worth the money.

 

Bonds & Bullion Burst Higher, Banks Battered As JOLTs Plunge Ahead Of Jay Powell
TUESDAY, MAY 02, 2023 - 04:01 PM

A surprise RBA rate-hike, hotter than expected headline EU inflation, weak JOLTS, poor US factory orders, a sudden realization of the urgency and seriousness of the debt ceiling debacle, Europe back from vacation, and/or just pre-FOMC jitters?

US Macro data is serially disappointing...



Source: Bloomberg

US debt ceiling anxiety is serially increasing...



Source: Bloomberg

Bank stocks were a bloodbath as the world and his pet rabbit realized JPM hadn't saved the universe. Regionals were smashed lower as whack-a-mole resumes...



Source: Bloomberg

And even the big boys suffered...



Source: Bloomberg

Overall, all the majors were lower today with Small Caps hardest hit...



'Most Shorted' Stocks puked hard...



Source: Bloomberg

0-DTE fought hard against the initial down-thrust in stocks from the cash-open. Stocks stalled around 4100 then rebounded and then around 1400ET, 0-DTE call-buyers took profits...



Source: SpotGamma

VIX1D soared today, breaking back above VIX for the first time since April 11th (ahead of CPI) and April 6th (ahead of payrolls)...



Source: Bloomberg

And as we noted earlier, equity markets remain somewhat more sanguine about the debt ceiling threat that other markets



Source: Bloomberg

And then there was Chegg, down 50%... AI's first victim...



Source: Bloomberg

Treasuries were aggressively bid as Europe's liquidity returned and the heavy corporate calendar eased up. The long-end underperformed but the entire curve plunged (30Y -10bps, 5Y -18bps, 2Y -16bps)...



Source: Bloomberg

2Y Yields fell back below 4.00%...



Source: Bloomberg

Rate-hike odds plunged today ahead of tomorrow's FOMC statement. The market adjusted down to an 85% chance of a 25bps hike tomorrow...



Source: Bloomberg

...but most notably, June went from a 35% chance of 25bps hike to a 15% chance of a 25bps rate-cut today...



Source: Bloomberg

The dollar dipped lower on the day, erasing European session gains...



Source: Bloomberg

Bitcoin bounced off $28,000...



Source: Bloomberg

Gold surged back above $2000, with futs at 3-week highs...



Oil plunged with WTI back to a $71 handle - well below the pre-OPEC+ lows - suffering its biggest drop since Jan 4th...



Finally, circling back to the beginning, how do you think the global economy is going to cope with the massive tightening of lending standards...



Source: Bloomberg

Especially when inflation remains far stickier than anyone expected it would be by this time in the tightening cycle.

 

Stocks & Bond Yields Tumble On 'Hawkish Pause'; Gold Gains As Crude Collapses
WEDNESDAY, MAY 03, 2023 - 04:01 PM

'Good' headline macro news (strong ADP and ISM Services beat) was somewhat trumped by 'bad' macro news (inflationary pressures re-accelerating under the hood)... all of which do nothing at all to support The Fed's 'easing' anytime soon (strong jobs and resurgent inflation).

Of course, today was all about Powell and his pals who signaled a 'hawkish pause' (despite the market's very dovish beliefs). June rate-hike odds rose...



Source: Bloomberg

Now it gets interesting...



Source: Bloomberg

With Real Rates positive for the first time since 2019...



Source: Bloomberg

Powell's comments did nothing at all to help (unusually):

• POWELL: SENIOR LOAN SURVEY CONSISTENT WITH OTHER DATA
  
  
• POWELL: POSSIBLY AT SUFFICIENTLY RESTRICTIVE LEVEL, MAY NOT BE FAR OFF

A recession is coming but don't expect rate-cuts...

• POWELL: POSSIBLE WE'LL HAVE WHAT WOULD BE A MILD RECESSION

Yield curve gives 94% odds of a recession within 12 months...



Don't believe the market's dovish hype!

• POWELL: FOMC'S INFLATION OUTLOOK DOESN'T SUPPORT RATE CUTS (the 'inflation is transitory' outlook?)

And that spooked stocks lower (not helped by Powell's hints at how bad next week's SLOOS data will be). Small Caps managed to hold on to gains but the S&P, Dow, and Nasdaq tumbled...



0DTE traders were betting on the downside in a big way today and took profits after the post-Powell puke...



Big reversal in "most shorted" stocks today (which helps explain the early gains in Small Caps)...



Source: Bloomberg

Regional banks puked after Powell said the banking system was sound and resilient...



VIX1D remains notably higher than VIX...



Source: Bloomberg

Treasury yields tumbled once again today with the belly of the curve outperforming (5Y -11bps, 30Y -2bps). It's been quite a week in bonds already...



Source: Bloomberg

The 2Y extended below 4.00%



Source: Bloomberg

The STIRs curve adjusted (small) hawkishly in the shortest end but notably more dovish next year on...



Source: Bloomberg

The Dollar dived on the day to two-week lows...



Source: Bloomberg

Bitcoin chopped around but ended marginally lower...



Source: Bloomberg

Gold rallied on the day (marginally)...



But crude was clubbed like a baby seal with WTI tumbling to a $67 handle intraday, dramatically below the pre-OPEC+ level...



Finally, the market remains dramatically more dovish than The Fed and Powell throughly rejected that view today...



And WTF is Powell talking about claiming that the banking system is sound and resilient and is stabilizing...

2023 bank failures are now larger than 2008 and 2009 combined...



And deposit outflows continue from large and small banks...



Sorry Joe ol' pal, jawboning's not gonna out enough lipstick on this pig to fix this shitshow...



It's on you mate! The market is demanding cuts (and pricing them in) and you just made it worse.

Jeff Gundlach gets the last word: "...markets for risk assets are too complacent."

 

May The 4th Be With The Shorts: Regional Bank Rout Sparks Bond & Bullion Bid
THURSDAY, MAY 04, 2023 - 04:00 PM

Soaring job cuts (Challenger Gray), increasing jobless claims, rising unit labor costs, paint a very stagflationary picture (and an ECB rate-hike didn't help) with Jay Powell's favorite yield-curve-based recession indicator has collapsed to a fresh low (its most inverted ever)...



Source: Bloomberg

Debt ceiling anxiety remains extremely high...



Source: Bloomberg

And the regional bank crisis is spreading and accelerating...



Source: Bloomberg

Most notably WAL and PACW were clubbed like a baby seal...



Source: Bloomberg

And here is Goldman Sachs to destroy the constant theme from talking heads today that "this is all short-sellers fault":

The most notable aspect of our fins flows today is that we are seeing mostly long selling (both HF and MF) vs the past few days where HF short pressing was the primary narrative.

Today’s long sales include higher quality stocks which suggests today is a manage exposures/cut risk session.

And the market is now pricing in a 60% chance of rate-cut in July!...



Source: Bloomberg

On the day, the broad US majors were all red, led by Small Caps. Nasdaq was the prettiest horse in the glue factory, still down 0.5% though...



No short squeeze triggered today as 'most shorted' stocks extended yesterday's late lunge lower...



Source: Bloomberg

0-DTE traders aggressively bid against the opening plunge in stocks, and prompted



Source: SpotGamma

And it may be time to brace for more pain as Goldman warns that CTA Trigger levels are starting to flip today for SPX

• Short Threshold: 4085
  
  
• Medium Threshold: 4046
  
  
• Long Threshold: 4133
  

Over 1 week:

• Flat tape: -$7.8bn to sell (-$3.3bn to SELL in S&P)
  
  
• Up tape: -$2.3bn to sell (-$0.7bn to SELL in S&P)
  
  
• Down tape: -$50.5bn to sell (-$20.1bn to SELL in S&P)
  

Over 1 month:

• Flat tape: -$25.6bn to sell (-$12.2bn to SELL in S&P)
  
  
• Up tape: +$18.9bn to buy (+$3.1bn to BUY in S&P)
  
  
• Down tape: -$218bn to sell (-$54.2bn to SELL in S&P)
  

All of which pushed The Dow into the red for the year...



Source: Bloomberg

As money fled stocks, it went into bonds and bullion.

Treasuries were mixed with the short-end outperforming (2Y -5bps, 30Y +4bps). On the week, the divergence between short- and long-bond yields is evident...



Source: Bloomberg

The 2Y Yield closed at its lowest since Sept '22...



Source: Bloomberg

Interestingly, while Powell's favorite signal is still inverting further, the 2s10s curve is steepening (just as it does ahead of every recession) to its least inverted since Oct '22...



Source: Bloomberg

The dollar was choppy on the day but ended marginally lower...



Source: Bloomberg

Bitcoin pushed back above $29,000 intraday, but was unable to hold it - but ended marginally higher on the day...



Source: Bloomberg

Gold was a beneficiary of the safe haven flows and spot prices tagged $2,060 intraday - within a few ticks of its all-time record high (the barbarous relic is screaming that The Fed has lost control)...



Source: Bloomberg

Oil prices ended marginally lower but the big news last night's flash crash as clearly come fund liquidated bigly...



Some context for WTI...



Finally, all eyes will be on AAPL earnings tonight... and rightly so given the following chart...



This won't end well...

 

Despite Big Bounce, Banks & Crude End Week Down Hard; Gold At Record Highs
FRIDAY, MAY 05, 2023 - 04:00 PM

An odd week of data that 'surprised' in its convenience: Housing data - awesome? Labor data - awesome? Personal/Household data - sucks balls!



Source: Bloomberg

Talking of convenient - after a mass media narrative focus that the banking crisis is not real but is all due to short-sellers, today saw (guess what) a gigantic short-squeeze in several regional banks (PACW up almost 100% at one point)...



BUT... regional banks were still down hard on the week...



Source: Bloomberg

Oh, and who are you gonna blame for the collapse in bonds (and feel free to argue with the biggest flow desk on the street which saw longs liquidating... not shorts piling on)...

Oh, and don't forget the debt ceiling is looming ever closer...



Source: Bloomberg

The market's expectations for The Fed tumbled dovishly this week as Powell hinted it's over...



Source: Bloomberg

Markets are now pricing in rates being 75bps lower than current levels by year-end...



Source: Bloomberg

But it was Friday so we squeezed hard today, totally ignoring Bullard's comments late on...



Bullard's message was clear - this is not a pivot!

“The aggressive policy we pursued in the last 15 months has stemmed the rise in inflation, but it is not so clear we are on” a path to 2%, Bullard told reporters following an event in Minneapolis Friday.

He said he is willing to assess the economic data as it comes in, but would need to see “meaningful declines in inflation” to be convinced higher rates aren’t necessary.

However, despite the bounce, only Nasdaq made it back into the green for the week (but the last few minutes saw selling push it back red) while The Dow was the ugliest horse in the glue factory...



Big short squeeze today took 'most shorted' stocks back to unchanged on the week...



Source: Bloomberg

But notably, 0DTE was aggressively fading the early gains in stocks before reversing...



Source: SpotGamma

Most notably, the early action was all put buying and the late surge was not covering but call-buying...



Source: SpotGamma

Despite a big tumble today, equity risk higher (VIX) on the week for the first time in two months



Source: Bloomberg

Credit risk was higher on the risk...



Source: Bloomberg

Bonds were mixed on the week with the short-end bid, long-end offered...



Source: Bloomberg

Yield curve steepened significantly on the week...



Source: Bloomberg

Dollar down notably again (7th of last 9 weeks)



Source: Bloomberg

Bitcoin was flat on the week while Ethereum notably outperformed (topping $1950)...



Source: Bloomberg

Gold & Silver were up on the week with the latter outperforming (amid a lot of chop)...



Oil & NatGas were down hard on the week, despite the bounce today.

Oil's midweek flashcrash seemed to flush some hands out...



NatGas was just a sell every rip market all week...



Gold ended just shy of a record weekly closing record high...



Source: Bloomberg

Finally, bear in mind that the market is still massively more dovish than The Fed's expectations... (market sees a 38% chance of a cut in July)



Source: Bloomberg

Chicken or egg - for The Fed to fold, the market will have to crash but the market won't crash because everyone knows The Fed will fold and juice stocks back to un-reality... tick-tock!!

 

Credit Squeeze "Vibes" Leave Bonds & Banks Lower; Bitcoin Battered By Binance Blockages
MONDAY, MAY 08, 2023 - 04:01 PM

The day started off optimistically with regional bank stocks rising for literally no good reason. Then wholesale sales/inventory data poured cold water on any hopes of a soft landing as the ratio hit its highest since the Great Financial Crisis (ex COVID lockdowns)...



Source: Bloomberg

So much for the consumer.

Then Chicago Fed President Austan Goolsbee cited his 'vibes':

“I am certainly getting vibes - as you are - in the market and in the business contacts that the credit crunch, or at least a credit squeeze, is beginning,”

“We know that credit conditions, like the ones we’re seeing now, in the past have been correlated with recessions, credit crunches — kind of done the tightening work of monetary policy.”

Of course the machines lifted stocks with the S&P back to green just in time for SLOOS to hit and crash everything as credit trends collapsed. But that was quickly BTFD'd as tighter credit means less need for Fed which means 'buy all the things' even if all the things are going to get battered by the recession that SLOOS is signaling.

By the close, only Nasdaq had held its gains with the S&P unch, The Dow down and Small Caps the worst performer...



The early gains seen in Regional Banks - proclaimed by many talking heads this morning as a sign of the end of the crisis - turned red very quick and ended red on the day...



PACW was up over 30% in the pre-market, but gave it all back as investors realized that issuing a statement suspending the dividend at 10pm on a Friday night is not a buying opportunity!!



Oh, and if you hear more about short-selling bans on banks, here is what The Fed (yes The Fed) said about its effectiveness in 2008:

The 2008 ban on short sales failed to slow the decline in the price of financial stocks;

...in fact, prices fell markedly over the two weeks in which the ban was in effect and stabilized once it was lifted



"Most Shorted" stocks gapped down at the cash open but were squeezed back to unchanged ahead of the SLOOS data... dumped.. and then were squeezed again...



Source: Bloomberg

The long-bond saw a modest bid in Asia but once Europe got going Treasury selling surged. The US open saw bonds bid but yields started rising again around 1300ET and spiked more after SLOOS...



Source: Bloomberg

2Y yields pushed back above 4.00% but stalled there...



Source: Bloomberg

This is weird too... with The Fed signaling its done, specs pushed their record short Treasury bond futures positions even more shorter-erer....



Source: Bloomberg

Bloomberg notes that the persistence of leveraged fund bearish bets suggests the possibility that at least some of the positions are a result of the revival of the so-called basis trades.

That’s when investors buy cash Treasuries and short the underlying futures in an attempt to profit from any difference in pricing.

The market is adjusting (hawkishly) to The Fed's 'higher for longer' jawboning...



Source: Bloomberg

The dollar ended modestly higher on the day after being sold in Asia and bid in Europe...



Source: Bloomberg

Bitcoin tumbled back below $27,500 - back to the fake Mt.GIX dump spike lows - after reports that Binance halted BTC withdrawals as the network got congested thanks to Ordinals volumes...



Source: Bloomberg

Oil prices were higher once again, extending gains off last week's flash crash lows with WTI back above $73...



Gold closed higher on the day with Spot back above $2020 (after bouncing off $2000 on Friday)...



Source: Bloomberg

Finally, Apple hit a new record high relative to the S&P equal weight technology ETF today...



Source: Bloomberg

'Safe Haven'? Probably nothing to worry about right?

 

Bullion & Black Gold Bid; Regional Banks Skid Ahead Of CPI
TUESDAY, MAY 09, 2023 - 04:00 PM

A quiet day with no notable macro was just what the doctor ordered ahead of tomorrow's CPI-inspired likely chaos.

However, no progress at all on the debt ceiling debacle, the growing risk of civil war in nuclear-armed Pakistan, Italy pulling out of China's BRI, no signals at all that the US banking crisis is over in any way, and hawkish comments from Fed's Williams:

“What we’re signaling is we’re going to make sure that we achieve our goals and going to assess what’s happening in the economy and make the decision based on that data,” he said. “And if additional policy firming is appropriate, then we’ll do that.”

“I do not see in my baseline forecast any reason to cut interest rates this year,” he said, adding that the economy began the year on a solid footing and he saw two-sided risks to the outlook. “In my forecast we need to keep restrictive stance of policy in place for quite some time.”

Debt Ceiling anxiety remains extreme to say the least with the T-Bill curve insanely kinked... 5/23 3.97 to 6/6 5.34!!



The Dow managed to ramp up to gains on the day (helped by BA) but faded in the last few minutes. The S&P and the Nasdaq ended worst with most of the majors at their lows of the day...



Regional banks ended lower (rejecting an odd buying panic that hit around 1330ET)...



PACW had another chaotic squeezy day...



Shorts were squeezed once again after an ugly open...



Source: Bloomberg

0-DTE traders dragged 1-Day VIX up in line with VIX as they anticipate tomorrow's CPI...



Source: Bloomberg

Notably, 0-DTE traders dumped calls aggressively into tomorrow's CPI...



Source: SpotGamma

Despite a very strong 3Y auction, yields ended higher on the day - though the belly outperformed (2Y +2.5bps, 5Y unch, 30Y +2.5bps)...



Source: Bloomberg

The 2Y Yield pushed back above 4.00%...



Source: Bloomberg

The dollar extended yesterday afternoon's rally, back up to one-week highs (resistance)...



Source: Bloomberg

Bitcoin was flat, hovering around $27500, as Ordinals volume surged...



Source: Bloomberg

WTI spiked (around the time of headline about refilling SPR - nothing new), extending gains to two-week-highs (after some weakness intraday)...



Gold also extended its rebound from $2000 (spot)



Finally, bear in mind that the market is pricing in notably less volatility tomorrow (across CPI) than it has for last few months...



As SpotGamma notes, NDX straddle was pricing a ~1.1% move - quite a decline from the +2%'s of the last 6 months.

And after that, vol is expected to drop even more after that...



Source: Bloomberg

... as the stock market remains fearless into the X-Date.

 

CPI Slip Sparks Market Chaos: Banks & Bond Yields Battered As Rate-Hike Odds Collapse
WEDNESDAY, MAY 10, 2023 - 04:00 PM

Well that was quite a day.

A slight softening in CPI (like the slightly better than the worst case scenario in SLOOS) was enough to spark a panic bid in stocks, bonds, gold, and crypto (and tank the dollar) as rate-hike odds tumbled.

But, by the end of the day, things had changed quite dramatically with the chance of a June rate hike completely removed by the market (from 20% odds at the start of the day)...

Stocks reach 4-week highs as bond yields drop



Source: Bloomberg

...with the extension of the dovish move driven by a late-day note from WSJ Fed whisperer that we may be on hold for the summer...

Federal Reserve officials were already leaning toward taking a summer vacation from interest rate increases to see if they have done enough to slow the economy and inflation.

Wednesday’s inflation report makes that easier because it showed price pressures aren’t worsening and might soon be slowing as muted growth in rental-housing costs feed through to official inflation gauges.

More important, Fed officials have focused more on the impact of recent banking-system strains, which will take time to slow economic activity, including hiring and inflation.

The market sees no more rate-hikes in this cycle...



Source: Bloomberg

Nevertheless, the stock market was total chaos today - spiking on the soft CPI then waking up to reality that it was marginal at best and not enough to change anyone's mind and then pumping again after Timiraos suggested The Fed will be on hold (which they had said they would be). Nasdaq was best on the day. The Dow ended in the red...



Most Shorted stocks were squeezed... twice...



Source: Bloomberg

Regional bank stocks pumped and dumped (again)...



Another big pump and dump in bank stocks overall...



VIX and 1-Day VIX both tumbled on the day (after the latter spiked up to the former yesterday)...



Source: Bloomberg

Treasury yields plunged today with the short-end notably outperforming (2Y -11bps, 30Y -3bps) dragging all buy the 10Y and 30Y lower on the week...



Source: Bloomberg

The 2Y Yield broke back below 4.00% and extended...



Source: Bloomberg

The dollar ended lower, dumping on the CPI print (to 4-week lows), before bouncing then dumping again...



Source: Bloomberg

Bitcoin rallied on the CPI print, back above $28,000 then suddenly puked hard around 1305ET back below $27000 (no obvious catalyst) before bouncing back to unch...



Source: Bloomberg

Gold ended marginally lower after spiking hard on the initial CPI print reaction...



Oil prices ended lower with WTI testing down a $71 handle before bouncing back (big crude draw but another SPR drain and recession risks continue)...



Finally, while the market appears to be pricing in rate-cuts, it is really pricing in a bifurcated outcome of a high probability of no rate-cut (high for longer) and a low probability of large emergency cuts (banking crisis bailout or debt-ceiling crisis rescue), e.g. 70% odds of high for longer around these levels and 30% odds of panic cut to 2.25% leaves around 4.3% 'average' implied rate ...



Source: Bloomberg

And the only way The Fed does that kind of cut is if something really bad is happening (and by bad we mean the market has collapsed - so the dovish implications of the forward curve can't happen unless the stock market crashes).

 

Mouse-House Mullered, Banks Battered, But Mega-Cap Tech Turbocharged
THURSDAY, MAY 11, 2023 - 04:00 PM

China wasn't pretty overnight, and then domestically, ugly jobless claims and cooler than expected producer price inflation offered some dovish hope (inflation weaker and growth weaker = less need for Fed tightening) but PacWest pissed in the punchbowl by admitting that 10% of their deposits left the building last week following the FRC take-down and the news about them seeking strategic options.



And regional banks are a wreck...



The latter news dominated the former (which should also have been dovish - increasing the odds of the 'emergency' cut scenario priced into Fed Funds) but it smashed stocks and bond yields lower (but the dollar higher? which hammered gold).

So dovish, dovish, and dovish... and rate-CUT odds are soaring...



Meanwhile, the debt-ceiling overhang remains with the front-end of the Bill curve utterly insanely dislocated...



Never mind all that... Nasdaq clung on to gains on the day as The Dow and Small Caps lagged...



Alphabet dragged the tech indices higher...



The Mouse-House was a bloodbath...



Before we leave equity land, VVIX is decoupling (to the upside) vs VIX and that didn't end well the last two times...



Source: Bloomberg

Treasury yields were all lower on the day with the long-end outperforming on the day (2Y -1bps, 30Y -6bps). Yields are all lower on the week with the belly outperforming...



Source: Bloomberg

Despite the dovish headlines, the dollar rallied to one-week highs...



Source: Bloomberg

The South African Rand plunged to record lows after the US accused them of selling weapons to Russia...



Source: Bloomberg

Bitcoin was dumped lower again, falling back below $27,000...



Source: Bloomberg

Gold spiked early then was puked again...because nothing says dump gold like a debt ceiling crisis, banking crisis, and dovish implications for The Fed...



Oil slipped again as China rebound and US jobs data dented demand hopes, sending WTI back to a $70 handle...



Finally, 2023 is starting to look a lot like 2011... can they hold out til August for the X-Date hammer to hit?

For the S&P...



Source: Bloomberg

And VIX...



Source: Bloomberg

And judging by USA CDS, it's different (and worse) this time...



Source: Bloomberg

But hey, keep buying that dip!

 

Dollar Soars As Debt-Ceiling Doubts Monkeyhammer Markets
FRIDAY, MAY 12, 2023 - 04:00 PM

Higher inflation expectations, weaker sentiment, regional bank crisis growing (deposit data after the bell today), and record high risks of a debt-ceiling event appeared to finally break through the sentiment shield in stocks this week as Washington does what it does best - nothing until the last second.

Despite nine Fed rate-hikes and sliding actual inflation and market expectations, UMich respondents haven't been this worried about inflation since 2008 (the red region is Biden's administration)...



Source: Bloomberg

US Macro Surprise Index data tumbled to its weakest in 3 months...



Source: Bloomberg

Event Risk #1 - Debt-Ceiling - is flashing bright red.

The T-Bill curve is fully bought in to Yellen's June 1st X-Date...



Sending the debt-ceiling fear-o-meter to cycle highs...



Source: Bloomberg

And USA sovereign risk to record highs (well above any prior episode)...



Source: Bloomberg

How about event risk #2 - regional bank crisis?

Usage of The Fed's backstop facility's surged last week (not a good sign) and PACW admitted 10% of its deposits left the building last week smashing regional bank stocks down hard off the squeeze highs (when everything was solved, remember)...



And in context to the broad market, regional bank stocks have never been lower...



And while the broad stock market have largely ignored these growing risks until now, this week saw an awakening across asset classes as everything was sold in favor the dollar safe haven.

A late day bounce pulled Nasdaq green on the week but The Dow and Small Caps lagged along with the S&P...



0-DTE traders defended S&P 4100...



Despite the equity weakness, bonds were also sold with the short-end underperforming on the week after selling today...



Source: Bloomberg

2Y Yield pushed back up to 4.00% today...



Source: Bloomberg

The dollar soared this week - its best week in 3 months



Source: Bloomberg

Bitcoin was battered back below $26,000 for its worst week since Nov '22...



Source: Bloomberg

Gold was down on the week with every bid punched in the face...



Oil fell for the 4th straight week with WTI briefly tagging a $69 handle...



Finally, 2023 is starting to look a lot like 2011... can they hold out til August for the X-Date hammer to hit?

For the S&P...



Source: Bloomberg

And VIX...



Source: Bloomberg

And remember, the only way the market gets what it is hoping for from an absolute probability-weighted basis (i.e. imminent cuts), is if The Fed is forced into action by something really bad happening (and by bad we mean the market has collapsed - so the dovish implications of the forward curve can't happen unless the stock market crashes).

 

Banks & Bond Yields Jump On Goolsbee, Gensler, Biden, Bostic, & Bad Data
MONDAY, MAY 15, 2023 - 04:01 PM

Today's terrible, horrible, no good Empire Fed Manufacturing survey pushed the US Macro Surprise Index into the red, extending an almost non-stop decline over the past 7 weeks...



Source: Bloomberg

Debt Ceiling anxiety continues to soar with USA Sovereign risk remaining at record highs...



Source: Bloomberg

And the T-Bill curve incredibly discontinuous...



Stocks started off weak after Fed's Goolsbee warned that SVB was watching the market and bet that the market was right (so lifted its rate hedges) as opposed to The Fed's forecast (and subsequent actions).

Biden said he will meet Congressional leaders tomorrow (Tuesday) to discuss the debt ceiling and that seemed to send stocks higher around 1300ET (even though there was nothing new in that comment at all).

1325ET SEC's Gensler said that there was no short-selling ban currently being weighed for US stocks (and rightly so because the last time they did that it triggered a massive wave of long liquidations).

1400ET Fed's Bostic reconfirmed his 'high for longer' hawkish attitude by noting that he would probably vote to hold rates for now (but does not see cuts any time soon).

1410ET McCarthy warned that debt talks "nowhere near reaching a conclusion."

Bear in mind that CNBC did its very best to spin some marginally positive comments by Paul Tudor Jones today as being wildly bullish... they were not.

Bostic and PTJ say 'The Fed is done' but Bostic sees rates here for a while with no cuts soon BUT PTJ sees recession in H2 (which suggests rate-cuts may be on the table). The STIRs market inched hawkishly towards Bostic and not PTJ today.



Source: Bloomberg

"Most Shorted" stocks soared almost 5 off Friday's lows...



Source: Bloomberg

Juiced by multiple waves of 0-DTE positive delta pulses...



Source: SpotGamma

VIX1D tumbled back near recent lows as extreme-local event risk disappears...



Source: Bloomberg

Regional banks were the big gainers (because Friday's deposit data showed more outflows?? or because no banks blew up this weekend? Or just a squeeze again)...



Which helped drive Small Caps to be the day's winners among the US Majors. The Dow lagged (but closed marginally higher after being down 10 of the last 11 days)...



Treasuries were dumped again with the long-end weakest (30Y +5bps, 2Y +1bps), but note that when the crappy Empire Fed data hit, yields plunged...



Source: Bloomberg

2Y Yields held at 4.00%...



Source: Bloomberg

The dollar drifted lower after two strong days...



Source: Bloomberg

Bitcoin bounced modestly on the day, back above $27,000...



Source: Bloomberg

Spot Gold modestly extended its bounce off $2000 from last Friday...



Source: Bloomberg

And oil prices jumped today with WTI bouncing after tagging a $69 handle...



Finally, "you are here"...





Source: Bloomberg

Just remember, it's different this time, right!

X-date outlook is worsening as FDIC withdrew $12bn on May 4-5 from TGA & Treasury released new estimates of extraordinary measures remaining. Looking like $20bn cash on hand at end of day on June 1 (old expectation was $38bn) https://t.co/Zf6dIaBIkQ pic.twitter.com/cbF3LVdiwW

— Donald Schneider (@DonFSchneider) May 15, 2023

 

Biden & Bad Data: Big-Tech Bid, Banks Skid; Bonds & Bullion Breakdown
TUESDAY, MAY 16, 2023 - 04:02 PM

Mixed macro and debt ceiling drama dominated the day...

• Overnight saw shockingly ugly data in China (good news - more stimmys?)
  
  
• US Consumer bad - Home Depot earnings and outlook cut (blamed on weather and lumber)
  
  
• US Consumer good - core (nominal) retail sales better than expected (headline weak and YoY very weak)
  
  
• US Industrial production strong-ish (despite manufacturing surveys being a disaster)
  

However, put it all together and global macro surprises indices are tumbling...



Source: Bloomberg

US homebuilders are all bulled up on the future (shame that homebuyers are not)...



Source: Bloomberg

The T-Bill curve got crazier as no progress was apparent in the debt ceiling talks... Late-day headline that President Biden will be returning early (on Sunday) from his Asia trip suggested that nothing will be done any day soon...



Regional banks got no favors from any short-squeeze today and faded...



And only big-tech (Nasdaq) ended higher among the US majors with Small Caps worst (Dow and S&P behind in the red). The late day headline about Biden cutting his trip short made it clear that he doesn't expect any deal this week and markets faded into the close...



Treasuries tumbled today, likely driven by a massive issuance from Pfizer, after being bid overnight after China's crappy data. The short-end underperformed modestly



Source: Bloomberg

2Y Yield broke back above 4.00%



Source: Bloomberg

The dollar rallied back to almost unch on the week...



Source: Bloomberg

Bitcoin slipped back to hold around $27,000...



Source: Bloomberg

Oil slipped lower with WTI back at a $70 handle ahead of tonight's API data...



Gold broke back below $2,000 and accelerated lower...



Source: Bloomberg

As Spec longs maybe quickly unwound around that key level...



Finally, as Nomura's Charlie McElligott notes, the increasingly evident “dragging” global economic impact (that we noted at the top) is feeding a larger pivot back towards “Bonds As Your Hedge”...

Treasury-Equity correlation has swung significantly negative...



Source: Bloomberg

... and further strengthens the world of 60/40 Balanced Funds to Risk Parity to “Secular Growth / Mega Cap Tech” Equities, as “the end of the tightening cycle” looks even more evident into the increasingly global slowdown.

 

Banks Bounce Again As Massive Short Squeeze Lifts Stocks; Bonds Battered
WEDNESDAY, MAY 17, 2023 - 04:00 PM

Having ignored Target's clear signals that the consumer is in trouble, hopes for a Debt Ceiling debacle resolution and a PR statement from a regional bank about deposits (WAL), combined with a 0-DTE-inspired short-squeeze, sparked a big day for banks (and thus small caps) and as the broad stock markets squeezed higher, bonds were dumped along with gold.

US Sovereign risk retreated a smidge...



Source: Bloomberg

Regional banks surged (but stalled at a key resistance level)...



As 'most shorted' stocks squeeze hard (also up to a key technical level)...



Source: Bloomberg

Ignited by a big push from 0-DTE traders in the Russell 2000 at the open...



Source: SpotGamma

All of which lifted all the majors higher with Small Caps the biggest gainer...



After being rangebound (between the 50- and 100-DMAs), The Dow broke out to the upside today (but faded late on)...



Treasuries were sold again today with the short-end underpeforming (2Y +6bps, 30Y +2bps)...



Source: Bloomberg

The 2Y Yield soared up to 3-week highs and stalled (right before the regional bank crisis scare re-emerged)...



Source: Bloomberg

Fed rate change expectations continued to trend hawkishly (though only modestly), but rate-cut expectations later in the year are falling quickly...



Source: Bloomberg

The dollar rallied today, testing the early April highs before rolling over...



Source: Bloomberg

Bitcoin surged today after testing down to $26,600



Source: Bloomberg

Oil soared today, despite a big crude build, as debt ceiling anxiety may have lifted optimism and pushed WTI back above $73...



Gold broke down below $2000 (Futs), back to six-week lows...



Finally, today we heard from Target about just what a shitshow the consumer is in Q1.. worse in March... and worserer in April...but the spin was that yesterday's retail sales data proved they are resilient. That's true except its noise as Bloomberg's Simon White notes, the trend is not your friend at all for spending...



Source: Bloomberg

Banks are less willing to make consumer loans, and this points to retail-sales growth continuing to weaken fairly steeply through the rest of the year.

 

Hawkish FedSpeak Batters Bonds & Bullion; Tech Melt-Up Accelerates
THURSDAY, MAY 18, 2023 - 04:01 PM

'Positive' jobless claims data (which simply unwound last week's farce in MA) and 'not pretty' existing home sales data were dominated today by some notably more-hawkish-than-recent-norms FedSpeak to start the day:

Dallas Fed's Logan: "The data in coming weeks could yet show that it is appropriate to skip a meeting..."

"As of today, though, we aren’t there yet... We haven't yet made the progress we need to make. And it's a long way from here to 2% inflation."

Fed Gov Jefferson: "Inflation is too high, and we have not yet made sufficient progress on reducing it," he said.

"Outside of energy and food, the progress on inflation remains a challenge... a year is not a long enough period for demand to feel the full effect of higher interest rates."

St.Louis Fed's Bullard warned that "it may warrant taking out some insurance by raising rates somewhat more to make sure that we really do get inflation under control..."

"Our main risk is that inflation doesn’t go down or even turns around and goes higher, as it did in the 1970s."

So, a pause at best, more hikes possible, no signs of cuts at all, and the curve is adjusting that way...



Source: Bloomberg

Rate-change expectations continued to trend hawkishly higher (removing more cut expectations)...



Source: Bloomberg

Overall, Treasury yields soared higher with the short-end monkeyhammered (2Y +12bps, 30Y +5bps)...



Source: Bloomberg

And the yield curve flattened (inverted) further, shouting recession...



Source: Bloomberg

In fact, as Goldman notes, the 2y and 3y segments of the money market curves price substantially higher probability of recession compared to all four cycles since 1990...



...and then the rate-cuts?

Tech stocks saw more panic/safe-haven/momo/AI-fomo flows today with Nasdaq handily outperforming while The Dow and Small Caps underperformed and the S&P danced in the middle. The last two hours saw everything melt-up...



NVDA continued its melt up (another upgrade), rallying 5% today (AI God mode)...



As we reflected earlier, for NVDA to grow into its market cap, not only does AI have to put everyone out of work by 2030 but humans will be daytrading in zoos entertaining the algos...



NFLX also surged after reports that its ad-supported subs had hit 5 million...



Regional bank stocks bobbed and weaved between gains and losses...



The Dow is unch YTD, Nasdaq is not...



Source: Bloomberg

After all that, The Nasdaq is outperforming The Dow by an entire bull market...

Tech valuations are at extreme levels relative to the broad market now...



Source: Bloomberg

The equal-weighted S&P is unchanged YTD...



Source: Bloomberg

The dollar continued to rise tick for tick with the Sept Fed rate expectation (implying only marginal gains from here for the dollar)...



Source: Bloomberg

Bitcoin was rug-pulled again at $27,000...



Source: Bloomberg

Gold extended its losses after breaking $2000



Oil prices dipped lower again today with WTI back at a $71 handle



Finally, Goldman points out The Confusing Triangle: the dollar, tech stocks and real rates into a recession.

The dollar rallies (fact) on higher real rates (check) OR rising risk aversion (not present), tech rallies (fact) on lower real rates (not present) OR higher risk appetite due to US exceptionalism (check).



Source: Bloomberg

One of these would be wrong if real rates and US exceptionalism are equally weighted but it is hard to say which one as both are expensive and due for a meaningful correction given the probability of recession.

Goldman suggests that given that equities are at odds with oil in terms of pricing the probability of an adverse growth outcome, we would think that in the past week or so the dollar is right and equities aren't.

 

Bumper Week For Banks & Big-Tech But Bonds Suffer Biggest Bloodbath In A Year
FRIDAY, MAY 19, 2023 - 04:00 PM

"The things we were most worried about didn't get worse.." was the phrase overheard on one business media channel to sum up why the markets rallied this week...



A week of debt-ceiling optimism-fueled short-squeezing ran into a wall of OpEx flows, Powell's (hawkish) comments, Yellen's banking crisis still ongoing reports, and finally reports that debt ceiling talks are going nowhere.

Fed Chair Powell painted a hawkish picture of inflation-fighting warrior during this morning's panel discussion, highlighting that "failure to get inflation down would prolong pain," and that "inflation is still far above our 2% objective." Powell signaled a pause, stating that "we can afford to look at data", but he noted that the "market rate-path reflects a different forecast than The Fed."

Powell further extended the “coordinated” Fed messaging from FOMC speakers seen over the the past week - which Nomura's Charlie McElligott points out has clearly been the FOMC looking to alter the market's assumed probabililty distribution of the Fed path continuum which is creating the false optic of 'immiment Fed cuts' within implied pricing...



Source: Bloomberg

However, comments (below) from Yellen (banking crisis) and Washington (debt ceiling - no deal), sent June rate-hike odds plunging...



Source: Bloomberg

Comments from Treasury Secretary Yellen were interesting given the big gains in regional banks this week as CNN reported her telling the big bank CEOs that "more mergers may be necessary"...

Which roughly translated means: more bank failures are imminent - which is ironic given that regional bank stocks soared almost 10% this week - the best week since Nov 2020 - but Yellen's comments spooked them today...



Then Washington peed in the punchbowl as House Speaker Kevin McCarthy’s top debt-ceiling negotiators reportedly "abruptly left a closed-door meeting with White House representatives soon after it began Friday morning, throwing the status of talks to avoid a US default into doubt." Thus crushing optimism over the debt-ceiling talks.



Source: Bloomberg

Bear in mind that the 'longer-term' sovereign risk of the USA remains at extreme highs...



Source: Bloomberg

However, on the week, MegaCap-Tech continued to attract momo/safe-have/FOMO/AI flows with Nasdaq soaring (The Dow was the laggard but still green on the week)...



Shorts were squeezed on the week, but today's OpEx chaos may spoiled the ability to ignite it again...



Source: Bloomberg

While a handful of MegaCap Tech names led the markets higher, retail stocks were clubbed like a baby seal after TGT, WMT, and FL (FootLocker) also signaled the consumer may be weakening significantly this week...



Source: Bloomberg

Just remember, we've seen this pattern of debt-ceiling optimism turn into pessimism before (in 2011)...



Source: Bloomberg

And Nasdaq is extremely overbought...



Source: Bloomberg

Yields exploded higher this week with the short-end massively underperforming. Note that the selling pressure was almost solely during the US day session...



Source: Bloomberg

That is the biggest weekly rise in 2Y yields since June 2022.



Source: Bloomberg

And a massive curve flattening (inverting further)...



Source: Bloomberg

The dollar rallied for the second week in a row but hit notable resistance and faded today...



Source: Bloomberg

Bitcoin chopped around $27,000 (+/- $500) all week...



Source: Bloomberg

Gold's worst week since Feb, but did bounce back today...



Copper was flat on the week but crude managed gains (despite weakness on the day)_



NatGas soared 15% this week, back at 2-month highs...



Finally, we give the last words of the market week to Nomura's Charlie McElligott who has good news and bad news for what happens next: the recent PTJ talking point on this current environment looking like the 2006 / 07 playbook increasingly “feels” like the right one: the Equities market can continue to absolutely party until the end-game arrives... and it can take much longer than you think despite "things breaking along the way," just ripping-out hearts in the meantime as we continue to fend off worry-after-worry, where pervasive skepticism and cynicism towards market conditions keep sentiment- and positioning- “light” and in-turn, continue to feed into a "buyers are higher" pain-trade melt-up within Risk-Assets in the meantime.

Options skews suggest a lot of 'over-hedging' remains...



However, McElligott warns, we've seen this pattern of behavior before: Similar to my January comments on the “most mis-priced risk” in markets being a false assumption on market sequencing which them assumed “pause then cut,” instead of the risk of the Fed needing to actually take Terminal projections higher, which is exactly what then happened throughout the month of February and roiled markets on account of the January “animal spirits” data phenomenon after the Fed’s premature easing of FCI... it feels like the market is “starting” to get the joke again that there is “growing delta” for yet-another false assumption, resizing the probability distribution of the the bi-modal humps (mega-crash rate-cut AND/OR high-for-longer).

The June-Dec Fed-Funds spread is steepening to reflect this apparent shift...



Source: Bloomberg

The market could get stopped-OUT of the current “pause then cut” assumption and / or get stopped-INTO a disaster “pause then hike” flip...



Source: Bloomberg

...and remember, a seemingly / outwardly “bullish” debt-ceiling deal getting done actually perversely instead releases a new wave of tightening, particularly due to a massive TGA rebuild thereafter with ENORMOUS T-Bill issuance in the months thereafter, creating a monster liquidity drain.

So, be careful what you wish for and maintain light positioning (the latter harder than it sounds amid the AI-phoria).

 

Despite Hawkish FedSpeak & Deposit Outflows, Banks Lead Squeezy Stocks Higher; Hedges Hit Record High
MONDAY, MAY 22, 2023 - 04:00 PM

No macro data but plenty of FedSpeak, which was once again hawkish this morning:

Minneapolis Fed President Kashkari: “If we were to skip in June that does not mean we’re done with our tightening cycle, it means to me we’re getting more information. Do we then start raising again in July, potentially?"

"... What’s important to me is not signaling that we’re done... It may be that we need to go north of 6%, let’s see what happens in the underlying services economy."

Then St.Louis Fed's Jim Bullard cranked it up to '11': “I think we’re going to have to grind higher with the policy rate in order to put enough downward pressure on inflation and to return inflation to target in a timely manner... I'm thinking two more moves this year – exactly where those would be this year I don’t know – but I’ve often advocated sooner rather than later."

“As long as the labor market is so good it’s a great time to fight inflation, get it back to target,” he said.

“Get this problem behind us and not replay the 1970s.”

As a reminder, after the bell of Friday, The Fed released data showing deposits outflows, especially from Small Banks, continue to accelerate...



Source: Bloomberg

Regional bank shares soared helped by PACW which spiked on a deal to sell a big chunk of its real estate construction loans. However, as the chart below shows, the KRE ETF ramped up to last week's highs and stalled (and we offer the large chart for context...



JPM CEO Jamie Dimon had some less than exciting words for regional banks, warning about "what's runnable" as opposed to uninsured vs insured deposits and said "everybody should be prepared for higher rates from here."

Small Caps were the day's best performers (financials and short-squeeze) while The Dow was the biggest loser. The S&P was unch and Nasdaq managed some gains



0-DTE call-buyers did God's work and engineered the S&P back above 4200 again (but it couldn't hold for the close)...



Source: SpotGamma

The 0-DTE impulses stoked the squeeze as 'Most Shorted' stocks surged higher...



Source: Bloomberg

Goldman's Brian Garrett notes that the combined put open interest across major equity ETFs stands at ~41mm contracts (as of last data count // Thursday close). This is the highest ETF put open interest in history...



...the last time put open interest approached these levels was Aug of 2011 (debt limit version 1.0) ... note this index tracks 14 most commonly traded (ie, XL sector ETFs + SPY, QQQ, etc). Garrett notes that Goldman's data suggests risk in equities is increasing, implied volatility is bottom of the range, the cost to hedge is low (cheap?), and clearly investors are finally using the option market to protect left tail.

Interestingly, the vol curve remains lower (bullish) into the X-Date...



Source: Bloomberg

Treasury yields were higher across the curve in a relatively uniform manner (up 3-4bps)... once again the main selling pressure was during the US session...



Source: Bloomberg

This is the 7th straight day of higher yields (longest streak since Sept 2022) with the 2Y back at its highest since March 10th (right as SVB collapsed)...



Source: Bloomberg

Rate-hike odds rose today, erasing FDriday's decline...



Source: Bloomberg

The dollar rallied today from overnight weakness...



Source: Bloomberg

Bitcoin rallied back above $27,000 but could not hold it - ending around unch...



Source: Bloomberg

Gold dipped lower with futs unable to get back to $2,000...



Oil rallied very modestly on the day, with WTO back above $72...



Finally, we note that 6mo T-Bill yields are now trading at a 33bps premium to the earnings yield of the S&P 500...



Source: Bloomberg

That's the largest premium since Feb 2001.

 

Debt-Ceiling Doubts Finally Weigh On Stocks; Bonds & Gold Bid
TUESDAY, MAY 23, 2023 - 04:00 PM

Mixed macro data (housing good-'ish', regional Fed surveys bad, Manufacturing PMI ugly) was dominated today by some FedSpeak (just Kashkari doing Kashkari things) but more so by debt-ceiling doubts actually surfacing in stocks.

Ted Cruz appeared to spook stocks early after warning on CNBC that "20-30 year old Marxists" are running the show behind the scenes at The White House, questioning Biden's cognitive wellness and warning that the odds of an actual default are higher than the market believes, because the 'behind the scenes' staffers believe media will back them in blaming Republicans.

Republicans questioning Yellen's X-Date 'math' which swept stocks to new lows for the day.

By the close, Nasdaq was the day's biggest loser with Small Caps outperforming (but also red on the day). Today was the worst day in a month for Nasdaq



The S&P 500 broke back below 4200...



Another day, another short-squeeze attempt, but this time it failed...



Source: Bloomberg

0-DTE traders suffered on the day as an effort to reverse losses early on failed...



Source: SpotGamma

Notably, while financial conditions have been tightening in the last few weeks, Nasdaq has blindly ignored it...



Source: Bloomberg

VIX closed higher on the day but has a long way to go to catch up to the skew...



Source: Bloomberg

US Treasuries were mixed today with the long-end outperforming (2Y +3bps, 30Y -2bps) despite a strong 2Y auction...



Source: Bloomberg

30Y yields topped 4.00% for the first time since March, but then rallied back lower in yield to end 2bps lower on the day...



Source: Bloomberg

T-Bills maturing in mid-June topped 6.00% yields today...



Source: Bloomberg

The dollar continued to drift higher along with September rate-hike odds...



Source: Bloomberg

Bitcoin ended higher on the day after surging in the European session before fading in the US session - but still held above $27,000...



Source: Bloomberg

Oil prices rallied on the day - thanks to Saudi threats to crude shorts to "watch out". WTI slipped late on held $73 ahead of tonight's API data...



Gold managed gains on the day as it was well bid during the US day session after overnight selling...



Finally, in another bad sign for those bullish on US equities, the relative return offered by Treasuries continues to rise, making stocks look pricey...



Source: Bloomberg

As Bloomberg notes, even with a deal on the debt-ceiling, equities will struggle to move meaningfully to the upside until valuations look attractive relative to bonds.

 

Debt Ceiling Doubts Skyrocket; Everything Sold
WEDNESDAY, MAY 24, 2023 - 04:00 PM

Ugly inflation data in the UK was shrugged off by BoE officials (who likely don't suffer from the cost of living crisis), but overall, today was thin on economic data and fat on economic crisis potential as markets woke up to the reality that the idiots in Washington are going to take this down to the line (or even just maybe cross it).

June 1st T-Bill yields exploded above 7% today,



Source: Bloomberg

...sending the spread to 5/30 bills to a mind-blowing record high...



Source: Bloomberg

That's a 430bps yield premium for 2 days (theoretically) more maturity.

USA CDS spiked back near record highs again...



Source: Bloomberg

That level of anxiety appeared to finally trigger some cash-hording as everything was sold at the margin...

Stocks were dumped with Small Caps hardest hit (as financials were sold). With an hour to go in the day, ahead of NVDA's earnings, markets decide to go panic bid



We note that 0-DTE players tried to spark a rebound twice today (and succeeded in the late one)...



Source: SpotGamma

The 0-DTE move triggered enough squeeze action in 'most shorted' stocks...



Source: Bloomberg

Gold was puked back to recent lows...



Source: Bloomberg

Bitcoin was battered again back near $26,000...



Source: Bloomberg

Bonds were hit too after solid gains overnight. The belly was worst (3Y-5Y +5-6bps) while short- and long-ends were up around 2bps on the day...



Source: Bloomberg

But, despite plenty of vol, oil managed some gains after Saudi comments yesterday and a huge crude draw today...



Finally, if you think you had a bad day, consider Bernard Arnault - the world's richest man still - who lost over $11 billion (and more today) in the last couple of days...



Source: Bloomberg

As the luxury bubble looks like it just burst...



Source: Bloomberg

Somebody do something!!!