Daily Stock Market Recap per ZH

Wrath Of Khan Wrecks Tech As Downbeat Dimon Batters Bonds, Bullion, & Banks
TUESDAY, SEP 26, 2023 - 04:00 PM

Jamie Dimon dares to question goldilocks/soft-landing narratives overnight, warning that The Fed may be forced by stickier inflation to hike rates further (to 7%) fearing a stagflationary scenario that no one is prepared for... and (away from the main headlines), Dimon warned of more bank failures as rate rise (and that didn't help) as the KBW Bank Index fell below the initial SVB collapse levels...



Source: Bloomberg

Then the macro data started with Dallas Fed Services and Manufacturing ugly (prices up, activity down), new home sales finally hitting the wall (as homebuilders folded on filling the affordability gap and their stock prices are starting to realize that)...



Source: Bloomberg

...then consumer confidence crumbled (driven by a slump in hope and worsening labor market conditions). Overall, 'hard' data is near 5-month lows, as 'soft' survey data hits its highest since Jan 2022, sending 'hope' about as high it goes (before the soft surveys collapse)...



Source: Bloomberg

Add to that the wrath of Lina Khan as the FTC sued Amazon (again) and that was enough - with corporate buybacks blacked out still - to take the equity market lower, dollar higher, gold lower, and yields higher (rising after early declines).

Khan to Amazon/Bezos: "I've done far worse than kill you. I've hurt you. And I wish to go on hurting you... I mean to avenge myself upon you, Amazon."

AMZN at 3-mo lows...



Early on we saw the Megacap Tech names getting hit hard (while unprofitable tech was not), which Goldman suggested was driven by derisking overall. But as the selling continued, everything was dragged lower...



Source: Bloomberg

The drag of the Magnificent 7 weighed everything down with Nasdaq and S&P the big underperformers on the day, but everything was ugly...



0-DTE traders countered the initial thrust lower after the cash open (as the S&P broke below the Put-Wall at 4300), but as Khan unleashed her FTC ear-bugs,



Source: SpotGamma

The last month has seen both Value and Growth stocks hammered as the broad market weakens, but most notably, the Russell 2000 Value index is now in the red YTD (down around 3%)...



Source: Bloomberg

VIX soared up near 20 today, its highest since May and VVIX surged up into the danger-zone above 100...



Source: Bloomberg

The long-end of the yield curve was sold again today with 30Y yields up another 4bps to fresh cycle highs (and the 2Y auctioned at 16 year highs)...



Source: Bloomberg

And that sent the yield curve (2s30s) steeper still (to its least inverted since May)...



Source: Bloomberg

The dollar rallied for the 5th day in a row to its strongest since Dec 2022...



Source: Bloomberg

And as the dollar rallied, so gold was clubbed like a baby seal with spot prices testing back below $1900..



Oil ended the day higher, back above $90 (despite the strong dollar) bouncing back hard from an overnight plunge...



Finally, the Magnificent 7 stocks have lost over $1 trillion in market cap from their July highs falling back to near 4-month lows.



Source: Bloomberg

From Greed to Fear... fast!



That escalated quickly... as suddenly the markets' blinkers on consumer strength evaporates.

 

Bonds & Bullion Purged As Crude & King-Dollar Surge Into Qtr-End
WEDNESDAY, SEP 27, 2023 - 04:00 PM

Well that was a day - summarized perfectly by JPM's head of cash trading Matt Reiner who wrote this morning that "equities are trading as though hope and confidence are dwindling out of the system" before a big squeeze this afternoon slapped some lipstick on this negative gamma pig.

For the 3rd day in a row, the machines tried (and failed) to ignite a short-squeeze early on... but around 1400ET, something snapped and the squeeze was in and equity markets went vertical. BUT... the ignited momentum ran out of steam quite quickly...



Source: Bloomberg

The late day squeeze-gasm lifted everything green (even The Dow briefly) but as the squeeze ran out of ammo, so did the rally. The Dow was red, S&P unch, Nasdaq very modestly higher and Small Caps solidly higher...



The big panic-buy program is evident in the intraday TICK data...



Source: Bloomberg

VIX was monkeyhammered lower around the 1400ET timeframe...



If you need a reason why we exploded higher this afternoon, it's simple: Kolanovic!!

And before we leave equity-land, the equal-weighted S&P just went red YTD...



Source: Bloomberg

But we are seeing multiple sigma moves across multiple markets now with bitcoin, yields, and gold all swinging violently as the dollar and crude just keep surging

Treasuries were clubbed like a baby seal again today with whole curve up 6-9bps with 10Y blowing out above 4.60%...



Source: Bloomberg

The freshly-minted 2Y yield also soared today...



Source: Bloomberg

One thing of note - and its very premature - but there are some signs of liquidity stress appear in the Treasury market...



Source: Bloomberg

...and with the basis-trade threat as large as its ever been, it's worth keeping an eye on any signs of trouble.



Source: Bloomberg

Real rates continue to soar (and S&P valuations are starting to retreat)...



Source: Bloomberg

But, while crude prices are soaring, breakevens are flat...



Source: Bloomberg

The dollar surged for the 6th day in a row, now at its highest since Nov 2022...



Source: Bloomberg

...and as the dollar soars, so Emerging Market FX tumbles to its lowest since Nov 2022...



Source: Bloomberg

Bitcoin pumped-and-dumped on the day... for no good reason at all...



Source: Bloomberg

Oil prices soared after another major drawdown in stocks at Cushing (and overall crude), rallying right up to pre-Putin-Invasion levels...



Source: Bloomberg

Spot gold prices extended their recent plunge below $1900, back to the lowest since March...



Source: Bloomberg

The surge in crude prices, and plunge in gold, has oil at its most expensive since Nov 2022 (at around 20 barrels/Oz)...



Source: Bloomberg

...historically that has been a level of support for the Oil/Gold ratio...



Source: Bloomberg

Finally, financial conditions are tightening significantly, now at the tightest since Nov 2022...



Source: Bloomberg

...which is what The Fed wants to see.

 

Massive Short-Squeeze Lifts Stocks; Bitcoin Jumps As Bullion & Black Gold Dumped
THURSDAY, SEP 28, 2023 - 04:00 PM

Inflation tumbling in Europe (German CPI), the American consumer hitting a wall (PCE), and the US housing market collapsing (pending home sales) were enough to actually - for once - drag Treasury yields lower on the day... and as yields decline so a bearish-sentiment-soaked equity market melted up to start the day.

'Hard' data keeps sliding (lowest since May) but 'hope' remains alive thanks to 'soft' survey data...



Source: Bloomberg

An initial spike in yields on the headline GDP revision data quickly reversed (led by the short-end) as 'humans' read the report. By the close, 2Y yields were down 7bps and the long-bond down 1bp...



Source: Bloomberg

Which steepened the yield curve (2s30s) to its least inverted since May (steepening for the 5th day in the last 6)...



Source: Bloomberg

Of course, lower yields supported stocks (especially with such a dramatically bearish sentiment embedded) and 'most shorted' stocks were immediately aggressively squeezed and ripped almost 4% higher (remember negative gamma swings both ways)



Source: Bloomberg

And that lifted all the majors higher, led by Small Caps and Nasdaq. The Dow lagged on the day (lowest duration) but ended green on the day...



VIX slipped back further near 17.00...



As yields declined, so the dollar slipped lower...



Source: Bloomberg

And as the dollar dropped, bitcoin popped, ramping back above $27,000...



Source: Bloomberg

But Gold legged lower again, back near the pre-SVB spike lows in March...



Source: Bloomberg

And so did crude oil, with WTI back below $92 (after tagging $95 overnight)...



Finally, despite the recent decline4 in stocks, there remains a long-way-down to reconnect equity markets to the significant tightening in financial conditions...



Source: Bloomberg

So how will that reconnect? Equity market re-rating lower or a recession-signal rushing through the long-end of the curve, dragging yields lower (but, wait, that's not good for stocks either?)

 

"Fed's Last Hike" Triggers Q3 Carnage; Traders 'Sell All The Things' In September
FRIDAY, SEP 29, 2023 - 04:00 PM

The third quarter of 2023 was the first quarter of tightening financial conditions since 2022 with September the biggest monthly tightening of conditions in a year.

And if you're wondering why? It's simple, the low came at almost exactly the time of the last Fed hike (July 26)...



Source: Bloomberg

That tightening of financial conditions in Q3 corresponded to a collapse in 'hard' data (its biggest quarterly plunge since Q4 2020) while 'soft' survey data soared (its biggest quarterly jump since Q1 2020)...



Source: Bloomberg

And that left the dollar higher in Q3, but everything else lower (bonds and bitcoin worst, gold and stocks bad)...



Source: Bloomberg

Since making YTD highs in mid-July (last Fed hike), NDX is down 8 of 11 weeks for a cumulative selloff of 7%. Over the same time frame, US 10-year note yields have risen from 3.79% to 4.58% - probably not a coincidence.

This was the worst quarter for the S&P and Nasdaq since Q3 2022.

All the majors are in the red to close Q3 with Small Caps the laggard and Dow the prettiest horse in the glue factory...



Source: Bloomberg

September was the worst month for the S&P and Nasdaq since Dec 2022.

September saw losses accelerate after the FOMC meeting...



Source: Bloomberg

On the week, the Nasdaq ended unchanged, Small Caps eked out a small gain; The Dow was the biggest loser and the S&P was down around 1%...



The energy sector was the only equity cohort to end the third quarter in the green with Utes and Real Estate the ugliest horse in the glue factory...



Source: Bloomberg

Similarly, September was even uglier overall with Energy managing to hold green but every other equity sector slammed (again led by Utes and Real Estate)...



Source: Bloomberg

"Most Shorted" stocks dumped for the second month in a row in September (the biggest 2mo drop since Dec 2022). Q3 was the first quarterly drop in 'most shorted' stocks since Q2 2021...



Source: Bloomberg

Bonds were battered in Q3 with the long-end yields up over 90bps...



Source: Bloomberg

September was a US bond market bloodbath with the entire curve dramatically higher in yield. The last week has seen the short-end outperform, steepening the yield curve...



Source: Bloomberg

Bonds were battered...globally

• US 2s10s inversion dropped to May’s lows

• 5y US yield highest since 2007
  
  
• 10y US yield highest since 2007
  
  
• 30y US yield highest since 2010
  
  
• 10y German yield highest since 2011
  
  
• Japan 10y highest since 2013
  
  
• Japan 20y highest since 2014
  
  
• Japan 30y highest since 2013
  
  
• That US 30-year yields extended April 2022’s break out of a downtrend that’s lasted since the 1980s is probably the most significant economic development of the current era.

Rate change expectations for 2023 are basically unchanged for Q3 (green lines) but the expectation for rate-cuts in 2024 (blue line) has fallen dramatically (hawkishly higher expectations for rates)...



Source: Bloomberg

The dollar rallied for the second straight month in September to its highest close since Nov 2022. Q3 was the dollar's first positive quarter since 2022...



Source: Bloomberg

Crypto was basically unchanged in September, rallying back in the last couple of days to erase the puke at the end of August. However, While Solana and Ripple outperformed in Q3, Ethereum and Bitcoin were battered, down 10-11%...



Source: Bloomberg

In commodity-land, Q3 was a great one for crude markets. NatGas also gained... but copper and PMs basically went nowhere...



Source: Bloomberg

September was a shitshow across commodities with energy (crude and natgas soaring) while copper (growth) and precious metals (tightening policy) dumped. Silver was clubbed like a baby seal to end the month...



Source: Bloomberg

Gold suffered 'Death Cross' this week...



Source: Bloomberg

Oil has extended its gains since its 'Golden Cross' in August, trading back at pre-Putin-Invasion levels...



Source: Bloomberg

The massive outperformance of crude over copper pushed it up to historically key resistance level...



Source: Bloomberg

Also, Gold is at its cheapest to crude in a year and also at a key support level...



Source: Bloomberg

Finally, the disconnect between real yields and the S&P 500's P/E valuation came into the month at a noted extreme. And while the index has repriced ~5% lower, real yields increased, too...



Source: Bloomberg

As Powell said at Jackson Hole last year, there's more pain to come here.

 

Bonds, Bullion, & Black Gold Battered As Hawkish FedSpeak & Inflation Fears Lift The Dollar
MONDAY, OCT 02, 2023 - 04:00 PM

Rate-change expectations shifted hawkishly today, after drifting dovishly for the last week, on the heels of the Manufacturing PMI's report which showed the rate of inflation quickened to the sharpest pace in five months and FedSpeak which confirmed Powell's "higher for longer" messaging.



Source: Bloomberg



Source: Bloomberg

The stronger dollar weighed on crude oil prices, with WTI sliding back below $89, as Citi's Ed Morse muttered something about Oil "going back to the $70s" as “demand looks constrained as the pandemic recovery factors continue to ease off and peak transport fuel demand looms, while supply is growing in non-OPEC+ suppliers”



And gold was dumped to fresh cycle lows, selling off for the 6th day in a row (9th drop in the last 10 days)...



Source: Bloomberg

Spot Platinum prices plunged to their lowest since Oct 2022...



Source: Bloomberg

Treasuries were sold across the board with the belly (5s-10s) suffering the most...



Source: Bloomberg

Which steepened the yield curve (2s10s) to its least-inverted since the peak of the SVB crisis...



Source: Bloomberg

Bitcoin continued to drift higher, spiking above $28,500 intraday



Source: Bloomberg

Stocks were very mixed on the day with Small Caps clubbed like a baby seal while Mega-Cap tech outperformed leave The Dow and S&P trying to get back above water...



Value stocks puked relative to Growth, erasing their recent gains...



Source: Bloomberg

'Most shorted' stocks were hammered for the second day in a row with no squeeze attempts...



Source: Bloomberg

Utes were the biggest losers today (NEE's plunge did not help) and Tech stocks were the only sector to end green...



Source: Bloomberg

That's quite a puke in Utes...



Source: Bloomberg

Goldman's data could hint at capitulative flows: CTAs as short $17.8bn of global equities (31st %tile), while In the US, CTAs are short $17.5bn of equities after selling -$59bn over the last two weeks, representing the largest two week selling since Covid!

And finally, financial conditions continue to tighten, suggesting stocks may have more room to run to the downside...



Source: Bloomberg

Is that the 'deflation' that Powell is looking for?

 

Juicy Jobs Data Slams Stocks, Sparks Bond Bloodbath & VIXplosion
TUESDAY, OCT 03, 2023 - 04:00 PM

A slightly-more-dovish-than-normal Atlanta Fed president did nothing to stop the 'good' jobs data sparking a pukefest across bonds and stocks. Crypto was lower, gold and the dollar were only marginally changed (as it looked like Japan's MoF stepped in to save the yen). VIX topped 20, and Treasury yields all soared to multi-decade highs.

The survey-driven JOLTS data sent 'soft' data to a new cycle high while 'hard' data is at its lowest since April...



Source: Bloomberg

But, Financial Conditions are tightening aggressively...



Source: Bloomberg

Goldman warns that the 'good news' faces a few headwinds may impact growth soon, including the end of the student loan moratorium, a potential slowdown in consumer spending after a very strong summer, and higher oil prices among others - all of which could weigh on at least the willingness if not just the ability of the consumer to spend.

How bad could it get? Goldman estimates that real GDP growth will slow from 3.5% in Q3 to 0.7% in Q4

Futures were drifting lower into the cash open, saw the ubiquitous opening pump, but soon after came the JOLTS data which sent everything lower with Nasdaq leading the plunge...



The S&P is falling close to its 200DMA...



After its collapse yesterday, Utilities were the only sector green today. Energy almost got back to even on the day but Consumer Discretionary was the ugliest horse in the glue factory...



Source: Bloomberg

Banks continue to be a shitshow (should not be surprising given the $108BN hole in their balance sheets... that is getting worse with every tick higher in yields)...



Further to fall...



Selling was focused on unprofitable tech...



Source: Bloomberg

And "most shorted" stocks are now in the red for the year after today's puke...



Source: Bloomberg

...oh and don't forget the recent IPOs - CART'd out!



0-DTE traders bought the f**king dip early on (heavy call-buying) but it didn't work to spark any real positive momentum and the unwind dragged stocks to the lows of the day...



Source: SpotGamma

Treasuries were clubbed like a baby seal... again... with the long-end absolutely hammered (30Y +16bps, 2Y +4bps)...



Source: Bloomberg

30Y neared 4.95% (2007 highs) as the yield curve (2s30s) bear-steepened dramatically...



Source: Bloomberg

The dollar ended higher - but not much so - thanks in large part to JPY's move...



Source: Bloomberg

What looked like an intervention by Japan's MoF saved the day's volatility in the FX market. JPY's break above 150/USD seemed to trigger a massive wave of yen-buying...



Source: Bloomberg

Gold ended the day only marginally lower



Source: Bloomberg

Crude managed gains on the day, with WTI bouncing back above $90 briefly intraday...



Finally, we just tumbled into 'Extreme Fear' levels...



Source: CNN

And the other fear index - VIX - soared back above 20 - its first time since May...



..which perfectly fits with the seasonals...



Source: Bloomberg

...but are we done now?

 

Black Gold, Bond Yields, & The Buck Tumble Amid Macro Miasma
WEDNESDAY, OCT 04, 2023 - 04:00 PM

Weak European retail sales overnight (worse then expected decline), Ugly mortgage apps data (very bad news), Dismal jobs data (bad news but wage growth slowing), Strong factory orders (good news, thanks to war), Disappointing Services surveys (with stagflationary signals), and Disastrous gasoline demand (seasonally lowest since 1997). Hard data keeps falling as soft data holds all the hope...



Source: Bloomberg

Not much to cheer on the soft-landing-believers and as such, rate-change expectations slipped (dovishly) lower...



Source: Bloomberg

But it was oil that made the headlines as OPEC+'s JMMC reaffirmed their planned production goals for the rest of the year and economic malaise out-feared supply tightness. WTI collapsed almost 5%, dropping back below $85. This is the biggest drop in oil since last September UK gilt implosion contagion...



...testing its 50DMA ($84.86)...



Source: Bloomberg

As soaring pump prices appear to have punctured the strong consumer narrative as gasoline demand collapsed (to its lowest since 1997 for this time of year)...



Source: Bloomberg

And the gasoline crack has all but collapsed (but jet fuel and diesel still paying well)...



Source: Bloomberg

And oil volatility is dragging volatility higher across all the other asset classes...



Source: Bloomberg

Just one more thing, as we noted above, the last time oil dropped like this, UK gilts imploded on the mini-budget fiasco which sent sterling to a 37 year low and multiple UK financial institutions were on the verge of blowing up (the BOE restarted QE). Who is blowing up today?



Source: Bloomberg

Treasury yields plunged (for a change) with the short-end outperforming, 2Y Yields down 10bps on the day (biggest drop since August), and down 14bps from intraday highs...



Source: Bloomberg

Which steepened the yield curve (2s30s) further...



Source: Bloomberg

The relationship between 2Y Yields and oil has been 'complicated' recently but today it was one-way traffic...



Source: Bloomberg

While the absolute spread between US and Japan 10-year yields has ballooned to more than 400bps (holding near levels not seen since 2001), when adjusted for the JPY-hedging costs, USTs are at their most expensive for Japanese investors since 2000 (though we note that the last few weeks have seen the richness relived a little as UST yields have soared). Across the pond, German investors can earn 12bps over Bunds (hedged), meaning there is an incentive for them to be buying USTs (from the Japanese maybe?)...



Source: Bloomberg

Mortgage rates just won't stop, now at multi-decade highs and massively decoupled from the rate at which the average homeowner's mortgage is currently set at...



Source: Bloomberg

Most notably - thanks in large part to QT - the mortgage spread to 10Y TSY is extremely high (Lehman and COVID lockdown crisis highs)...



Source: Bloomberg

Breakevens are diverging aggressively with short-dated inflation expectations at their lowest since Dec 2020 while longer-dated BEs are at the highest in a year...



Source: Bloomberg

Bond vol is now notably higher than equity vol...



Source: Bloomberg

And after all that, US equity indices were mixed on the day with Nasdaq soaring and Small Caps lagging, just red after ramping up to unch.



Notably, Bespoke pointed out that the S&P has made lower lows on 33 of the past 50 trading days.



The dollar ended marginally lower, much less impacted than bonds or crude...



Source: Bloomberg

Bitcoin managed modest gains on the day...



Source: Bloomberg

Gold went nowhere, holding above $1800 and the March dip lows...



Source: Bloomberg

Finally, if financial conditions hold this tightness, we can't help but think the AI-bubble won't be able to keep Nasdaq so rich relative to Small Caps...



Source: Bloomberg

And we're seeing echoes of 1987 being MSG'd across desks... for stocks...



Source: Bloomberg

...And bonds...



Source: Bloomberg

Albert Edwards had some thoughts:

The equity market’s current resilience in the face of rising bond yields reminds me very much of events in 1987, when equity investors’ bullishness was eventually squashed.

And in a further parallel, currency turbulence in 1987 played a key role in exacerbating recession worries for an equity market priced for the start of a new economic cycle.

Just like in 1987, any hint of recession now would surely be a devastating blow to equities.

Brace!

 

Stocks Erase Losses As Bonds Flatline, Oil Slumps Ahead Of Friday's Jobs Report
THURSDAY, OCT 05, 2023 - 04:06 PM

After a chaotic Tuesday and a Wednesday which Rabobank's Michael Every said was "Chaos On A Trampoline On Drugs", Thursday proved to be a rather calm day, in which 10Y rates did nothing for a welcome change after blowing out by almost 60 bps in the past two weeks, a move which the same Every said ahd made the world's most liquid security trade like a penny stock...



... which in turn was due to the plunge in oil, because as Every once again explained, oil "is still the lifeblood of the global economy, and again one perhaps dodgy data point from increasingly erratic US sources saw a staggering decline of $5 in one day. That, more than anything, is what brought down bond yields, not the ADP."

Indeed, looking at the component of the notional rate, Real rates were practically unchanged at the upper end of the range, while Breakevens tumbled, driven by the move in oil which they track tick for tick.



Going back to oil, the move in the past week has been an absolute clownshow, with WTI rising above $95 last Thursday only to plunge to $82 today, after crashing by more than 5% yesterday, the biggest one day move since last September's mini-budget freakout.



What was behind the plunge in oil? Here there are two camps on Wall Street, those who UBS' strategist Catherine Gordon, pretend they know the reason...

There are a few reasons I was hearing out there as to why oil has sold off so hard:

• Demand feels very shaky right now: Wednesday's Department of Energy data showed a large increase in US gasoline inventories and low implied demand. This, combined with recent weakness in refining margins, fueled demand concerns. This was on top of global broader market worries arising again around higher-for-longer global central bank policy;
• Extended / crowded positioning in oil: CTA allocations to oil that have risen to the highest level since 2018, while a Reuters column yesterday said that fund managers were net sellers for the first time in four weeks across the six most important petroleum-linked contracts last week. However, managers still added a net 16 mn barrels of long positions to WTI, driven by depleting inventories in Cushing; and
• Geopolitical concerns: Some folks were flagging a new report by Axios discussing a potential broad deal between the US and Saudi Arabia, including energy, possibly impacted sentiment too, even though such discussions had been reported earlier.

.... and then those who like Rabobank's Michael Every admit they have no idea:

So what actually happened? First, I don’t know. Second, nobody knows. That’s how markets work. We can all write clever analytical notes after the fact, but given we can’t write them in advance of facts tells you something about just how good our methodologies actually are.

To my mind, what we just saw speaks to the fact that with current volatility, market liquidity may have been lower than normal; that bond positioning had switched to net short from net long; that we may have seen intervention from a central bank (and the list of potential offenders is short, and starts with ‘B’); and that this required immediate short covering. Then the data gave some cover to ‘reassess’ a position they had been so sure of hours earlier.

He's correct, of course, because as Goldman's Scott Rubner pointed out two days ago, "S&P 500 top book liquidity is currently $7.5M, or the ability to move risk quickly. This is a decline of -50% in the past 1 week, last week top of book was $15M."



Meanwhile, now that systematic funds (mostly CTAs) are done selling (with risk parity funds today also quiet thanks to the end of the bond liquidation) and are actually looking to buy back once volatility eases...



... stocks managed to contain the recent rout, barely budging after yesterday's reversal...



... in part thanks to a return of one key intraday supporter of risk: the 0DTE bid. Indeed, as shown below, despite some selling early in the session, 0DTE delta flow was bullish from the start, and helped stabilize and then push stocks higher for much of the session...


Source: SpotGamma
... even if the buying was anything but uniform with Energy and builders worst, while the bank index trading best despite an analysis by DB according to which banks stand to lose $140BN in unbooked losses in Q2.





There may be another reason why stocks barely budged today (spoos closed just barely in the red): tomorrow is payrolls day, and the day before the jobs report stocks usually avoid too much volatility. That said, unless we get a huge miss and drop tomorrow, it's difficult to see how stocks will how the S&P will be able to rise 0.7% on Friday and undo what is set to be yet another weekly drop for stocks, the fifth in a row, and the longest such stretch since May 2022.

 

Big Squeeze Saves Stocks From Bond Bloodbath
FRIDAY, OCT 06, 2023 - 04:00 PM

'Hard' data collapsed further this week with 'soft' data staying near cycle highs as today's jobs data offered something for everyone with stalling wage growth (yay, we beat inflation), a jump in job gains (yay, growth and a soft landing), but a scratch or two below the surface of the 6-signa headline beat and things are not so pretty after all...



Source: Bloomberg

Financial Conditions continued to tighten aggressively this week, having turned after the July FOMC and now near the tightest it has been during this cycle...



Source: Bloomberg

Today saw a hawkish shift in rate-change expectations but on the week, 2023's curve moved higher (slightly higher chances of more hikes) and 2024's curve was flat to slightly lower (modest chance of more cuts)...



Source: Bloomberg

US stocks were bolstered in morning trading by the largest buy imbalance since mid-July and short cover. Momentum can beget more upside momentum in stocks.

Around 1140ET a massive buy program hit and smashed stocks higher...



Source: Bloomberg

At the same time, the 'most shorted' stocks basket also went vertical...



Source: Bloomberg

By the end of the week, thanks to today's meltup, Nasdaq ended significantly higher on the week (along with the S&P). The Dow ended the week marginally lower while Small Caps lagged 2% in the red...



Tech and Healthcare were the only sectors green on the week with Energy the ugliest horse in the glue factory...



Healthcare was helped by the GLP-1 Analogs going bid...



Source: Bloomberg

VIX didn't even make it to 20 this morning as payrolls hit and stocks and bonds dumped. And then it just collapsed down to bear 17 the figure....



One big options trader potentially had a bad day. Chatter was a large VIX Call buyer stepped in early this morning ahead of the payrolls print, betting on a blowout number...



They got the blowout number, and for a split second things looked good, then everything reversed lower



And the aggressive positioning and reversal can be seen in SpotGamma's HIRO indicator as the trader was forced to unwind his calls at a loss...



Still, at least he wasn't long bonds this week!

Bonds were clubbed like a baby seal this week, most notably the long-end, but today's chaotic reversal put a little lipstick on the bond pig...



Source: Bloomberg

It all had a very technical feel with yields spiking on the payrolls print and running stops from earlier in the week before collapsing back lower...



Source: Bloomberg

The yield curve (2s30s) bear steepened most of the week, surging back up to a key level... next stop 'un-inverted'



Source: Bloomberg

The dollar ended higher on the week, even with today's pump-and-dump...



Source: Bloomberg

Bitcoin was its usual chaotic self this week, but ended higher (Friday to Friday), back above 28k...



Source: Bloomberg

Gold (spot) ended lower on the week, despite today's bounce...



Source: Bloomberg

Ugly week for the energy complex with WTI puking down to a $81 handle intraday - 6-week lows...



Source: Bloomberg

Finally, Goldman notes that The 60bp increase in 10-year Treasury yields this year is starting to have an impact on stock valuations as the S&P 500 is now down about 7% from the 2023 high it hit back in late July. But higher rates don't just impact how much you pay for a company. Higher rates can also weigh on the amount of money a company earns...



...and as the chart above shows , this year, S&P 500 companies are staring down the biggest increase in borrowing costs since 2006.

Making 5%-plus lending money to the US government certainly raises the bar for the level of corporate performance needed to attract investors...



Source: Bloomberg

...TINA's not back yet.

 

Stocks, Bonds, Gold And Oil Soar As Dovish Fed Comments Trample Israel War Fears
MONDAY, OCT 09, 2023 - 04:04 PM

During the weekend we warned readers that after Friday's face-ripping short-squeeze Goldman's prime brokerage cautioned that "Long-Only Sellers had become Exhausted, and HF Short Covering Begins", signaling a change in market sentiment was taking place, which coupled with the shortest CTAs on record..



... and dealer gamma flipping positive...



... indicating we would see a continuation higher in the most shorted names, one which would lift the broader market higher.

Many balked, saying there was no way we could get a risk rally after the deadliest clash involving Israel in decades, and yet, not only did stocks reverse early weakness, but spoos surged higher after some early weakness in what was a carbon copy of Friday's meltup...



... one which pushed all sectors from deep red to green...



... and sent the Goldman most-shorted basket ripping higher for the 4th afternoon in a row as the massive hedge fund short overhang is getting increasingly concerned, and starting to frontrun the next squeeze.



Adding to the upside fuel, just days after we saw the Put-Call ratio hit the highest level in 2023...



... the upward drift in the market meant a theta inferno, and hedged traders liquidated puts en mass, leading to a second consecutive dump in the VIX, following Friday's meltdown.



And since the VIX has so far failed to break above 20, we are now just shy of 100 sessions in which the VIX has closed below 20, the longest such stretch since Oct 2018 when, ironically, the market tumbled after the Fed realized it will need to be far more hawkish.



So what caused today's meltup?

Surely it wasn't the war in the middle east which sparked an oil buying spree just days after the biggest liquidation in oil in over a year...



... which helped squeeze the S&P energy sector 3.4% higher, its biggest intraday jump since Jan 2, right on schedule after the biggest pile up in energy shorts just days earlier.

... perhaps as the market realized that the liquidation driven by the DOE's most grotesquely manipulated gasoline demand number in history...

... won't last long if Iran's 1mmb/d in "embargoed" excess production is taken off the market.

No, none of that moved the broader market. What did, and what cracked the Bloomberg dollar index sharply lower, was multiple Fed speakers such as Dallas Fed Lorie Logan and Fed vice chair Philip Jefferson echiung what SF Fed Mary Daly said on Friday, suggesting that soaring 10Y yields/term premium have done the Fed's tightening job for them, and no more hikes are coming. This is how UBS's trading desk put it:

Fed Vice Chair Philip Jefferson sounds dovish. He said he will remain cognizant of tightening financial conditions through higher bond yields and will keep that in mind when assessing the future path of policy. Also, he said the Fed is in a sensitive period of risk management, where they have to balance the risk of not having tightened enough, against the risk of policy being too restrictive.

The unexpectedly dovish wind blowing from Fed talking heads sent the Dec24 SOFR futures surging more than 20bps higher...



... and as the sudden dovish sentiment blew away much of the recent hawkish hangover which meant that the first full rate cut has now been moved to June from July...



... we also saw 10Y (implied) yields tumble 20 bps from Friday's close, because even though cash Treasuries were closed for Columbus Day, 10Y futures surged, indicating that 10Y yields were last trading around 4.60%, the lowest level in about a week.



While the dovish reversion in sentiment helped propel stocks higher, it also sent gold and silver - both of which had tumbled at the end of September and into October, back to to the highest level since the start of the month.



Of course, if the Fed's tightening cycle is over and rate cuts are starting to get priced in again, expect to see precious metals - and stocks, crypto, and everything else for that matter - push sharply higher in coming days.

 

Stocks Extend Post-Terror-Attack Gains; Oil, Bonds, & Gold Flat
TUESDAY, OCT 10, 2023 - 04:00 PM

With bond traders coming back to work after yesterday's Columbus Day market closure, yields actually ended practically unchanged on the day (from where futures-implied levels closed yesterday)...



Source: Bloomberg

But since Friday's cash close, yields are significantly lower (10-14bps lower)...



Source: Bloomberg

With 2Y Yields back below 5.00% for the first time in almost a month...



Source: Bloomberg

And rate-change expectations have pushed lower after yesterday's dovish FedSpeak from Jefferson and Daly...



Source: Bloomberg

Equity markets trod water overnight and then took off again at the cash open with Small Caps leading the charge. Around 1300ET the market took a dive as headlines hit of a second carrier group being sent to Israel and also a very ugly 3Y auction which ratcheted equities lower. Things stabilized a bit but then selling pressure hit in the last few minutes...



Mostly thanks to another big short squeeze...



Source: Bloomberg

0-DTE traders aggressively faded today's rally...



Source: SpotGamma

For context, the Nasdaq and Small Caps are up over 4% from Friday's post-payrolls lows..



Energy stocks are the best since Friday's close and Banks the worst, but all sectors are green...



Source: Bloomberg

Nasdaq Composite topped its 50- and 100-DMA but was unable to hold them today...



VIX was squeezed back to a 16 handle



The dollar continued its recent leak lower - back at one week lows...



Source: Bloomberg

Bitcoin pushed back lower today after an overnight bounce, back to payrolls lows...



Source: Bloomberg

Oil prices were modestly lower from yesterday's surge higher after Israeli attack with WTI holding above $85...



Gold was basically flat on the day holding post-payrolls gains...



Source: Bloomberg

Finally, two interesting regime shifts.

Tighter financial conditions suggest stocks should be considerably lower...



Source: Bloomberg

...and the decline in reverse repo utilization (and reserves at The Fed) suggest the S&P should be notably higher...



Source: Bloomberg

...perhaps the former tightening is ruining the flow from the latter's shrinkage and pushing them into Bills not Big Tech.

 

Gold Gains As Yield Curve, Crypto, Crude, & Crap Shoes Crumble
WEDNESDAY, OCT 11, 2023 - 04:00 PM

Hotter than expected PPI, a hawkish-er than expected FOMC Minutes, and tensions in the MidEast heating up even more... so buy gold (makes some sense) and buy big tech stocks (hmm, ok?)

Oh, and remember all that excitement about "the market doing their job for them" blah blh blah... well financial conditions have eased significantly in the last few days (as Israel sparked flight to safety/quality bids)... time to unleash the hawks again?



Source: Bloomberg

Spot Gold topped $1875 - two week highs - after bouncing off the February lows



Source: Bloomberg

Bonds were mixed with the short-end underperforming (2Y +2bps, 30Y -11bps). From Friday's (post-payrolls) close, the 20Y yield is down 35bps and 2Y yield up 9bps!



Source: Bloomberg

...which has flattened (inverted-deeper) the yield curve (2s30s)...



Source: Bloomberg

The 2Y Yield found itself pinned around 5.00% once again...



Source: Bloomberg

Also the SOFR Z3-Z4 (basically how much rates will be cut next year), has risen notably (more rate cuts expected for next year in the last few days)...



Source: Bloomberg

Small Cap stocks lagged on the day but the entire equity complex sold off into the FOMC minutes and was bid after with Nasdaq the best performer...



No big short-squeeze today...



Source: Bloomberg

Bitcoin was punched in the mouth again, back down near $26,500....



Source: Bloomberg

The dollar was flat on the day



Source: Bloomberg

And bear in mind that the dollar tends to fall after CPI (out tomorrow morning)...



But we do note that the Ruble continues to slide (back above 100/USD) and Russia imposed capital controls today...



Source: Bloomberg

Crude oil erased all (almost all) of its post-Israel-attack gains...



And finally, there's today's "blockbuster" IPO... Birkenstock - which IPO'd at $46, opened at $41, and went south from there...



Not pretty... like the shoes.

 

Absymal Auction & Inflation Angst Slam Stocks & Bonds Lower; Dollar Soars
THURSDAY, OCT 12, 2023 - 04:00 PM

Despite upside surprises in PPI and CPI these past two sessions, equities initially refused to meaningfully sell-off with S&P extending gains off the payrolls lows, heading towards its 4450 Call Wall (as SpotGamma notes, the reason for stalling to the upside is that gamma builds sharply up into the 4,450 area and 4,500 is where they see max upside ahead of the 10/20 OpEx)...



BUT... and it's a big BUTT.

Small Caps had been suffering but it took a seriously ugly 30Y auction (after yesterday's ugly 10Y auction) to spark selling pressure across the rest of the majors... (Small caps were the worst performers by a big margin)



...as yields surged (with the long-end lagging)...



Source: Bloomberg

The psychology of rates players heading into today can be summarized as follows (h/t Nomura's Charlie McElligott):

1. The people in Macro Rates with actual positive performance (have been short and/or in steepeners of late) are increasingly being incentivized to monetize and protect P&L into year-end.

G10 Bond and STIRS (MM on the table) signals remain consensually “Short” outside a handful of securities, as “in-aggregate” across the five time horizons in the model, the vast majority of said legacy “Short” signals remain deeply “in the money” (particularly with an extremely heavy “loading” or weighting in the 12m model, due to the magnitude of the signal strength over that time horizon)



2. Real Money has been struggling mightily with scar-tissue after multiple failed attempts to catch the falling "Duration knife" YTD, and have been tepid and scared to dip toes in again... until the last week, as the magnitude of the rally picked up speed with more "synthetic short Gamma / negative Convexity" acting as "chasing" buyers the more we rally.

But today's bloodbath of a 30Y auction once again slapped those duration-chasers in the face once again...



Source: Bloomberg

So much for the Israel-Hamas Flight-to-Safety bid.

But we do note that from Friday's close, yields are still lower...



Source: Bloomberg

With the 2Y yield's surge stalling at Friday's close...



Source: Bloomberg

And the yield curve (2s30s) resteepened...



Source: Bloomberg

"Most Shorted" stocks double-puked today...



Source: Bloomberg

Now in the red for the year...



Source: Bloomberg

Meanwhile, the GLP-1 Agonists are killing it...



Source: Bloomberg

Energy and Tech stocks were the only sectors green...



Source: Bloomberg

The dollar exploded higher on the day, back to pre-payrolls spike levels. Today was the dollar's second biggest daily gain since March...



Source: Bloomberg

Bitcoin ended the day unchanged after a pump'n'dump, holding above the $26,500 level...



Source: Bloomberg

Ethereum was dumped for the 9th day in the last 12 to its lowest close since March...



Source: Bloomberg

Gold ended lower on the day, erasing overnight gains...



Oil prices ended unchanged but not before a lot of intraday vol...



Finally, maybe The Fed should watch more and and speak less... just days after The Fed says "the market did the tightening job" for them over a few weeks, the market undoes that job in just a few days...



Source: Bloomberg

Maybe today's dollar surge and carnage in credit will start the tightening once again?

Additionally, there was $82bn sucked out of The Fed's reverse repo facility overnight...



...and it's not going into stocks.

 

Israel & Inflation Spark Big Week For Bonds, Bullion, & Black Gold
FRIDAY, OCT 13, 2023 - 04:00 PM

JPM's boss summed shit up succinctly:

“This may be the most dangerous time the world has seen in decades,” Jamie Dimon said in a statement accompanying the bank’s quarterly earnings, warning of “far-reaching impacts on energy and food markets, global trade and geopolitical relationships.”



...and it was a short-week for bonds to deal with all this.

• Good: Earnings (this morning, results from JPM, WFC, Citi, and UNH are all being taken positively)
  
  
• Bad: Inflation (CPI, PPI, & UMich all hotter than expected) and Consumer Confidence tumbled (on cost of living concerns)
  
  
• Ugly: Geopolitical chaos (you know that story) and long-bond auctions (is the world turning its back?)

Stickier-than-expected 'actual' inflation and soaring 'expected' inflation piled on to geopolitical risk this week as US macro data disappointed...



Source: Bloomberg

...with 'soft' survey data starting to roll over and catch down to 'hard' data's dive...



Source: Bloomberg

But it was 'war hedges' that dominated...

Gold surged over 5% this week after the attacks on Israel - its biggest weekly jump since March - sending spot prices back above $1900...



Source: Bloomberg

Oil prices also soared with WTI up over 5% on the week (its second biggest weekly gain since April)...



Bonds were bid with the long-end dramatically outperforming...



Source: Bloomberg

But 2Y yields bounced back above 5.00%, flattening the yield curve (2s30s) dramatically on the week (but still well off the mid-Sept lows)...



Source: Bloomberg

VIX spiked back above 20 as protection-buyers stepped in, sending skews and VVIX soaring...



Source: Bloomberg

On the week, Small Caps were clubbed like a baby seal but Nasdaq ended perfectly unchanged while the S&P and Dow managed modest gains - despite some ugly down-drafts intraday...



Energy and Utes outperformed while the consumer was punched in the face...



Source: Bloomberg

Airlines worst weekly drop since March...



Source: Bloomberg

JPM, WFC, and C all ended the week higher (helped by today's earnings)...



Source: Bloomberg

But, despite big bank earnings beats, the Regional Banks index was dumped...



"Most Shorted" stocks fell for the 9th week of the last 11 to its lowest weekly close since May 2020...



Source: Bloomberg

The dollar ended marginally higher, driven mostly by a post-CPI panic-bid yesterday. But notably, the Bloomberg dollar index stalled at the pre-payrolls level from last Friday..



Source: Bloomberg

Crypto dropped on the week with Bitcoin finding support around $26,500...



Source: Bloomberg

Ethereum was also monkeyhammered lower, now at its weakest relative to Bitcoin since July 2022...



Source: Bloomberg

Silver also soared with futures tagging $23 intraday...



Finally, we note that financial conditions were basically flat this week after tightening dramatically from mid-Sept...



Source: Bloomberg

It's notable because, as Nomura's Charlie McElligott notes, this leads to a dysfunctional feedback loop where, ironically, via the Fed’s extreme FCI reflexivity “The Fed says ‘the market did the (tightening) job’ for them over multiple weeks…but then the market undoes that job in the matter of just a few days”

McElligott's current state of “the psychological chop”:



Will it "be over" enough to warrant action?

 

Yields, Stocks, & Crypto Jump; VIX, Gold, & Crude Dump
MONDAY, OCT 16, 2023 - 04:00 PM

It seems that because World War III did, literally, not break out this weekend, it is BTFD time... and there was much rejoicing that "stocks managed to rally in the face of rising rates" with no thought of why.



Source: Bloomberg

Now, where have we seen that before?



Source: Bloomberg

Anyway, Small Caps and Nasdaq were the day's big winners with The Dow lagging but all comfortably green...



AAPL opened ugly - on China demand fears - rallied to green and failed... rallied to green again... and failed again...



Today saw the first short-squeeze day in the last four days and for context, it was not very impressive...



Source: Bloomberg

VIX was clubbed like a baby seal back to a 17 handle, finding support at pre-Israel Attack levels...



But we note that 0-DTE traders fought the uptrend most of the day...



Source: SpotGamma

The S&P continues to hover at the low-end of the September gap-down. Will Retail Sales or Powell fill the gap?



Interestingly, AI names underperformed AI-at-risk names (though both were up significantly on the day) after the Biden admin cracking down on chips to China headlines...



Source: Bloomberg

Additionally, for a change, the GLP-1 Obesity names underperformed the at-risk names (though again both were higher)...



Source: Bloomberg

Treasury yields were higher across the entire curve with the long-end underperforming...



Source: Bloomberg

Notably, the 2Y yield broke above Thursday's post-CPI spike high yield but the 10Y could not...



Source: Bloomberg

The dollar rolled over today, with selling accelerating as the day wore on...



Source: Bloomberg

Israel's Shekel slumped to its weakest since 2015, back above 4/USD...



Source: Bloomberg

Bitcoin had a brief shining moment in the sun after a tweet said that a Spot ETF had been approved... which was then denied... sending the crypto all the way back down to $28k from its spike to $30k.BUT then BTC caught a bid and lifted again along with stocks, back up near $29,000...



Source: Bloomberg

Oil slipped lower today on headlines that the Biden admin will allow another 'dictator' to sell more oil (Venezuela)...



Gold stalled at 9/25 ledge levels after ripping higher post-Israel (and payrolls) and slipped lower...



Finally, it appears the market is ready for some volatility in the next couple of days from Retail Sales and Fed Chair Powell's address...



Source: Bloomberg

But, after that, vol collapses.

 

'Seasonally-Adjusted' "Good News" Batters Bonds; Biden Bruises Big-Tech
TUESDAY, OCT 17, 2023 - 04:00 PM

Great news everyone!! Bidenomics is working or something. Retail sales soared more than expected, so did Industrial Production, so did Manufacturing Output... and continuing claims are still low...

WTF are people so miserable out in all these sentiment surveys?

Well... it's all illusion/delusion (economics PhD speak for 'adjustments')...

• Retail Sales rose 0.7% MoM (SA)... but plunged 5.4% MoM (NSA)
  
  
• Industrial Production rose 0.3% MoM (SA)... but plunged 1.7% MoM (NSA)
  
  
• Manufacturing Output rose 0.35% MoM (SA)... but tumbled 0.5% MoM (NSA)

And remember what Goldman warned about on jobless claims: ongoing seasonal distortions have increasingly weighed on the level of continuing claims over the last six months, and we now expect that the reversal of those distortions could exert a cumulative boost of 375k to the level of continuing claims between the end of September and March.



The economic data (seasonally-adjusted) has been holding in 'so strong' as financial conditions have tightened dramatically...



Source: Bloomberg

The "good news" prompted a big jump in rate-hike expectations (Dec 2023 and Jan 2024 basically now at 50% and 60% respectively)...



Source: Bloomberg

And, the "good" news headlines sparked another panic-puke in bonds, sending yields to cycle highs. All yields were significantly higher but the belly underperformed the wings on the day (2Y +10bps, 5Y +15bps, 30Y +7bps), and that is evident on the week



Source: Bloomberg

2Y yields hit 5.23% today... 2006 highs was 5.275%... before that we go back to Dec 2000.



Source: Bloomberg

5Y yields hit 4.88%, its highest since July 2007 (that cycle high was 5.23% in June 2006).



Source: Bloomberg

10Y yields reached up near last week's highs and reversed a little...



Source: Bloomberg

And in case you wondered, 30Y mortgage rates are inching ever closer to 8% - more than 23 year highs - are unprecedentedly decoupled from the effective rate of current mortgage-holders...



Source: Bloomberg

Translation: sellers are trapped and buyers are priced out.

Higher yields, lower stocks right? Nope. The economy must be doing great so buy, buy, buy. Around 1230ET stocks rolled over (as the S&P 500 tagged its 50DMA) and stocks dipped when a rocket hit a hospital in Gaza and killed 100s (who the f knows where the missile came from at this point). By the close, Small Caps were dramatically higher (short squeeze) while Nasdaq was the biggest loser (China AI exports) with The Dow and S&P trying to hold on to unch...



Another short-squeeze...



Source: Bloomberg

Tech stocks took a spill as the Biden admin confirmed new crackdown rules on exports of AI chips to China. SOX tumbled (bounced, then slid lower again)...



NVDA was punched in the face, despite its claims it would not be affected?



VIX tumbled down to a 16 handle briefly intraday before bouncing back above 18 and ending higher on the day...



The dollar chopped around wildly to end unchanged...



Source: Bloomberg

The dollar's action was echoed in crypto - Bitcoin went sideways to slightly higher...



Source: Bloomberg

And gold sideways to slightly higher...



Crude... did the same... dropping and popping to end slightly higher...



Finally, with real-yields back near cycle highs, valuations for stocks start to get "questionable" again...



Source: Bloomberg

Did Biden just bust his AI bubble?



Source: Bloomberg

Is that another big 'head and shoulders' pattern?

 

Stocks Purged As Bullion & Bond Yields Surge On Biden, Beijing, & Banks
WEDNESDAY, OCT 18, 2023 - 04:00 PM

The Gaza hospital attack prompted 'safety' initially last night (oil, gold, & bonds higher in price), then China macro data's upside surprise (on alcohol and tobacco sales) prompted some excitement but was offset by the property sector plunging even more as Xi addressed the BRI Forum.

Biden didn't seem to calm things down at all in the MidEast as he stumbled through his address, and the China chip crackdown is becoming an issue.

Property was on Americans' minds too as mortgage rates hit 8% (23 year highs), with housing data ugly (starts and rental-unit permits plunged) after homebuilder sentiment slumped.

FedSpeak was all aligned ahead of tomorrow's speech by Powell. Waller will 'watch and see' if more rate-hikes needed; Williams says rates need to be more restrictive 'for some time'. The Beige Book was 'meh'.

Morgan Stanley (worst day since June 2020) upset the 'banks are awesome' narrative as credit loss reserves rose more than expected (and NIM did not rise as much as expected).

So with all that said, what did the market do?

Banks were not pretty...



Source: Bloomberg

The AI story is starting to show cracks, extending losses from the Biden chip crackdown and ASML comments...



Source: Bloomberg

As NVDA tumbled again today. Is that big head-and-shoulders pattern really going to play out again?



Source: Bloomberg

The GLP (Anti-Obesity) names dumped again...



Source: Bloomberg

'Most Shorted' stocks were clubbed like a baby seal, back to new cycle lows, erasing the squeeze of the last two days...



Source: Bloomberg

VIX topped 20 again intraday (but could not close above it for the 104th consecutive day)



All of which left all the majors down hard with Small Caps leading the slump...



Bonds were also dumped.

Comments from Fed's Waller prompted a drop in the 2Y yield around 1245ET (but realistically his comments were more of the same - data-driven, inflation-fight not over, higher-for-longer, no cuts soon) with weight given to his comments on higher long-rates doing The Fed's tightening job for them (which as we have noted previously is an idiotically reflexive argument). A strong 20Y auction extended those gains (and also pushed stocks higher) around 1300ET but that bump in stocks didn't last. Overall, all yields were higher on the day led by the long-end (30Y +8bps, 2Y +1bps)...it's been an ugly week so far with the belly underperforming...



Source: Bloomberg

30Y Yields topped 5.00% again (first time since Payrolls spike) but could not hold it...



Source: Bloomberg

Rate-cut expectations for next year continue to plunge (the last week has seen over 35bps of cuts removed from market expectations)...



Source: Bloomberg

There were some winners on the day...

Spot Gold topped $1960 - its highest since July...



Source: Bloomberg

Oil prices jumped again overnight after China and Gaza with WTI above $88.50 (in the front-month futs)



The dollar surged today, taking out last Friday's highs, up to payrolls print levels...



Source: Bloomberg

And amid all this chaos, bitcoin was quiet with a failed test up to $29k...



Source: Bloomberg

Finally, is gold the new 'fear index'?



Source: Bloomberg

It has systemically decoupled from real rates for sure. Have Central Banks lost control?

 

Yields Soar, Oil Roars As Stocks Plunge In Rollercoaster Session
THURSDAY, OCT 19, 2023 - 04:08 PM

With traders already exhausted by relentless, brutal daily whipsaws, today was not the day anyone expected the rollercoaster would end, and a good thing too because it was another brutal day for those tracking every twist and turn in the S&P, which in turn was pingponged about by headlines from both the New York Economic Club where Powell was speaking and also from the middle east, where the war between Israel and Hamas threatens to erupt into a much bigger regional conflict with every passing day.

With too much going on for a blow by blow, here is a chart summary of some of the key market reversals today, starting with the Powell rollercoaster and then progressing to the latest (adverse) developments out of the Middle East.



While stocks had a bad day, 0DTE traders were even more bearish, with the Delta flow outpacing the decline in equities by a sizable margin.



Virtually every sector was red...



... with the only outlier being communication services which was green thanks to just one company: Netflix, which soared as much as 17%, its biggest one-day surge since Jan 2021...



... but while NFLX longs rejoiced, the same could not be said for TSLA shareholders: Elon Musk's EV company tumbled more than 10%, its worst drop since Jan 2023.



And as stocks tumbled, the VIX soared, and after 105 consecutive days of closing below 20, the longest streak since 2019...



... the VIX index finally closed above 20 - in fact above 21 - breaking the streak on day 106.



But believe it or not, the swings in the S&P, which weren't even that wild with the S&P failing to drop more than 1%, were not the day's main event: that would be the combination of soaring yields, which saw the 10Y rise as high as 4.992% and the 30Y touch 5.10%, levels which Morgan Stanley and Goldman both said earlier were buy triggers...



... as well as the surge in oil, which exploded $4 from session lows, and sent WTI above $89 and Brent above $93.

 

"No All Clear" - Bitcoin & Bullion Jump, Stocks Dump On Week As Yield-Curve Un-Inverts
FRIDAY, OCT 20, 2023 - 04:37 PM

An inverted curve lights the fuse but the un-inversion is 'the bad part' signaling imminent recession...



...and today we saw the 2s30s curve go positive once again and closed at its 'steepest' since Aug 2022...



Source: Bloomberg

Additionally, the 'real' yield curve steepened dramatically, also pushing back up towards un-inverted...



Source: Bloomberg

The steepening is extremely evident in the week's moves across the curve with 2Y up just 3bps and 30Y up 33bps...



Source: Bloomberg

There was also a notable swing in rate-cut expectations for next year. While we zoomed out for context in the chart below, this week saw rate-cut expectations drop from 84bps to 67bps and then reverse back to 78bps (of cuts) after Powell...



Source: Bloomberg

As we discussed previously, this is a warning sign because inverted yield curves precede recessions, but it’s the re-steepening that signals the downturn is going to hit sooner rather than later.



Source: Bloomberg

Historically it is the 3m30y yield curve that has started steepening first before a recession, beginning to rise about five months before its onset. It began in mid-January, which would put a downturn starting as early as June. The spread between 3-month and 30-year yields is about minus 84 basis points, versus the January low of minus 115 basis points.

And 3m30Y has been steepening dramatically this week...



Source: Bloomberg

And before we leave bond-land, we note that financial conditions are now at their tightest since Nov 2022.... and it looks like its starting to drag on the real economy...



Source: Bloomberg

Equity markets did not like this 'high for long' adjustment, especially longer-duration (big tech) as Nasdaq led the week's weakness, down 3%. Equities went out at their lows...



Under the hood today (a monthly OpEx), 0-DTE traders were fighting the down-trend all day - buying calls early and dumping puts later...



Source: SpotGamma

This week saw the 3rd major shorting wave in October with 'Most Shorted' basket dumping...



Source: Bloomberg

Energy and Staples were the week's only green sectors with Discretionary and Real Estate hammered...



Source: Bloomberg

The S&P broke below its uptrendline from September and reached down to its 200DMA



Source: Bloomberg

Regional banks were clubbed like a bay seal this week, now below SVB spike lows...



Source: Bloomberg

The big banks were very mixed with WFC outperforming since earnings began (and the only one green) and MS the biggest loser...



Source: Bloomberg

Of particular note, the GLP-1s (Anti-Obesity drugs) significantly underperformed this week...



Source: Bloomberg

And AI-related names underperformed the AI-at-risk names (amid an admittedly weak market for tech)...



Source: Bloomberg

VIX is on the rise (finally) back above 20 but as Nomura's Charlie McElligott warns, make no mistake: there is no “all clear” [to sell 'high vol'] when “Vol of Vol” VVIX remains parked at 115...



Source: Bloomberg

...which tells you that via “demand for Tails” and a broader distribution of market outcomes that we can remain “stressed,” particularly as client hedging is moving away from short-dated “1 day event risk” and now, into the “unknowable” - where you add geopolitics now on top of the “real risk” being the Credit cycle turn.



While VIX was rising, Gold surged this week with spot prices very close to breaking $2000...



Source: Bloomberg

Oil rallied on the week with WTI getting close to $90 intraday before sliding today...



The dollar ended modestly lower on the week, thanks largely to Chair Powell's comments...



Source: Bloomberg

Bitcoin also caught a safe-haven (and ETF-driven) bid...



Source: Bloomberg

"Bitcoin is more user-friendly, stable, and global than some local currencies, especially in geopolitical conflicts and sanctions. In other words, the more unrest and uncertainty in the world, the more value bitcoin demonstrates, it's a sad truth," BTCM Chief Economist Youwei Yang told The Block.

"Bitcoin's resilience, especially when juxtaposed with the recent downturns in stock market indices, lends credence to the narrative that the digital asset serves as a potential hedge in tumultuous times, akin to gold," Sei Labs Co-Founder Jeff Feng added.

Talking of panic and capital ouflows (which also surged in China), the black market price for the Argentine Peso crashed 10% to 1100/USD (the official-ish price has been 'capped' at 350/USD for 3 months)...



Finally, this is worth paying attention in the context of surging US interest rates...



Source: Bloomberg

...since the Biden administration came into office, the risk of a US sovereign credit event has risen by 5x and are on the rise again now back to levels last seen during the debt-ceiling debacle. That trend is not Americans' friend (and is perhaps why gold has been so bid).