Equity prices tumbled early on - giving up all Friday's gains - before rampaging phoenix-like (thanks to an AUDJPY driven short squeeze) back to 'unch' after rumors of ceasefire discussions in Israel rolled around trading desks. Oil - it appears - was looking at the death-toll (and the fact that Hamas can only accept a deal that denies Israel's existence) and soared back towards $105 (its 2nd biggest day in over a month) notably divergent from stocks. The Russell 2000 was the laggard all day (ramped the most of the lows on the squeeze) and Trannies the leader. Since the MH17 headlines hit, the Nasdaq is the only index green, Treasury yields are -4bps, and oil up almost $4. The USD ended the day unch, 30Y Yield -2.5bps, gold, silver, and copper up modestly, and VIX up 0.5 vols at 12.7. Stocks closed on the weak side.
In its latest Hedge Fund Monitor, BofA's Ankur Singh finds that while hedge funds are willing to be the boats that rise with the central banks' liquidity tide, nobody is willing to fight the Fed in its latest admission that a subset of stocks, mostly those that make up the Russell 2000 index, "appear to be overpriced." As a result, BofA reports that "Specs increased Russell short position to a three year high. MAA and technicals suggest we may have further increase in Russell short positions." So how are various hedge fund strategies doing? Here is the full breakdown.
Just imagine how high stocks would be if more jets were shot down in Ukraine, more ground operations were unleashed in Gaza, more sanctions were placed on global growth, more European and US macro data disappointed, more job cuts at major firms, and more European banks declared bankruptcy. Today's farcical Friday surge (with the Nasdaq up 2% from its overnight lows and 30 point rip in the S&P) appears 100% based on the squeezing of "most shorted" stocks (best day in over a month) and the ramping of AUDJPY. Credit markets ignored the idiocy; Treasury markets ignored it; The USD went nowhere (after EUR dumped on Italy downgrade then recovered). Gold, Silver, and Copper all closed down 2-3% on the week (given back yesterday's gains) as Oil surged 2.2%. VIX dropped over 2 vols to close with a 12-handle (but disconnected notably from stocks at the close). It's not all ponies and unicorns though - Biotechs are down 5% from Yellen's comments and the Russell 2000 closed red for the 2nd week in a row (and still -1% year-to-date). Best Dow Friday in 5 months (up 11 in a row).
Thanks to the capable carry-induced ramp in AUDJPY (and a helpful OPEX pile-on for VIX), US equity markets are surging this morning (Russell 2000 above yesterday's highs?!) on the heels of the biggest short squeeze in over a month... SSDD...
Despite an initial attempt to rally after the terrible news out of Ukraine hit, stocks were unable to mount any serious BTFD as uncertainty spread. Despite Bullard's best efforts, bond yields crashed lower (over 7bps today) with 10Y at 2.45% near the lowest close in 13 months. Gold prices jumped over $20 (even as the USD Index flatlined - though JPY strengthened notably as risk-off set in). VIX exploded 3.7 vols (its biggest swing - 45% - since Aug 2011). Equity markets cratered into the close as Israel ground invasion news (A White House Lockdown) added to the concerns leaving all US markets red post-payrolls and red post-Yellen. The S&P 500 dropped 1.18% - its biggest drop in 3 months. The Russell 2000 is now down 2.5% year-to-date.
As US equities put in their ubiquitous v-shaped recovery from any opening weakness, Treasury yields are pushing the lows of the day. 10Y Yields are back below 2.5% - the lowest in 7 weeks. AUDJPY is fully in charge of equity levitation today so far (though Russell 2000 and Biotech names mostly are notably lower and not bouncing as exuberantly as Trannies and the Dow).
Since Janet Yellen started speaking yesterday, the USD has jumped most in 10 weeks to 1-month highs, Treasury yields have risen 5bps at the short-end but are unchanged at the long-end, Gold and silver are down 1%, oil up 1%, and copper -1.4%. In stock land, The Dow and Trannies are leading, S&P is unch, and Russell 2000 is not happy (-1.3%). VIX tested down to a 10-handle once again (but closed at 11.1). Credit markets remained far less excited than stocks today. Biotechs are down over 4.5% since Yellen started speaking and Social Media -1.2%. The Russell 2000 closes -0.8% for 2014.
What does Yellen know? Nothing apparently (if she says 'sell') US equity markets, juiced by China's GDP data (but missing China's retail sales and home price slump) and helped by Portugal 'reassurances' that have yet to materialize, are soaring this morning... VIX is back at a 10-handle as Dow hits record highs, the S&P nears record highs and even small-cap, social media, momo, tech fantasy stocks are ripping... you can't keep a good market down... It seems "fight the Fed" is the new "Don't fight the Fed"
It's Tuesday but not everyone had fun... Having been told by the Fed that small-caps were stretched, investors bid Trannies and Industrials into the green (well the Fed never said they were rich?) Russell and Nasdaq were sold (but only dropped around 1% as every trick in the book was found to "fight the Fed"). VIX slams, JPY ramps, Gold slams... but amid all the furore of the "Sell" momo stocks signal from the Fed, bond markets shrugged (admittedly with some noise) closing flat in 10Y (and modestly higher in yields in the short-end). Gold was monkey-hammered once again, smashed back below $1300 (but remains above June FOMC levels) with its worst 2-day drop in 10 months (breaking its 20, 50, and 100DMA). Biotechs closed worst among Yellen's shorts and Russell 2000 ends -0.65% for 2014.
Everyone knows that you "don't fight the Fed" - and sure enough, traders are selling momo, social media, and biotech stocks, sending the Russell 2000 ands Nasdaq to the lows of the day. Despite the best efforts of USDJPY momentum igniters - which has now shifted to tracking Treasury yields, pushing them modestly hgher. No bounce at all in broad US equity markets (though we expect the spin to be a rotation from growth to value once again very soon). Gold jumped on the dovishness but fell back to unch as did the USD. The S&P 500 is now in the red post-payrolls. Summing it all up - saying that these sectors are 'stretched' but the market is within 'norms' just won't cut it... Yellen is losing control and this level of specificity (and honesty) implies some degree of panic at the Fed.
The central banks of the world are massively and insouciantly pursuing financial instability. That’s the inherent result of the 68 straight months of zero money market rates that have been forced into the global financial system by the Fed and its confederates at the BOJ, ECB and BOE. ZIRP fuels endless carry trades and the harvesting of every manner of profit spread between negligible “funding” costs and positive yields and returns on a wide spectrum of risk assets. Stated differently, ZIRP systematically dismantles the market’s natural stability mechanisms.
On the heels of Friday's late melt-up, futures opened quietly on Sunday before ramping dramatically higher as Europe opened (which also saw Gold monkey-hammered lower) and then one again as US opened (along with another gold smackdown). In both cases, USDJPY was the 'igniter' of momentum. After last week's best (worst) week for "most shorted" stocks, the US open saw them instantly ramped higher and then again another squeeze pump into the EU close. Notably, the Russell dropped over 0.5% from its opening print as it appears all the buying power occurred in that early short squeeze pump. Shortly after 3ET, AAPL started to fade and then VIX pushed higher (as "most shorted" stocks started accelerating lower). By the close the Dow had lost its record highs, Russell was down 2.65% for July, Gold (and silver) were whacked 2.4% (worst in 2014), oil closed up modestly, USD unch (JPY -0.25%), and Treasury yields only +2-3bps. S&P futures volume ended 30% below average.
A look at key events and data in the week ahead.
The Russell 2000 closed down almost 4% from last Thursday's early close - its worst week in 3 months (and in the red year-to-date). The Nasdaq miraculously scrambled back to unchanged from Payrolls but all major indices closed red for the week. Away from stocks, the USD closed unchanged (with notable CAD weakness and JPY strength). Treasury yields tumbled 13bps on the week - the most in 4 months. Gold and silver rose 1.3% on the week to new 4-month highs (6th green week in a row) as WTI Crude slumped back under $101 (-3.3% on the week). VIX rose around 2 vols back above 12 as "most shorted" stocks plunged over 5% - the biggest weekly drop in 25 months! VIX was slammed lower late-on to give the impression of confidence in stocks into the weekend but credit was notably not buying it at all.
European markets were ugly going in: Portugal's largest bank on the ropes and macro data weak. US earnings calls confirmed no Q2 bounce back and macro data piled on (along with various GDP downgrades). Equity markets opened gap down with a big flush of "most shorted" longs and Russell 2000 dipped into the red for 2014. Then the rally-monkey turned up, slamming VIX and lifting USDJPY to squeeze shorts and drag stocks "off the lows." Once shorts reache dunch, stocks limped lower "off the highs." Away from the v-shaped recovery in stocks, Gold broke above $1340 (4-month highs) and silver gained. Oil turned around early losses closing up for 1st time in 9 sessions ($103). The USD rose (on EUR weakness) but remains lower on the week. VIX ened 0.8 vols higher at 12.5 (well off its intraday highs though). The day ended with Carl Icahn warning that "it's time be cautious about US markets." VIX pushed higher into the close as investors remember Europe opens in 8 hours.