For all the talk and feverish anticipation of today's payrolls number, which came in far stronger than expected on the headline assisted by a surge in self-employed Americans [10], some 370,000 to be exact, most of whom between the ages of 20 and 24 [10]at least according to the BLS, the market reaction was largely a dud and after an initial spike lower, followed by a just as frenzied episode of BTFD, ES was locked in a trading range set by yesterday's lows and VWAP of course.
The weekly chart shows that while the three main indexes all closed modestly lower, the Russell managed to outperform but the biggest winner this week was the trannies, assisted by the recent drop in crude.
[11]
However to see the real stock action catalyst one needs to step even further back, look at the one month volume chart, which shows a tale of two (volume) tapes: a rise on declining volume, and a drop from recent all time highs on ever higher volume. As the chart below shows, something snapped on May 26 when the trendline higher was broken, and selling on every higher volume has been the norm.
[12]
And yet, today's relatively quiet stock tape masks the real tension in markets which is not so much about equities, where volatility remains artificially supressed as we showed yesterday...
[13]
... but continued to be all about China, where the manic phase, punctuated by increasingly sharper, more frequent sell offs, clearly visible to all...
[14]
... and most of all the bond market, where we either are approaching an inflationary inflection point, confirmed by the 10Y closing at the highest yield since 2014...
[15]
... or are witnessing central banks slowly losing control, as shown in the following chart of MOVE, i.e., the Merrill bond market volatility index, which has been steadily rising in the past month...
[16]
... and leading to a doubling in German Bund yields in the past week alone.
Oil, on the other hand, was in its own world, trading according to the whims of stop-hunting algos and leading to the following perplexing monthly formation.
[17]
In any event, something here has to break: either yields will finally springboard higher, leading to a dramatic end in debt-funded stock buybacks which are no longer accretive at rising yield levels, thus leading to a drop in stocks, or today's close encounter with economic growth is shown to be short-lived once again and yields resume their trek lower, cross-asset volatility normalizes, which in turn allows equities to resume their "wealth effect" climb ever higher.
Conveniently, with a number of key geopolitical events on the table, the resolution one way or another will reveal itself on very short notice.
