Narrow rally as liquidity peaks
NASDAQ de-coupling?
NASDAQ vs the US 10 year real yield (inverted) gap is getting very wide here. Watch this closely as momentum chasing PMs tend to get carried away...
Source: Refinitiv
Not many "healthy" longs
JPM's trader Matt Reiner summing it up: "Positioning remains light, with a majority of books running neutral and tight. Very few are over their ski’s long, and my best guess is the catch up trade will occur sooner than later. 4200 remains in firmly in sight, and nearly no one has an upside target from there. The really raucous “3800” chants from last month are drowning out to a whisper.”"
It doesn't work that way
Today a macro strategist pointed out to us that we should be much higher based on where VIX is trading, the "last time VIX was here..." argument. You do not compare mean reverting assets (volatility) with trending assets over longer time periods. VIX here is at it's post Covid "natural floor". We continue to like using cheap implied vols to play directional bets. Just decide if you think we are going up or down, and express it via options.
Source: Refinitiv
Peak liquidity
H2-2023 liquidity looks challenging. GS writes: "we should see between $600bn and $1.2tn decline in liquidity by year end just in US and additional 400-500bn decline in Europe due to TLTRO expiry and QT. The variation in the US expectation for liquidity withdrawal depends on how the planned TGA re-stocking, once the debt ceiling is raised, will be funded". This is basically what Citi's King outlined a few weeks ago (here).
Note the latest "gap"...
Source: Bloomberg/GS
Fabolous 7
It is a narrow rally. Hartnett adds some color: "Big 7 monopolistic US Tech stocks (up 61%) trading on 30x PE vs 17x for rest of S&P, Big 7 aspirational European Luxury stocks (up 25%) trading on 36x vs rest of Stoxx 600 trading on 12x PE."
MSFT vs. GOOGL AI supremacy
1. its clear that Google’s I/O event proved to investors that they are a key player in AI and have a consistent go-to-market strategy to integrate AI across platforms (Search, Gmail, etc.).
2. Microsoft hasn’t explicitly said how they plan to monetize AI, but using GitHub Copilot (double or 2.5x price increase) and Teams Premium as a reference, Microsoft could charge a >66% price increase for Copilot enablement.
3. All in all, there is a mutual agreement that MSFT and Google have the capabilities to both be winners. A handful of other names were talked about on the call, including ADBE and AMD, however its obvious that big platforms have the largest strategic advantage. (Sanford Bernstein)
All about MAGMA
Few were prepared for this and they have been forced to chase it...
Source: GS
New regime for bank asset
1. Post recent episode, banks will have to revise duration assumptions on their $4.7tn of NIB
2. in the LR, regulatory changes will likely cause structural shifts to the composition of assets that banks hold
3. Expect all of these changes to result in a steeper Treasury curve, wider agency MBS spreads on the single-family and multifamily side, a smaller bank footprint in munis, and downside demand for securitized credit
4. while things have gotten worse, it’s unlikely to get that much incrementally worse from here for securitized credit.
(Morgan Stanley)
Cathie - so right but so wrong
Cathie Woods got the disruptor narrative right, but she managed picking all the stuff that isn't disrupting. ARKK vs NASDAQ chart needs little commenting.
Source: Refinitiv
New highs anyone?
Hartnett reminds us once again: "...if SVB was Bear Stearns we going to new lows, if LTCM then we going to new highs"…thus far past 2 months stocks certainly trading like SVB = LTCM."
He still says to fade SPX 4200...
Source: BofA
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