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Our View
Behind the Fed and all the recent noise:
JPM calculated CTAs had 300B worth of rate shorts across USTs, Bunds and Gilts & covered two-third. “The past 3 days have seen the greatest short-covering in rates since the pandemic or March '20. This means another 100B of shorts in rates are still left to be covered.” Jef Evening Scan
Equity Liquidity: Record volumes do not equal liquidity. S&P 500 futures liquidity is $2.0M. This is the lowest level since March 30th, 2020 (Covid times). At the start of March 2023, you could trade $17M on the screens, and today is $2M, a decline in 88%.”
This week is no walk in the park. We had the weekend panic and I’m still sure that that situation has not run its course yet. Tuesday featured in-line CPI results and Wednesday morning features the PPI and retail sales report.
Now, fears of European banks are creating some selling pressure.
Our Lean
Volatility has taken a major spike higher. Even though the VIX fell about 10% on Tuesday, it still closed near $24 and is up over 25% from Thursday’s low. Now it’s $28+ this morning.
When we look at the daily chart of the S&P 500, selling the “high risk/reward” spot was the play. That was $SPY $393.50 to $394 and /ES 3950-3960.
BlackRock’s Larry Fink said that the Fed’s rate hikes have “exposed cracks in the financial system.” That manifested in US regional banks late last week and now that fear is spreading to the European banks.
Several European banks have been halted limit-down after Credit Suisse shares plunged over 20% as Saudi National Bank rules out providing further assistance to the troubled lender.
As of 8:00 a.m. ET: