Well that escalated quickly. Apart from crude oil, almost all asset classes were clubbed like baby seals today as event risk anxiety (ahead of FOMC) combined with OpEx technicals ($3.4 trillion options expiration) and European ‘fragmentation’ fears and all the usual geo-political, geo-economic factors that are holding back the dip-buyers as the S&P drops into a bear market and US equities broadly test 2022 lows (while TSY yields push multi-year highs).
The S&P closed down 22% from its highs and at its lowest since Jan 2021…
“…millions of voices suddenly cried out in terror and were suddenly silenced…”
As Bill Blain noted earlier, the summer somnambulance should be upon us – investment desks and traders sitting back to watch their carefully composed portfolios and positions cruise through the summer before the markets get hot again in September. At least, that’s how I remember the long-balmy days of my market childhood back when I was a young banker….
Not this year. Too many fundamental tremblors threaten to rock the markets:
- Inflation, Inflation, Inflation
- Supply Chains, Covid and China
- Europe and the ECB
- War vs Jaw
- Central Banks tightening
- Stock Resets and Earnings
- Bond Market Meltdown
- Global Trade Reset and De-Globalisation
- The US, The Dollar and Trump
I predict a stormy Q3 – the usually calm languid dog-day markets of July and August being replaced by lumpy seas of bad numbers, grey storm skies as markets struggle with the acceleration of negative news-flow on inflation, corporate earnings, markets and increasingly wobbly politics, and few sharp pointy rocks of financial destruction.
Financial Conditions are tightening once again, ratcheting down as The Fed stomps on the brake, surveys the damage, lifts off briefly, then re-stomps on the brake…
Recession risks are rising as signaled by Energy, Consumer Discretionary, and Materials all lagging a sharply down market. And on the too-high inflation and higher rates side of the pendulum, Real Estate and Tech are also selling off today.
US equity markets were notably weaker overnight and extended losses at the open. The European close – and the end of BTP selling – sparked some relief that sent crypto and US stocks higher but the algos could not build on it. Witho about 30 minutes to go a major sell order hit all the markets – bonds and gold were dumped and stocks pushed to the lows of the day. Dow -3%, S&P -5%, Nasdaq -4.6%, Small Caps -5%
The last time the S&P had a 4-day stretch this bad (-1.08%, -2.38%, -2.91%, -3.23%) was March 23, 2020 when the Fed unleashed $1 trillion in QE, repo and corporate bond purchases
And some context for the move in the last 3 days…
2017 biggest drawdown: 3%
2021 biggest drawdown: 5%$SPY -8% last 3 days. pic.twitter.com/vMlcYKnwLJ
— Mike Zaccardi, CFA, CMT (@MikeZaccardi) June 13, 2022
The market cap of FANG stocks has no plunged to ‘just’ $3 trillion (it was at $5.11 trillion on 11/18/21)…
European stocks collapsed to their lowest since March 2021, now well below the pre-COVID-peak levels…
European bond markets were a shitshow with BTPs spiking above 4.00% for the first time since 2014…
Spreads are blowing out amid ‘fragmentation’ risk…
And “Italeave” fears are rising…
In the US, Treasuries were clubbed like a baby seal with the short-end underperforming. The short-end exploded higher in yield today (2s thru 5s up over 30bps) with the long-end up ‘only’ around 20bps (with a late-day acceleration hot helping at all). Since right before Friday’s CPI print, 2Y yields are up over 55-60bps, 30Y up around 20bps… These moves are just un-fucking-believable! Today was the biggest 2y yield spike since the day Lehman filed.
The yield curve is now fully inverted 1y forward and the spot curve is above 3.00% from the 1y maturity on…
Yields are literally going vertical with the short-end at their highest since 2008…
And the all-knowing 2s10s curve inverted again today…
Late in the day, the curve flattened again drastically as the short-end blew out…
US rate-hike expectations are soaring (market now pricing in at least 10 x 25bps more hikes into year-end) … and so are the subsequent rate-cut expectations as Powell pushes America into recession…
The market is now more than certain that The Fed will hike by 75bps at one of June’s or July’s meetings (and at least 50bps at the other).
And the market is pricing a 100% chance of a 75bps hike this week.
And if you think the stock market is pricing this in, think again!
US credit markets are breaking bad with IG now at its lowest price since the COVID lockdown collapse…
US 30Y mortgage rates topped 6.00%…
And HY spreads rocketing higher…
The Bloomberg Dollar Index rose for the 4th straight day (up 8 of the last 10 days) to its highest close since April 2020…
The DXY Dollar Index took out cycle highs to end at its highest since 2002…
Cryptos were slammed lower amid the general derisking and not helped by systemic issues from Celsius and Binance with Bitcoin puking back below $23,000 at its lows… the lowest price since Dec 2020…
Total crypto market cap dropped back below $1 trillion today for the first time since Jan 2021 (down $2 trillion from its highs)…
Gold (priced in JPY) reached a new record high on Friday, and reversed off that level today…
Gold (in USD) puked back all of Friday’s gains, falling back below $1850 once again…
Oil ended the day practically unchanged as recession fears (demand) dragged prices lower while Libya output cuts (supply) briefly spiked prices…
Dr.Copper was also weaker, back near one month lows…
Finally, Small Business optimism is starting to catch down to ‘average Joe’ American’s
Is that all Putin’s fault too?
*WHITE HOUSE WATCHING STOCK MARKET CLOSELY: JEAN-PIERRE
by Tyler Durden
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