Economists expect a significant and large vaccine GDP boost from 2Q and 3Q in the US and Europe, respectively with massive acceleration from February to October. Priced in and stocks trade down from January as we get drowned in the tsunami of positive economic datapoints?
Goldman
SPY in USD and in Euros. Top chart showing the USD denominated SPY chart showing the recent move higher.
The lower chart showing SPY in Euro terms, having done nothing for weeks basically.
How bullish is bullish here depends on what currency you are looking at. Time to bring out those FX sensitivity tables soon…
Refinitiv
Interesting px action in the US 10 year yesterday. Huge move higher in yields, spilled over to even the German 10 year picking up some steam, but the dynamics between the US and Europe are very different. Inflation outlook for Europe is truly "sad", so we ask ourselves if the US/German 10 year is about to take the next leg higher soon. After all Fed has credibility left…
Refinitiv
Would you buy this chart if it was a stock?
Perfect trend channel since lows, now accompanied with positively sloping 50 day moving average, confirming the trend higher. One of the key questions, are US yields going higher?
Key resistance area in the 0.95-1% territory. People talk about rates moving higher, but it "feels" still many could get shocked if the 10 year moves above 1%, not to say even higher.
Refinitiv
Bond volatility, MOVE index, has been "supressed" by Fed's expanding balance sheet. So far they have succeeded, but watch bond volatility closely here as a more meaningful move higher in rates could reignite MOVE index moving higher again.
Refinitiv
Robinhood gained approximately 3M new users in the first 4 months of 2020. These so-called “pandemic day traders” traded 9x as many shares as E-Trade users and 40x as many shares as Schwab users during Q1’20. They also traded 88x as many risky options contracts as Schwab users during that period.
CB Insights
Gross Exposure made new YTD highs in Nov (left chart); Net Exposure also high (right chart). The only category selling in November were quants.
JPM Positioning Intelligence
Note how S&P has performed since the GFC when Fed paused/shrank the balance sheet. There is very little incentive for the new Fed chair to decrease the printing, but the "delta" will decrease. Something to bear in mind…
Fed BS vs S&P.
Refinitiv
VIX remains elevated on the longer term chart, but VIX has had a "structural" bid developing for years. The pandemic took vols to a new plateau. Seeing VIX return to some sort of long term average seems a wishful thinking only. VIX at 20/21 seems to be the new 17…
Note that every pause/shrinking of the BS has resulted in VIX moving violently higher. Even small expansion has not been enough for VIX to stay calm. Things are getting slightly boring as we approach Christmas, but exciting times to start planning some VIX trades…
Refinitiv
Note how VVIX has moved when Fed paused/shrank the BS. Interesting to note is the clear "structural" bid in VVIX that has been going on for years and has accelerated during 2019/2020.
This together with poor liquidity and poor "market structure" is not a great long term development.
Fed BS vs VVIX.
Refinitiv
Recall the summer of 2019 when bond volatility started exploding to the upside as Fed's BS was shrinking. This became a big headache for Fed that eventually had to restart the printing presses. MOVE index has once again come down post the elections "drama", but we doubt it can take yields spiking much more from here.
Watch how MOVE moves going forward.
Refinitiv
..and yields are moving higher and NASDAQ does not like rising yields. Tech sensitivity to rates is huge, so watch both closely as US 10 year pushes the 0.95% level.
First chart showing US 10 year vs NASDAQ/Russell ratio. You can clearly see what has been going on during the yields rise since August.
Second chart showing tech as the number one duration trade.
Dr Copper has continued surging. Latest bullish take was from GS we outlined yesterday, here, where the conclusion is basically;
""This current price strength is not an irrational aberration, rather we view it as the first leg of a structural bull market in copper"
We leave long term views to others to decide on as we like to focus on risk and opportunities. Copper vs gold ratio has exploded higher over past weeks, moving in tandem with yields, but yields have been lagging.
If yields "get inspired" by the copper/gold ratio things could get interesting as that would imply US 10 year at 1.8% ish. Not very likely maybe, but with MOVE and VIX having crashed lately you are offered a relatively cheap way to play this possible scenario.
Equities will have a problem digesting a spike in yields, especially as the main duration play remains tech, and that is were earnings are made, chart 2.
Large inflows into Chinese Bonds and Equities. Front-running the "strong as an ox" year of 2021…Will the old saying "strong as an ox and twice as clever" be applicable here?
EPFR
As frequent readers of TME know, gold trades with a "positive skew" as it is partly a hedge asset itself. Bigger moves higher in gold are usually accompanied with rising gold volatility, GVZ.
This last squeeze higher has seen GVZ in zzzz mode.
Playing possible further upside in gold has remained relatively cheap as GVZ has not moved higher. If you caught gold "deltas" outright, one way to manage some of the risk is to switch over to still rather cheap call spreads (replace gold longs with cheap call spreads).
Refinitiv
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