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    IN speculation we trust - China break out weekly candle is huge...

    CSI 300 back to 2015 levels and "speculation" looking healthy...

    IN speculation we trust - China break out weekly candle is huge...
    Refinitiv

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    Earnings sentiment in the US now actually positive
    Earnings sentiment in the US now actually positive
    Goldman
    There is a "cure"...

    Bernstein points out:

    " If you are thinking about a holiday note that recent studies suggest that being outside, in warm weather, and maintaining social distancing can significantly reduce the risk of infection and it will make you feel good too … and It’s what rosé was invented for"

    There is a "cure"...
    Bernstein
    NASDAQ - let's see what next week offers, but do not fight the trend channel and the 21 day moving average...

    ...not getting excited on the downside until we start trading below those levels.

    NASDAQ - let's see what next week offers, but do not fight the trend channel and the 21 day moving average...
    Refinitiv
    Kill vol - front month VIX and V2X futs still holding above early June lows
    Kill vol - front month VIX and V2X futs still holding above early June lows
    Refinitiv
    Kill vol - EUR 1 mth atm vol approaching recent lows
    Kill vol - EUR 1 mth atm vol approaching recent lows
    Refinitiv
    Kill vol - JPY 1 month atm vol approaching recent lows

    Will it take out late May levels?

    Kill vol - JPY 1 month atm vol approaching recent lows
    Refinitiv
    Inflation is coming

    Authors write:

    "For the first time in 40 years, we believe we may now have to face up to the corrosive power of inflation."

    Ft article worth a read,

    https://ftalphaville.ft.com/2020/07/02/1

    TME touched upon this scenario earlier this week, in case you missed it, "Are we hedging the wrong tail"

    Must read,

    https://themarketear.com/posts/cgUlWIZ8j

    Inflation is coming
    Wiki
    Europe, the week that was: even the losers were winners

    Europe (SXXP) +2.0%

    Winners:

    Travel & Leisure +4.5%

    Chemicals +4.2%

    Banks +4.0%

    Losers:

    Healthcare +0.5%

    Oil & Gas +0.7%

    Food & Bev +0.8%

    Corona cases surpass 11 million globally with US, Brazil and India as largest origin of new infections
    Refinitiv
    The Looming Bank Collapse

    The U.S. financial system could be on the cusp of calamity. This time, we might not be able to save it.

    Atlantic article worth a read,

    https://www.theatlantic.com/magazine/arc

    XLF/SPY chart not looking "healthy".

    The Looming Bank Collapse
    Refinitiv
    Hedge Fund positioning: responsible

    US L/S weighted gross leverage dropped ~3% DoD to 182% (51st %-tile since 2010, 11th %-tile over last 12 months). Net leverage increased 50bps to 49%, which is the 34th %-tile since 2010 and 80th %-tile over last 12 months

    MS PB
    Greed and fear - right in the middle
    Greed and fear - right in the middle
    CNN
    Barclays: here comes the V in cyclical EPS

    "The EPS cycle is moving swiftly past the trough as industrial activity picks up. It took sellside just ~4 weeks during March/April to cut 2020E EPS by ~25% for the European Capital Goods sector. For the sector's industrial short-cycle names, the cut was ~35%. But with industrial activity picking up from the April lows, and corporates initiating or accelerating cost-out action, the earnings cycle looks set for a sharp reversal in H2. We believe that can form the basis for continued sector outperformance..."

    Barclays Equity research
    Searches for Covid 19 on the rise
    Searches for Covid 19 on the rise
    Google
    The most important chart to watch after the long weekend

    How will fatalities curve develop during the coming two weeks?

    The most important chart to watch after the long weekend
    Nordea/Macrobond
    Mnuchin - full of cash

    As Nordea points out:

    "Will all this money suddenly reach the system via aid packages and/or infrastructure projects? Or will Mnuchin and the US Treasury ultimately decrease issuance markedly during H2 2020? We bet on the latter, which is by the way (almost) a global phenomenon"

    Mnuchin - full of cash
    Nordea/Macrobond
    Slightly "disturbing" gap

    Nothing to trade on a short term basis, but as Citi notes:

    "The disparity between credit spreads and rating migration can obviously be closed

    two ways – spreads widen or rating migration improves. "

    As we all know, rating agencies are not quick and the recent bounce in PMIs is probably in the "pipe" to be reviewed.

    On the question will they close the gap entirely Citi writes:

    " In this era of abundant liquidity, credit will

    likely tend to be expensive to fundamental momentum and very expensive to levels. "

    Slightly "disturbing" gap
    Citi
    Love IG don't love HY

    European credit.

    Love IG don't love HY
    Citi
    Retail tech draws lockdown dollars
    Retail Army 2020 is truly global

    Chart: retail participation in Korea

    Retail Army 2020 is truly global
    and the long weekend coming up...

    As Matt O'Brien notes,

    "With a population of 21 million, Florida announced 10,109 new covid cases today.

    With a combined population of 2.6 billion, China, Japan, Korea, Vietnam, Thailand, Malaysia, Indonesia, the Philippines, Australia, and the European Union are averaging 6,760 new cases."

    and the long weekend coming up...
    Our world in data
    Percent of inpatient beds occupied by COVID-19 patients
    Percent of inpatient beds occupied by COVID-19 patients
    CDC
    China - all in?

    CSI 300 looks like Robin Hooders found the green button. Impressive...

    China - all in?
    Refinitiv
    Some of those EM currencies moving lately

    One of them is the RUB, breaking away further.

    Some of those EM currencies moving lately
    Refinitiv
      NASDAQ - let's see what next week offers, but do not fight the trend channel and the 21 day moving average...

      ...not getting excited on the downside until we start trading below those levels.

      NASDAQ - let's see what next week offers, but do not fight the trend channel and the 21 day moving average...
      Refinitiv
      The most important chart to watch after the long weekend

      How will fatalities curve develop during the coming two weeks?

      The most important chart to watch after the long weekend
      Nordea/Macrobond
      Fed's BS - just a blip? - what about VIX

      Fed balance sheet and VIX.

      Fed's BS - just a blip? - what about VIX
      Refinitiv
      Credit not as exuberant as equity volatility

      Watch this space should we get a bigger gap. iTraxx main vs V2X.

      Credit not as exuberant as equity volatility
      Refinitiv
      Cuts, cuts, cuts, but not interest rate cuts

      EPS...

      Cuts, cuts, cuts, but not interest rate cuts
      Factset
      SPY - what is the market pricing?

      Below is a chart showing how SPY vol structure has shifted from the "bloody" Thursday sell off June 11, few days later June 16 and finally today.

      Market has gone from pricing approx 2% daily moves for SPY to 1.4% daily moves.

      As we have been outlining for past weeks, equity volatility has been trading too rich to current "narratives".

      We still believe in the "summer box" trading, but given the recent fall in vols, the relative "edge" of the logic is less attractive at these vol levels.

      SPY - what is the market pricing?
      TME
      More upside?

      GS out with a new report of using flow and liquidity top model SPX. They basically incorporate an analysis of ETFs, in house flow data and liquidity.

      Conclusion, there is more upside...

      "Our analysis suggests the S&P 500 has underperformed liquidity-adjusted

      investment flows"

      More upside?
      GS
      Back to kill volatility?

      FX and equity vols continue moving lower. We have had the "sell premium logic for the past 10 days" and remain comfortable with this view for now. We will reconsider that logic when more people start pushing this idea, the first ones just started...

      Back to kill volatility?
      Refinitiv
      You think NASDAQ and tech is hot - obesity is even hotter

      From the top:

      Obesity index, SLIMD,

      Internet ETF, FDN,

      NASDAQ.

      Go figure

      You think NASDAQ and tech is hot - obesity is even hotter
      Refinitiv
      How big is the real Covid 19 risk?
      How big is the real Covid 19 risk?
      Bernstein
      The lockdown death of a 20-year-old day trader

      The suicide of Alex Kearns — who thought he had lost heavily — has triggered calls for reform of online brokerages

      Via FT - Free to read

      https://www.ft.com/content/45d0a047-360f

      The chart below shows the extreme development in short term trading in options.

      The lockdown death of a 20-year-old day trader
      GS
      Recall Harnett's summer "box"?

      "sell the 3250 rip" and "buy the 2950 dip" in S&P500

      Recall Harnett's summer "box"?
      Refinitiv
      LQD and JNK since the "original" Fed announcement in early April - both +8.5%
      LQD and JNK since the "original" Fed announcement in early April - both +8.5%
      Refinitiv
      Summer box - Spuz stuck in the box and VIX fading...

      ...until the market is ready fr the next narrative which is not now...

      Summer box - Spuz stuck in the box and VIX fading...
      Refinitiv
      What if "we" are hedging the wrong tail?

      Frequent readers of TME know we consider Chris Cole of Artemis one of the better guys when it comes to thinking "beyond" volatility.

      This piece written years ago is somewhat technical, but provides some great insights into hedging and mispricing risks under a "hyperinflation" scenario. We are probably not there, but CBs have been very active and one should consider a small if at least...

      As Cole writes:

      "Print too little money and we cascade off the waterfall like the Great Depression

      of the 1930s... print too much and we burn like the Weimar Republic Germany in the 1920s... fail to harness the trade winds

      and we sink like Japan in the 1990s"

      Full must read note in case you missed it a few years ago, before Robin Hood existed....

      https://static1.squarespace.com/static/5

      What if "we" are hedging the wrong tail?
      Wiki
      Remember when bears used to compete pointing out how bad Dr copper was trading?

      The economy, or inflation kicking in, or both_ Who knows, but this time the Spuz is lagging....

      Remember when bears used to compete pointing out how bad Dr copper was trading?
      Refinitiv
      Tesla is +55% from the low print on May 1 when Elon said the stock was overvalued...
      Tesla is +55% from the low print on May 1 when Elon said the stock was overvalued...
      Refinitiv
      Emerging markets - the most rational vol market?

      EEM has done little over past weeks, small down from recent highs and EM "VIX", VXEEM, has moved lower as we are realizing very low volatility.

      Let's see if Spuz and VIX get inspired....

      Emerging markets - the most rational vol market?
      Refinitiv
      Don't fight the Fed and don't fight NASDAQ 21 day moving average

      The bounce perfection continues...until it does not...

      Don't fight the Fed and don't fight NASDAQ 21 day moving average
      Refinitiv
      People continue to hate puts when they should love them, and love them when they should hat them

      The p/c ratio vs Spuz chart below needs little commenting. Note people have been buying puts on a relative basis lately...

      People continue to hate puts when they should love them, and love them when they should hat them
      Tradingview
      Case for more bull post the recent pullback

      1, investor's light positioning that could increase if lower volatility feeds through the "system"

      2, policy support

      3, higher Covid 19 is mainly impacting younger population, which have drastically lower fatalities and likely reflect higher testing rates

      See below the recent low risk exposure by vol targeting funds as well as CTAs.

      TME's most recent logic is to use elevated volatility to enhance yield, as the above and summer trading continue to lack the big negative catalyst.

      Case for more bull post the recent pullback
      JPM
      Harley Bassman on "FED exercising its absolute power"

      One of the ideas below. As he writes himself;

      "It seems crazy to be offering a bullish trade idea in what is at best the third

      inning of a pandemic; but the FED has gripped the financial markets with its

      Mighty Hand and has “promised” not to release it anytime soon.

      If the economy realizes a U-Shape recovery, stocks will jump to new highs. If

      the economy founders, the FED will support financial assets via zero rates and

      QE~ until congress can load the MMT fiscal cannon. Indeed, this will not end

      well in the long-term, that’s a problem for another day."

      S&P 500 = 3000 ~SPY = 300 Forward = 286.25

      Buy December 16, 2022 call; K = 340 @ $21.0; Vol = 21.25%; Delta = 37%

      Sell December 16, 2022 put; K = 230 @ $21.5; Vol = 27.50%; Delta = 23%

      1) This is a “better beta” idea; substitute this for your current SPX exposure;

      2) Steep volatility skew initially creates long Convexity and short Theta;

      3) Call strike is the old high, put strike is a 16.6 P/E with E = $138.50;

      4) Monetizes the rate differential to depress the forward to cheapen the call;

      5) The longest listed expiry available; it allows one to ride out the pandemic.

      Full note,

      https://www.convexitymaven.com/images/Co

      About the month end flow...

      People are still giving month/quarter end flow a lot of focus, but the big supply is most probably over as we have one day left.

      MS quantitative derivatives team expects "~$5bn of global equity to buy from asset owners....On top of the pension flows, QDS estimates that dealers will have over $5bn of delta to buy as customer short / dealer long ITM calls expire on Tuesday"

      Also, do consider the TVIX delisting on Thursday, which should put an offer on vols and a possible small bid on deltas (TME has outlined the TVIX delisiting effect on various occasions over the past week).

      Consensus seems to be there is a still a lot of supply about to hit the market, so watch this tape carefully since we could be witnessing a "violent" move higher should all this expected supply already be over...

      Russell - back to being King

      It was only 8 hours ago we suggested:

      "Time for Russell over NASDAQ".

      The ratio is moving big...

      Russell - back to being King
      Refinitiv
      at least one thing going back to normal - NASDAQ "VIX", VXN, above VIX

      There are risks in tech as well...

      at least one thing going back to normal - NASDAQ "VIX", VXN, above VIX
      Refinitiv