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    The inversion signal

    10 year - 3 month yield curve has now been inverted for 40 consecutive days.

    Historically, not good for SPX from a long term perspective

    The inversion signal
    bullmarkets.co

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    It's all about the cut....

    It's all about the cut....
    Thomson Reuters

    Nobody missed the VIX pop as markets dropped on Friday, but in case you missed it, the VIX term structure popped higher as well on Friday.

    Short term protection goes quickly in fashion these days.

    Nobody missed the VIX pop as markets dropped on Friday, but in case you missed it, the VIX term structure popped higher as well on Friday.
    Vixcentral.com

    Saudi Arabia's Tadawul index , down 0.85% on the back of the Iran "crisis".

    Note the index was down more earlier in the session.

    Saudi Arabia's Tadawul index , down 0.85% on the back of the Iran "crisis".
    Thomson Reuters

    bearish

    bearish
    Bloomberg Plc

    Eurodollar yield curve......

    .... also as inverted as it was prior to the GFC

    Eurodollar yield curve......
    Crescat

    US alone in making new highs

    The US is the only stock market in the world to make new highs recently.

    Every other G-20 index already peaked a long time ago.

    US alone in making new highs
    Crescat

    1,880x

    The level of retail over-subscription for STAR Board the new Shanghai Science and Technology Innovation Board

    https://www.ft.com/content/2edf8e0e-9638

    Bifurcation in uncertainty

    Bifurcation in uncertainty
    Bloomberg

    BREAKING: UK Chancellor Philip Hammond says he will resign if Boris Johnson becomes Prime Minister

    A lot of oil events these days

    h/t @mcm_ct

    A lot of oil events these days
    US Department of State

    ETF positioning

    ETF positioning
    MS Quantitative Derivative Strategies Team

    China Exodus

    China scrambles to stem manufacturing exodus as 50 companies leave

    Interesting story from last week

    https://asia.nikkei.com/Economy/Trade-wa

    Head of China Development Bank’s Shandong Branch Commits Suicide

    uphold maritime rules...

    The seizure of the UK oil tanker in the Strait of Hormuz aimed to "uphold international maritime rules," said Iranian Foreign Minister Mohammad Javad Zarif

    Will war of words (and tank seizures) become something much worse?

    E&P equities have notably lagged the commodity this year

    E&P equities have notably lagged the commodity this year

    Finnish study finds ‘practically no’ evidence for man-made climate change

    European zombie banks did not miss the German year fell rather big last week....

    European zombie banks did not miss the German year fell rather big last week....
    Thomson Reuters

    SPX, VIX and VVIX - note how VIX "finally" caught up to the VVIX move...

    SPX, VIX and VVIX - note how VIX "finally" caught up to the VVIX move...
    Thomson Reuters

    High Yield - in demand - best July in 5 years

    1.. Ten deals priced for $10.7B last week as issuance picked up ahead of the typical summer slowdown

    2. on track for the busiest July in 5Y

    3. Investor demand for HY remains strong despite the recent spread widening; Lipper reported the 6th straight week of inflows with ~$573M last week.

    The new oil trend channel?

    The new oil trend channel?
    Thomson Reuters

    US shale production

    US EIA’s (Energy Information Administration) monthly DPR (Drilling Productivity Report) noted that crude oil output from seven major shale formations was expected to rise ~50k bpd in August to a record 8.54mm bpd. However, this implies YoY growth of ~950k bpd (~600k bpd from the Permian), which would be the lowest YoY growth since September ’17

    US shale production
    Morgan Stanley

    plastic perpetrators

    plastic perpetrators
    Goldman

    Speculators raised both oil and gold longs during the past week according to CFTC.

    Gold small up, oil big down for the week.

    Speculators raised both oil and gold longs during the past week according to CFTC.
    Thomson Reuters

    the oil inventory build

    the oil inventory build

      It's all about the cut....

      It's all about the cut....
      Thomson Reuters

      If you are looking at gold as the fear hedge, there is probably a better/cheaper fear hedge....

      VIX has the mean reversion feature to it, so by default it can't trend for long time periods, but note that the vol shocks since 2018 have been accompanied with a rising price of gold, until the recent decoupling of gold versus the fear hedge....

      VIX vs gold.

      If you are looking at gold as the fear hedge, there is probably a better/cheaper fear hedge....
      Thomson Reuters

      Eurostoxx volatility - "theoretically" it should be down today, but it is spiking big today as Italian jitters resurface as one of the European "narratives".

      While mainstream financial media discusses US earnings etc, Italian risks are brewing.

      V2X +8.3%, has not closed here since mid June.

      Eurostoxx volatility - "theoretically" it should be down today, but it is spiking big today as Italian jitters resurface as one of the European "narratives".
      Thomson Reuters

      Key Brexit dates...IT is approaching...note the GBP 6 month volatility makes new recent highs, trading at early April levels.

      JULY 22 - Voting closes

      JULY 23 - The new leader will be announced.

      JULY 25 - Parliament is due for vacations. to break up for its summer recess.

      SEPT. 3 - Parliament resumes.

      SEPT. 21 -25 - The Labour Party annual conference.

      SEPT. 29 to OCT. 2 - The Conservative Party annual conference.

      OCT. 31 - Britain is due to leave ....

      Key Brexit dates...IT is approaching...note the GBP 6 month volatility makes new recent highs, trading at early April levels.
      Thomson Reuters

      Where did the inversion go?

      US 10 year at 2.0465%, US 3 m at 2.0406%.

      Where did the inversion go?
      Thomson Reuters

      While on the Turkish topic, the Turkish ETF, TUR has been a stellar performer since the "panic" lows.

      Gentle reminder on our post when everybody was in panic mode. From May,

      "By now everybody knows Turkey is in a huge mess, but note that last time the etf, TUR US, reached these levels it decided to bounce hard."

      The TUR is up 30% since then, that is a "hard bounce".

      https://themarketear.com/posts/cQbQPCkTN

      While on the Turkish topic, the Turkish ETF, TUR has been a stellar performer since the "panic" lows.
      Thomson Reuters

      The JPY remains a big driver of macro risks, so be sure to watch it, irrespective if you trade it or not.

      SPX vs JPY move in tandem over time....

      The JPY remains a big driver of macro risks, so be sure to watch it, irrespective if you trade it or not.
      Thomson Reuters

      Dennis Rodman and the Art of Portfolio Optimization!?

      History and data shows that great defensive players like Rodman are the difference between mediocre and championship teams.

      A great defensive player can dramatically increase the per possession efficiency of a team’s offense, even if

      that player is subpar offensively.

      Volatility and convexity exposure acts the same way for the institutional portfolio, dramatically increasing

      the risk efficiency of composite returns, despite flat to negative carry during bull markets. - Chris Cole

      For frequent readers of TME, the below post is nothing new, but worth a review as volatility has started to move a bit. If you have not read it yet, it is definitely worth a read.

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

      Dennis Rodman and the Art of Portfolio Optimization!?
      Artemis Management

      Achtung baby?

      DAX falling below the longer term trend line. Believe it or not, but the DAX is down 3.5% from recent highs.

      Where we close today will be important.

      Achtung baby?
      Thomson Reuters

      Korea as the bellwether?

      Korea as the bellwether?
      @rorygreen5/Lombard

      It is easy to forget that these two move in tandem over time.

      Will the huge puking in Trannies spill over eventually?

      It is easy to forget that these two move in tandem over time.
      Thomson Reuters

      Recall what we pointed out recently, the VVIX has been on the rise for some time already...VIX has some catching up to do...?

      Recall what we pointed out recently, the VVIX has been on the rise for some time already...VIX has some catching up to do...?
      Thomson Reuters

      Identify the paradigm you’re in, examine if and how it is unsustainable, and visualize how the paradigm shift will transpire when that which is unsustainable stops - Ray Dalio

      Over my roughly 50 years of being a global macro investor, I have observed there to be relatively long of periods (about 10 years) in which the markets and market relationships operate in a certain way (which I call “paradigms”) that most people adapt to and eventually extrapolate so they become overdone, which leads to shifts to new paradigms in which the markets operate more opposite than similar to how they operated during the prior paradigm. Identifying and tactically navigating these paradigm shifts well (which we try to do via our Pure Alpha moves) and/or structuring one’s portfolio so that one is largely immune to them (which we try to do via our All Weather portfolios) is critical to one’s success as an investor.

      Full read

      https://www.linkedin.com/pulse/paradigm-

      Identify the paradigm you’re in, examine if and how it is unsustainable, and visualize how the paradigm shift will transpire when that which is unsustainable stops - Ray Dalio
      Ray Dalio

      Gentle reminder....oil does matter, for the economy and the SPX....

      Gentle reminder....oil does matter, for the economy and the SPX....
      Thomson Reuters

      Systematic strategy equity exposure

      1. the equity beta of all hedge funds increased to ~60th historical percentile.

      2. equity long-short investors still have relatively low exposure, in their ~30th percentile, despite running high gross exposure

      3. Given the decline in volatility and positive momentum, systematic funds have above average exposure, with volatility targeting funds ~55th percentile, and trend followers (CTA) ~70th percentile.

      4. While positioning recovered meaningfully, this is not a negative for markets. Once exposure starts to increase, it tends to continue until there is an external volatility shock.

      5. In 2018, positioning increased from ~0 in April to ~100th percentile in September, and was only interrupted by the October selloff on the back of Powell’s rate hike comments.

      6. On the other hand, in 2016, positioning increased from ~0 in February to ~100th percentile at the end of the year, and stayed near max long for the next 14 months. Positioning was reset more than a year later by the February 2018 volatility shock

      7. Conclusion; unless there is an external volatility shock, equity positioning will likely continue to increase during summer months.

      Systematic strategy equity exposure
      JPM

      Kolanovic: Value is trading at record valuation discount vs. Low Vol

      1. Currently, there is a record divergence between value/cyclical stocks on one side, and low volatility/defensive stocks on the other side.

      2. The level of divergence is much more significant even when compared to the dot com bubble valuations of late ’90s.

      3. While there is a secular trend of value becoming cheaper and low volatility stocks becoming more expensive due to secular decline in yields, the nearly vertical move the last few months is not sustainable.

      4. The bubble of low volatility stocks vs value stocks is now more significant than any relative valuation bubble the equity market experienced in modern history.

      Kolanovic: Value is trading at record valuation discount vs. Low Vol
      JPM

      Poor price action in bombed out Soc Gen despite the high profile upgrade by JPM today.

      Early pre market calls were a bit more optimistic than this...Soc Gen putting in a bearish candle on a bullish call by JPM. Are European zombie banks really that bad?

      Price action remains bad, despite the recent uptick in yields...

      23 is key in Soc Gen.

      Poor price action in bombed out Soc Gen despite the high profile upgrade by JPM today.
      Thomson Reuters

      The VIX futures spread has been coming off sharply as people have been puking volatility last weeks.

      The 2 vs 8 months futures spread (we like looking at) is down to new recent lows at -2.17. There is definitely less "fear" in the short end of the curve these days.

      Below is a longer term chart of the VIX spread, including the autumn "crisis" as well as the early 2018 Volmageddon "event".

      The VIX futures spread has been coming off sharply as people have been puking volatility last weeks.
      Thomson Reuters

      Longer term chart of the VIX.

      As we have said many times before, you buy protection when you can, not "chase" it when you must.

      Volatility is a mean reverting asset, but it can "trend" at times as well. Note the higher "bottom levels" over the past years as we have been climbing the wall of worry....

      Longer term chart of the VIX.
      Thomson Reuters

      Wax on wax off.

      Yields down XLF down, Yields up (they are actually up since July) XLF up.

      US 10 year holding close to day highs at 2.13%, watch those "delicate" levels in financials.

      Wax on wax off.
      Thomson Reuters

      Oil has been liquidity starved...

      Open Interest (OI) falling 700k or -25% since May/18, price sustainability above $60/bbl will require rise in OI or rally dies on spec long exhaustion (Dec-Apr rally), spike in OI of +75k in last 3 sessions is a green shoot for the bulls worth watching, compression in oil vol of late makes for an interesting set-up.

      h/t @RobertMacMinn

      Oil has been liquidity starved...
      @RobertMacMinn

      VIX contango getting rather extreme as short maturities are heavily sold versus longer maturities.

      Some will show you VIX will rise on the back of this, but these guys don't trade volatility as an asset...our take is more on the fact that gamma is becoming rather cheap here.

      VIX contango getting rather extreme as short maturities are heavily sold versus longer maturities.
      vixcentral.com

      what to expect when everyone is expecting....

      Profit expectations lowest in 10 years....

      Lets see how the upcoming (expected) 2H guidance reductions in Q2 reports are being traded / treated

      ML FMS
      what to expect when everyone is expecting....

      Remember Sintra?

      The entire crowd shifted to believing in "yields lower forever" when Draghi did his Sintra "show", but yields have actually reversed the entire post Sintra move.

      Below the Spanish 10 year yield as one example of yields having gone higher recently.

      Remember Sintra?
      Thomson Reuters

      VIX futures curve spread continues coming down as demand for short term protection vanishes by the day.

      The 2 vs 8 months futures spread is down to -2, trading in "calm" area for the first time since mid April.

      There is not directional implications as such, but it is noteworthy that the short term "fear" has faded quickly over past sessions.

      Below the 2 vs 8 months VIX futures spread.

      VIX futures curve spread continues coming down as demand for short term protection vanishes by the day.
      Thomson Reuters