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    Geopolitical risk trending up to post 9/11 highs

    Geopolitical risk trending up to post 9/11 highs
    Credit Suisse

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    Did you know?
    Merrill

    Low/Min Vol Inflection?

    1. A recurring theme throughout most of the year has been the persistent outperformance of low/min vol, with the two largest Min Vol/Low Vol ETFs in the US (USMV and SPLV) garnering over $20bn of inflows over the past year (roughly 85% organic growth).

    2. That has led to concerns by investors around potential crowding particularly as the valuation premium of these funds increased concurrently.

    3. with the recent “risk-on” moves in the market as of late, there are nascent signs that this dynamic is starting to change.

    Low/Min Vol Inflection?
    Goldman

    Market neutral momentum index +1.6%, XLU +1.6% - have not seen this in a while

    Real house prices in Europe depressed on a longer time horizon

    Real house prices in Europe depressed on a longer time horizon
    Credit Suisse

    very much a "mean reversion" week so far on a single stock basis (and sector basis)

    EM EPS sentiment has seen its largest improvement since 2016

    EM EPS sentiment has seen its largest improvement since 2016
    Goldman

    AAPL + MSFT > Germany

    AAPL + MSFT > Germany
    Holger Z

    VIX loves weakening Yuan

    Watch this relationship closely here.

    VIX loves weakening Yuan
    Thomson Reuters

    Yuan - multi day lows as Chinese headlines still matter....

    Yuan - multi day lows as Chinese headlines still matter....
    Thomson Reuters

    VIX term structure - zzzzzzz

    VIX term structure - zzzzzzz
    vixcentral

    Was the initial -0.45% move lower the "correction" before the 2013 pattern resumes?

    Was the initial -0.45% move lower the "correction" before the 2013 pattern resumes?
    Thomson Reuters

    software does not look that expensive vs the market...

    For sure expensive compared to 6-7 years ago, but not vs most of the 90s

    software does not look that expensive vs the market...
    Credit Suisse

    spending all your money on....

    spending all your money on....
    Barclays

    far from over-shoot....

    far from over-shoot....
    JPM / Daily Shot

    The ratio of VIX Put Open Interest relative to Call Open Interest is currently at YTD highs

    The ratio of VIX Put Open Interest relative to Call Open Interest is currently at YTD highs
    Bloomberg

    Fedwatch - evaporating probability of a December cut, now at 0.8%

    VIX +1.9%, VVIX +3%, VXN +1.25%, V2X +1.5%, VXEEM -1.1%, TYVIX +2.4%, OIV unch, GVZ -1.25%

    XLU - bouncing right on the longer term trend as yields move lower

    XLU  - bouncing right on the longer term trend as yields move lower
    Thomson Reuters

    Themes & Dreams

    Merrill 10 themes for the next 10 years.

    Themes & Dreams
    ML

    Emerging market ETFs,

    EEM -0.85%, FXI -1.3%, EWZ -1%, EWY -0.85%, RSX unch, TUR +1.6%

    Emerging market, EM, continues fading - the gap versus S&P widening by the day

    Recent move lower in EEM is happening despite the biggest component, Tencent, holding same levels over past days.

    Emerging market, EM, continues fading - the gap versus S&P widening by the day
    Thomson Reuters

    NFLX: love thy competitor...

    Reed Hastings: On DIS+ as a threat: "I don't *worry* about them. I admire them. I'll subscribe to DIS -- they have great shows...we learn, we observe, we watch them."

    Not exactly going Peaky Blinders on the competition...

    Thomson Reuters

    German 10 year yield - biggest down candle since late September

    German 10 year yield - biggest down candle since late September
    Thomson Reuters

    CTA update - need to buy more if vol stays low

    1. Coming into this week, GS Strats estimate US equity net length for the systematic trend community stands at +$43bn (vs. +$7bn 1-month ago)

    2. Baseline/flat scenarios still call for additional purchases in the US (and globally) – circa +$4bn for 1-week and +$23bn for 1-month scenarios coming into yesterday (GS expected scenarios broken down by market below). *Note – most of these expected purchases are a result of lower realized volatility.

    3. With SPX (and NDX / RTY) realized vol declining, it's worth considering what would happen in scenarios where this trend continues. Consider: if 3m realized volatility in SPX were to fall from 14v (last level) to 10v (Apr-May'19 levels), that would lead to additional purchases of $20bn of S&P over that time frame (and a combined +$12bn of NDX+RTY if they similarly dropped).

    CTA update - need to buy more if vol stays low
    Goldman

      Themes & Dreams

      Merrill 10 themes for the next 10 years.

      Themes & Dreams
      ML

      CTA update - need to buy more if vol stays low

      1. Coming into this week, GS Strats estimate US equity net length for the systematic trend community stands at +$43bn (vs. +$7bn 1-month ago)

      2. Baseline/flat scenarios still call for additional purchases in the US (and globally) – circa +$4bn for 1-week and +$23bn for 1-month scenarios coming into yesterday (GS expected scenarios broken down by market below). *Note – most of these expected purchases are a result of lower realized volatility.

      3. With SPX (and NDX / RTY) realized vol declining, it's worth considering what would happen in scenarios where this trend continues. Consider: if 3m realized volatility in SPX were to fall from 14v (last level) to 10v (Apr-May'19 levels), that would lead to additional purchases of $20bn of S&P over that time frame (and a combined +$12bn of NDX+RTY if they similarly dropped).

      CTA update - need to buy more if vol stays low
      Goldman

      Hedge Funds net short real estate stocks

      Have been shorting all the way up in the 2019 rally

      Hedge Funds net short real estate stocks
      MS PB

      Yuan is not the narrative at the moment, but bigger moves in Hong Kong and sharp moves in the Yuan tend to move in tandem

      HSI futures and the Yuan (inverted).

      Yuan is not the narrative at the moment, but bigger moves in Hong Kong and sharp moves in the Yuan tend to move in tandem
      Thomson Reuters

      European banks, SX7E, the dog of the day, -2.4% - bullets, we posted 2 days ago, on why the sector has got ahead of itself

      Via Autonomous

      1. The Eurozone banks have out-performed the market by 11% since mid-August. Calling the top in such rallies is more art than science given the sector’s tendency to overshoot (in both directions).

      2. Whatever the timing of the peak, we have high conviction this will prove to be another head-fake rally.

      3. First – and unlike in late 2016 – we believe earnings momentum will remain negative.

      4. Second, our Japanification thesis and fears of a US recession over the next 12-24 months make us inherently wary on the potential for sustained multiple expansion.

      5. In terms of stocks to sell at this point, Santander, Deutsche and Credit Agricole would be our key big cap avoids in the Eurozone

      TME comment - chase bank longs here looks late....

      European banks, SX7E, the dog of the day, -2.4% - bullets, we posted 2 days ago, on why the sector has got ahead of itself
      Thomson Reuters

      Trannies - still stuck in the grand range

      Chase it here?

      Trannies - still stuck in the grand range
      Thomson Reuters

      Lot of indecisive candles in Spuz lately

      Doji, shooting star, hanging mans....

      Lot of indecisive candles in Spuz lately
      Thomson Reuters

      buybacks are back

      1. we are now again in the full buyback open window - which typically coincides with a +35% pick-up in repurchase activity

      2. Q4 historically sees the largest amount of buyback concentration

      3. As US Economic Policy Uncertainty has recently dropped below its 35-year average, the market is again rewarding firms that commit to share repurchases.

      buybacks are back
      Goldman Sachs

      Protection - in August, when S&P was at 2860, people loved protection, now less so....

      Protection - in August, when S&P was at 2860, people loved protection, now less so....
      BofA

      Brexit matters beyond UK

      The fade in Brexit "panic" has been an important input to the overall macro picture. Falling GBP volatility and DAX have moved in close relationship. Noteworthy is the past few days uptick in GBP 1 month atm volatility.

      (GBP vol is inverted in the chart).

      Brexit matters beyond UK
      Thomson Reuters

      Gold - buy gold cause yields are going lower, but there is one problem, yields are going higher

      Gold - buy gold cause yields are going lower, but there is one problem, yields are going higher
      Thomson Reuters

      Grossing up: positioning getting extreme

      Gross exposure of hedge funds as measured by JPM Prime Brokerage is now at the 100%-tile since January 2018.

      Not cautious positioning anymore.

      Grossing up: positioning getting extreme
      JPM

      Markets can stay greedy for extended periods but the latest spike is rather "extreme"

      Markets can stay greedy for extended periods but the latest spike is rather "extreme"
      CNN

      Reasons to be worried -reminder

      1. the bond market sell-off matters for equities

      https://themarketear.com/posts/co73dJ2wz

      2. stretched AAII sentiment matters for equities

      https://themarketear.com/posts/cLzrc2Zpt

      3. put/call ratio as this extreme level matters for equities (as it did in the July and September sell-off)

      https://themarketear.com/posts/cu4iCQ0nB

      4. VIX future spread matters for equities

      https://themarketear.com/posts/cm2fpFYnK

      There are clearly many many bullish indicators as well out there but with the overall bullish macro backdrop, it might pay dividend to adhere to these initial "cracks in the system" waning signals...

      VIX - suddenly everyone is a volatility pro, pointing out the net non commercial shorts in VIX...

      ...but only a few have a clue what volatility is and even less know how to trade volatility as an asset. Yes, speculators are short VIX futures, but there are so many other "offsetting" possible hedges, so saying people are short VIX futures, therefore VIX will surge is a very "simplified" logic. More important is the fact VIX is low and it does not "break down" as some were suggesting last week for the simple reason VIX is mean reverting and is not an asset to trade from a technical analysis point of view looking at wedges, supports etc.

      VIX - suddenly everyone is a volatility pro, pointing out the net non commercial shorts in VIX...
      Thomson Reuters

      JPM: The rotation will last long enough that investors will not be able to ignore it

      1. investors will have to be forced to participate,

      2. That, in contrast to some pundits who are suggesting that rotation will hurt the overall market performance, the leadership change can work only with stronger markets.

      Chart: The convergence between Cyclicals and Defensives has started, but there is more to go…

      JPM
      JPM: The rotation will last long enough that investors will not be able to ignore it

      EU Banks: fundamentally negative. Sell the rally

      Stuart Graham, baking god at financial specialist research firm Autonomous, had an enormously successful call 2 months ago where he argued that EU Banks would have a 15% "cheeky" rally. Now he thinks it is time to sell again.

      Stuart:

      1. The Eurozone banks have out-performed the market by 11% since mid-August. Calling the top in such rallies is more art than science given the sector’s tendency to overshoot (in both directions).

      2. Whatever the timing of the peak, we have high conviction this will prove to be another head-fake rally.

      3. First – and unlike in late 2016 – we believe earnings momentum will remain negative.

      4. Second, our Japanification thesis and fears of a US recession over the next 12-24 months make us inherently wary on the potential for sustained multiple expansion.

      5. In terms of stocks to sell at this point, Santander, Deutsche and Credit Agricole would be our key big cap avoids in the Eurozone

      TME comment - chase bank longs here looks late....

      Autonomous
      EU Banks: fundamentally negative. Sell the rally
      Thomson Reuters

      3333 by 3/3 and 2.22 by 2/2

      Hartnett: "we are bullish stocks, bearish bonds, bullish commodities, bearish cash,

      bearish US dollar; we predict Q4/Q1 “overshoot” in credit & stocks driven by Positioning (too bearish), Policy (excess liquidity/bond bubble), Profits (global EPS acceleration)"

      Tartgets: S&P500 3333 by March 3rd ("Super Tuesday"), 10-year Treasury yield 2.2% by Feb 2nd,

      BOAML

      Has the re-rotate flow started?

      Flows this week: $16.8bn into equities, $10.6bn into bonds.

      Flows YTD: YTD $549bn into cash, $338bn into credit, $49bn into treasuries and $199bn redemptions from equities

      Has the re-rotate flow started?

      Up Where We Belong - above $4 trillion

      Fed's balance sheet moves back above $4 trillion, up $280 billion since August 28.

      Up Where We Belong - above $4 trillion
      Bilello

      Record yield curve steepening

      There haven't been many times in the last decade where the yield curve steepened this much this fast.

      Record yield curve steepening
      Bespoke

      VIX up or down, but people are waking up to the fact that you do not buy gold for the "fear" hedge

      VIX is mean reverting so it does not trend, but gold longs have forgotten where VIX trades. There are definitely cheaper hedges than gold, at least if you see it as a fear hedge.

      VIX up or down, but people are waking up to the fact that you do not buy gold for the "fear" hedge
      Thomson Reuters

      Reasons to be worried

      1. the bond market sell-off matters for equities

      https://themarketear.com/posts/co73dJ2wz

      2. stretched AAII sentiment matters for equities

      https://themarketear.com/posts/cLzrc2Zpt

      3. put/call ratio as this extreme level matters for equities (as it did in the July and September sell-off)

      https://themarketear.com/posts/cu4iCQ0nB

      4. VIX future spread matters for equities

      https://themarketear.com/posts/cm2fpFYnK

      There are clearly many many bullish indicators as well out there but with the overall bullish macro backdrop, it might pay dividend to adhere to these initial "cracks in the system" waning signals...

      All bigger equity corrections this year have been accompanied with an implosion of the VIX futures spread

      Below is the 2 versus 8 months spread. If S&P is to follow the pattern again is to be seen, but short term maturities are all but expensive.

      All bigger equity corrections this year have been accompanied with an implosion of the VIX futures spread
      Thomson Reuters

      Who cares about bonds (3)? We have not had exploding volatility in bonds and VIX not reacting (at times with a lag)

      TYVIX versus VIX.

      Who cares about bonds (3)? We have not had exploding volatility in bonds and VIX not reacting (at times with a lag)
      Thomson Reuters