Coronavirus update - total confirmed 77917, deaths 2361, receovered 21226
If these stats are to be trusted or not we leave to others to debate.
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The yearn for yield: just getting harder to find yield
Last year nine markets offered +5% yields; now only four do (EM Frontier Sovereigns, US HY & Lev Loans, Euro Bank Equities)
A lot has happened since Greta sailed to NY - Tesla is +100%, Beyond is down 50%...
...but is Beyond showing signs of life?
Mother of catch up trades in the making?
Concentration extreme: the proportion of US stocks outperforming the mkt over the last 6M has fallen to the lowest level in 20Y
Big mutual fund underweights
US recession risk dropping sharply
the risk of recession as implied by JPM quant Econ model has dropped sharply, and risk assets are also priced to a similar benign outcome
Only one of our three recession risk trackers is signaling a greater than 50% chance of recession in the next 12 months (the one based on the yield curve)
Chart: Probability of recession beginning within 12 months based on various metrics; %
US doing great: data surprises at highest in 8 years
Domestic data have continued to outperform expectations, and JPM Economic Data Surprise Index has risen to its highest levels since early 2012...
Chart: J.P. Morgan Economic Data Surprise Index
Michael Bloomberg: serious contender or vanity candidate?
FT writes Bloomberg has spent 220 million USD in January alone, has 2400 staff spread out across 43 states and entry level field organisers receive salaries of 70k USD or higher and have jobs guaranteed until November, irrespective of Bloomberg staying in the race or not.
Full article worth a weekend read,
Hedge Fund overall positioning
Net exposure high on a medium term view but "reasonable" on a longer term view
1. Nets now stand at 50% (42nd%tile since 2010, 90th%tile over last 12m)
2. gross exposure remains elevated at 197% (99th%tile since 2010 & 91st%tile over last 12m).
MS Prime Brokerage
Hedge Fund sector positioning
US Treasuries ignoring the positive macro data
JPM: US Treasuries have largely ignored the positive domestic dynamics, and imply sharply below-trend growth over the next year...
10-year yields have dropped more than 30bp below JPM model-implied fair value
XOP’s relative performance vs. WTI is nearly back to the multi-year lows set back in December
EUR: A perfect storm
GS: We think the Euro weakness can be explained by a “perfect storm” of negative factors. Specifically, an outsized growth shock at an already-low level of activity, little room for monetary policy easing as well as likely limited fiscal stimulus, and a carry-friendly environment, where the EUR has been the funder of choice
Goldman
Cross-Asset YTD
Pretty good probability that it will be a NY billionaire winning in November
Current 2020 Presidential Election Win Probabilities
Thomson Reuters
FANMAG vs S&P500
FANMAG vs Classic Bubbles
Comparing FANMAG composite to four widely accepted bubbles:
1. the DJIA in 1929
2. gold in 1980
3. Nikkei in 1989
4. Nasdaq in 2000.
FANMAG’s gains have trailed the bubble composite over the last one, three, and five years. Chart for sure looks bubblish though
VIX surging and VIX futures spread surging even more
As we have been pointing out over past weeks, the VIX futures spread has been showing more "fear" than the "simple" view of VIX. The 2 vs 6 months spread gives you an additional view of fear and where the demand is for protection.
The VIX futures spread has been rising steadily over past 2 months, especially after the Coronavirus narrative became a focus. Demand for short term protection has been trending higher and remains elevated. The spread is back to October and August levels.
Watch this spread closely for the "real" fear factor.
You think VIX is up a lot - look at NASDAQ volatility, VXN, surging to levels last seen in October
Just when the crowd loaded up long tech calls.
small vs large vs manufacturing PMI
Russell 2000 Index/S&P 100 Index ratio, MARKIT Global manufacturing output PMI
SOX - biggest day down in long as we approach the 50 day moving average
We have closed below the 50 day twice since October....
NASDAQ futs - we have not seen the 21 day moving average in a while
Trend is intact, but this is definitely losing momentum.
Cross-asset YTD
S&P500 and US10YR - world´s most simple (and profitable) portfolio (YTD).
(Prices pre-US open today)
Cross-asset: the week that was
(Some) Fear is back
Have not seen fear in a long time...
VIX surging and VIX futures spread surging even more
As we have been pointing out over past weeks, the VIX futures spread has been showing more "fear" than the "simple" view of VIX. The 2 vs 6 months spread gives you an additional view of fear and where the demand is for protection.
The VIX futures spread has been rising steadily over past 2 months, especially after the Coronavirus narrative became a focus. Demand for short term protection has been trending higher and remains elevated. The spread is back to October and August levels.
Watch this spread closely for the "real" fear factor.
Apple - still a few bucks above the pre market prints on the "profit warning" day earlier this week
The trend line since August is intact, but note the 21 day moving average now is flat. 50 day moving average down at 305.
315 is key "must hold" level.
US yield curve versus S&P - nothing for the short term trader...
...but worth watching the "noise" should it revive as a focus.
Wonder if Coronavirus is an "unforeseeable event"? - time to renegotiate the US/China phase 1 deal....
...although that looks probably off the table as we are busy with the US elections. Who knows, maybe we should start preparing for the trade war second part scenario post the elections.
The latest US/China deal states (page 79):
"In the event that a natural disaster or other unforeseeable event outside the control of the Parties delays a Party from timely complying with its obligations under this Agreement, the Parties shall consult with each other"
The full deal,
US 2/10 year continues crashing - will it affect bond volatility, MOVE index?
Recall the sharp move lower in the US 2/10 last summer that "fed" over to bond volatility and we saw the MOVE index spike big time.
It seems luxury makers still care about the Coronavirus
Kering, Gucci is their biggest brand and Gucci is a huge China play, continues trading heavily to the downside. Luxury makers are very exposed to China and the Coronavirus narrative. The question is; will one of the most sensitive sectors' fears spill over to mighty S&P?
Speculation remains the main force when it comes to Chinese equities
As we have been outlining many times before, Chinese equities are "run" by speculation. The post Corona melt up has been brutal as margin trading debt has exploded.
ChiNext versus margin debt trading chart needs little commenting.
Buy or die - ChiNext extending the "impressive" move higher, now +27% from Coronavirus lows as volumes explode
Must have ChiNext stocks at any price...note the huge volumes during the melt up, especially the volume bar today.
Gentle reminder on what the systematic macro guys need to do should this sell off "properly"
Add some short gamma to this and things could get dynamic.
(chart presented a few days ago)
Consensus trades and real yields
Great chart via GS on how falling real yields have driven multiple defensive x asset rotations.
Short term volatility has increased recently
Coronavirus fears has contributed to demand spiking higher for short term protection.
Oil - mean reversion heaven...
...and you do not push momentum break out strategies when trading mean reverting assets.
...and VIX not buying the relatively "calm" pricing of credit protection.
So, credit protection is not buying the equities euphoria, and VIX is not buying the relatively calm credit protection, hence VIX is showing lot of "worrying" given where other assets trade.
CDX IG vs VIX.
US credit protection not buying the latest S&P exuberance....
CDX IG (inverted) versus S&P.
Oil - people claim oil is a China play, what if oil starts catching up to the China "narrative"
Few have argued for Chinese equities to perform the way they have post the "crisis". With CSI 300 above the pre "crisis" levels and ChiNext well above those levels, oil could become a "sudden" focus and decide catching up to Chinese equities.
The set up could get rather dynamic given the fact oil is a hated asset here, and longs have been washed out.
CSI 300 vs oil.
Fed this and that (appropriate...), but the main event of the day remains the huge JPY move - will it "ignite" something even stronger in the S&P?
JPY remains one of the biggest risk on/off indicators on any macro screen. The violent move in the JPY will trigger lot of reshuffling of risk in the short term.
The chart below needs little commenting...
Full link to Fed minutes,
Spuz vs JPY.
JPY - the break out of the day
Simply huge and no it is not weakening because of Coronavirus fears. Bank of Japan has continued expanding the balance sheet, now at 105.15 percent of GDP.
Will "cash" start chasing this?
BofA's global FMS cash balance levels are in neutral territory, but they have moved sharply lower recently. The question is will "they" start chasing the melt up in panic?
Tesla - out of all the smart fundamental "pundits" the king of Algo trading wins, Renaissance Tech added almost 3.3 million shares just in time for the parabolic move (1.6 billion USD in "extra profit)
In late Sep Renaissance held 670k shares. In late December their total holdings climbed by almost 3.3 million shares, just in time for the parabolic stock move that has taken Tesla from 400 to 920 in current pre market.
That equals to +1.6 billion USD p/l for the extra shares Renaissance loaded up on (given they still hold these stocks).
Oil - "nobody" long the space when it turns up?
Let's see if this is just a dead cat bounce or something bigger, but people are definitely not long oil here.
Money managers net long vs oil.
Oil takes out sharp downtrend.
Mighty USD - approaching huge levels
The run year to date has been powerful, but over the longer time horizon, the DXY remains a non trending asset. The question is does it break out or do you fade it here?
Good news on Coronavirus
1. Shanghai reports zero new coronavirus cases
2. For the first time, the number of discharged COVID19 patients, 1,824, surpassed the confirmed new cases, 1,749, on Tuesday in China.
To care or not to care about semis
SOX versus QQQ. SOX below the late January highs again, while QQQ continues to be king.
Does NASDAQ volatility know something?
Many "pundits" have been commenting on the parabolic NASDAQ chart. If it is rational or not we leave to others to decide. The "natural" force and panic has been to the upside, but during this last melt up, NASDAQ volatility, VXN, has also been on the rise.
Note that NASDAQ sold off hard on the previous two occasion when index moving higher was accompanied with higher volatility, VXN.
Coronavirus du jour - first day new recovered are much bigger than new confirmed
Mainland China chart now flat sloping...
If these stats are to be trusted or not we leave to you to decide.
