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    European EPS unlikely to return to previous peaks until 2023

    European EPS unlikely to return to previous peaks until 2023
    IBES

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    Range within the range

    S&P continues doing very little since mid March....

    Range within the range
    Thomson Reuters

    Oil contango - this move is hurting a few out there today

    Huge shift in the curve.

    Today compared to yesterday (and it was even more extreme during the day...).

    Oil contango - this move is hurting a few out there today
    Thomson Reuters

    To hate puts here is not unique

    5 day average put call ratio needs little commenting.

    To hate puts here is not unique
    CNN

    Equity fund flows seem to have room to decline further

    Chart: cumulative flows into equity funds as a % of AuMduring equity bear markets

    Equity fund flows seem to have room to decline further
    Goldman

    What do buy if we have already troughed?

    Chart: Performance 12 months after the trough in European bear markets since 19

    What do buy if we have already troughed?
    Goldman

    Bull market in analyzing bear market rallies

    Why are we looking so much at previous bear market rallies and so little on previous "how fast did it take to go back to new all time highs"....?

    What if the crowd is wrong and we will not test march lows?

    Table: Historical examples of bear market rallies

    Bull market in analyzing bear market rallies
    Goldman

    You do not need to push momentum to make money

    A week ago we started talking about overwriting strategies for people that wanted to keep longs, but thought the bounce had got ahead of itself.

    Our take since a week ago is that this market needs to trade in a range in order to "sober" up.

    There is nothing wrong with consolidations, especially when volatility is elevated.

    Net selling of options is a good "yield enhancement" strategy many unfortunately get too busy for as they try pushing momentum.

    Below is the SPY 250 April call, down 10 bucks from last week highs.

    You do not need to push momentum to make money
    Thomson Reuters

    Risk appetite indicator: now it is just a normal sell-off

    Risk appetite indicator: now it is just a normal sell-off
    Goldman

    Hope (in dividends)?

    First bigger hammer candle in Eurostoxx 50 dividend futures. You do not trade this "asset" on a technical level like many others, but was today some sort of change in sentiment when it comes to "depressed" dividends going forward?

    2023 strip
    Hope (in dividends)?
    Thomson Reuters

    VIX and VXN - VXN making new post crisis lows...

    ...will VIX follow?

    Second question, will VIX start trading below VXN, or are we not ready for anything normal, yet?

    VIX and VXN - VXN making new post crisis lows...
    Thomson Reuters

    Buyback importance: Europe vs US

    Buyback importance: Europe vs US
    Barclays

    Brazil and oil

    EWZ has been brutally beaten since the "crisis" started. With oil picking up some steam, maybe Brazil could decide to catch some bids eventually...

    Do note the BRL is still trading "depressed".

    EWZ and oil.
    Brazil and oil
    Thomson Reuters

    Oil - keep it simple

    From this morning, and no we did not think it would happen just a few hours later...

    "Tail risk in oil is to the upside, or how do you price an asset that can go lower by 5 bucks but can spike higher by 15 bucks and probabilities are not very different."

    It's the Treasury stress stupid

    People still talk about the stress in the Treasury market, but TYVIX has basically crashed lately, approaching pre "crisis" levels.

    There are other "tight spots" beyond Treasuries "the market" needs to figure out, but it is wort noting that last time TYVIX was here, VIX traded at 35 ish....

    It's the Treasury stress stupid
    Thomson Reuters

    FRA-OIS - three down candles in a row

    Last time the spread traded here, Spuz was at 2580 ish...

    FRA-OIS - three down candles in a row
    Thomson Reuters

    EEM +2%, FXI +2.6%, EWZ +0.7%, EWY +3.7%, RSX +1.7%, TUR +3.5%

    Dividend: the proof is in the payout....

    Payout season accelerates post AGMs in April/May

    Dividend: the proof is in the payout....
    Barclays

    Everything sounds very scary - but fear is not picking up

    Commenting on the latest jobs figures is practically pointless. More important from an equity fear point of view is the muted price action in VIX. VIX is not doing much, and the VIX futures spread remains very calm.

    Note, the spread is still elevated, but the panic of people chasing short term protection is gone. Gamma has faded out as a "narrative".

    VIX 2 vs 8 months spread.
    Everything sounds very scary - but fear is not picking up
    Thomson Reuters

    Spain starting to under perform Italy

    Both countries are severely hit by Corona, but are equities starting to price even worse future for Spain?

    Spain starting to under perform Italy
    Thomson Reuters

    At least too big to fail risk is fading

    JPM 5 year CDS has given back big part of the move higher.

    At least too big to fail risk is fading
    Thomson Reuters

    CTAs making money

    The big European CTA we track was up 1.6% per yesterday (-4.9% YTD). Long gone are the volatile down days for these guys.

    Enter EUR IG credit spread

    Few thoughts by Mizuho.

    · We see EUR IG spreads entering a tightening path. A combination of fiscal measures, guarantees, and QE, should reduce credit risk premia in IG credit (and sovereign) bonds.

    · CB credit easing will encourage deleveraging from zombie companies to maintain IG ratings. We expect to see IG and rates bifurcating from HY and stocks. IG companies may extend duration to improve credit metrics.

    · We still see reasons to be cautious of the beta in HY and equities. However, the pace and magnitude of the sell off suggests there will be excellent recovery plays to be found in the most troubled sectors.

    · We add a synthetic long of EUR IG corp spread to our model portfolio.

    EU Banks: how cheap is cheap enough?

    Valuation is never a catalyst though...

    EU Banks: how cheap is cheap enough?
    IBES

    Mega meltdown - new buzzword on CNBC

    Rebal Rewind Unwind

    Price action yesterday was driven by (a) end of rebal flow and (b) hedge funds taking down (extreme) nets into last dollars of rebal buying. Both of these flow factors are no longer in play. Now what? Retail capitulation sort of already happened, so no clear selling here. Buyback bid already in black-out so no new delta here. Risk-parity done and dusted since long. HFs a touch too long, but not stressed. The potential guilty cluster left standing is the CTA short. Is the new flow that will drive the markets in the next few trading sessions CTAs starting to cover (pot >$100bn)?

      You do not need to push momentum to make money

      A week ago we started talking about overwriting strategies for people that wanted to keep longs, but thought the bounce had got ahead of itself.

      Our take since a week ago is that this market needs to trade in a range in order to "sober" up.

      There is nothing wrong with consolidations, especially when volatility is elevated.

      Net selling of options is a good "yield enhancement" strategy many unfortunately get too busy for as they try pushing momentum.

      Below is the SPY 250 April call, down 10 bucks from last week highs.

      You do not need to push momentum to make money
      Thomson Reuters

      It's the Treasury stress stupid

      People still talk about the stress in the Treasury market, but TYVIX has basically crashed lately, approaching pre "crisis" levels.

      There are other "tight spots" beyond Treasuries "the market" needs to figure out, but it is wort noting that last time TYVIX was here, VIX traded at 35 ish....

      It's the Treasury stress stupid
      Thomson Reuters

      Everything sounds very scary - but fear is not picking up

      Commenting on the latest jobs figures is practically pointless. More important from an equity fear point of view is the muted price action in VIX. VIX is not doing much, and the VIX futures spread remains very calm.

      Note, the spread is still elevated, but the panic of people chasing short term protection is gone. Gamma has faded out as a "narrative".

      VIX 2 vs 8 months spread.
      Everything sounds very scary - but fear is not picking up
      Thomson Reuters

      S&P - believe it or not, but the index has done nothing since mid March...and still people buy and sell everything like it was the same "thing"

      S&P hss traded up and down in a range since mid March, so the perceived direction is stronger than the actual direction, which is zero. Interesting to note is the move higher in implied correlations over the past week. Time for that to change if Spuz continues to be "stuck".

      S&P - believe it or not, but the index has done nothing since mid March...and still people buy and sell everything like it was the same "thing"
      Thomson Reuters

      Dividends have "profit warned"

      Nothing new really as cutting dividends is the "new normal", but by how much is the trade going forward.

      Eurostoxx 50, 2023 dividend futures approaching new recent lows.

      Dividends have "profit warned"
      Thomson Reuters

      Signs of hope for the worst hit Mediterraneans?

      Italy and Spain daily new cases.

      Click the arrows to toggle.

      Signs of hope for the worst hit Mediterraneans?
      worldometer
      Signs of hope for the worst hit Mediterraneans?

      Skew you

      Skew index is basically the VIX of out of the money options. People refer to it as the "real fear" index which is wrong, but it shows us how much people are paying up relatively speaking for out of the money hedges.

      High readings of SKEW index have little to do with markets about to crash, contrary to what pundits tell you.

      Anyway, note that SKEW index has fallen hard lately...and so many speak of the inevitable test of recent crash lows....

      Most bigger local lows over past years have occurred with SKEW index falling hard...

      Skew you
      Thomson Reuters

      Muted VIX

      In case you did not note the muted reaction in VIX yesterday, you should.

      Also, note that despite Spuz bouncing not even half of the move lower yesterday, VIX front month future candle today has taken out the body of the candle yesterday.

      As we wrote last week, dealers were caught short upside during the crash. As we bounced violently, dealers were once again "stuck" in short gamma land fighting strikes that only a few days earlier were seen as "impossible" to trade at as the squeeze was brutal (first short downside turned to short upside, and gamma does not care about direction).

      This dynamic ebbed out as we moved up to the strikes, around 2500. We have seen a lot of overwriting strategies filling dealers with long premium recently, hence the relatively muted VIX reaction over past days.

      Muted VIX
      Thomson Reuters

      Oil - the only way is up?

      Everybody hates oil and has suddenly become an expert on output per day, contago issues etc.

      Unfortunately, most do not have spare vessels to fill, sell futures one year out, meet margins and enjoy the ride.

      We have no huge take, but oil can drift lower by say 5 bucks, but has potential to go up 10-15 if not even more bucks on "anything".

      Tail risk in oil is to the upside, or how do you price an asset that can go lower by 5 bucks but can spike higher by 15 bucks and probabilities are not very different.

      Oil just pushing above the negative trend line that has been in place since the last fall out. Sure today we have news from China buying reserves, but there are more tail risks to the upside to consider...

      Oil - the only way is up?
      Thomson Reuters

      Very calm VIX space considering the move in S&P

      VIX futures spread is practically not moving today. Recall how the shorter end of the curve was constantly well bid during the crash.

      Less demand for short term protection as the extreme short gamma we saw a few weeks ago had evaporated as VaR was hitting every risk book.

      VIX 2/8 months spread versus Spuz.
      Very calm VIX space considering the move in S&P
      Thomson Reuters

      Treasury volatility, TYVIX, at lowest levels post the "crisis" highs...

      Part of the equity sell off was due to stress in the Treasury markets...but equity guys are not the quickest.

      The spread versus VIX is getting rather wide here.

      Treasury volatility, TYVIX, at lowest levels post the "crisis" highs...
      Thomson Reuters

      EM risk spiking on a relative basis makes sense, but what is VIX doing?

      With Corona hitting the developed world, it surely will affect the EM space. As we have outlined before, in terms of stress, big books go hedging in VIX (liquidity issue), thus often taking VIX too high relative to EM equity vol, VXEEM.

      "Fundamentally", VXEEM should trade above VIX, but we are once again seeing the inverse.

      EM risk spiking on a relative basis makes sense, but what is VIX doing?
      Thomson Reuters

      How to short....

      Sign of times?

      How to short....
      google

      Corona - daily new deaths for US, Italy and Spain

      Click the arrows on the chart to toggle.

      Corona - daily new deaths for US, Italy and Spain
      worldometer
      Corona - daily new deaths for US, Italy and Spain
      Corona - daily new deaths for US, Italy and Spain

      We need to chill

      Our take over past days is that equities need to "chill". The big puke by systematic funds etc were washed out during the crash. The bounce that followed was violent and has probably "sucked" in a few new bulls, but above all, we believe markets need to establish some sort of range and "sober" up.

      Since mid last week our take has been to use elevated volatility for overwriting strategies as we get more clarity on where markets are heading later.

      Below Eurostoxx 50 and the range it actually has traded inside since mid March.

      We need to chill
      Thomson Reuters

      Risk management - most wish they had read this piece before March, but it is never too late...

      Chris Cole's paper on risk management and Dennis Rodman was written years ago but it never goes out of fashion.

      Full read,

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

      Apple - watch it for overall risk sentiment as this remains the number one sentiment name

      Perfect reversal in the upper part of the trend channel, just as Apple volatility, VXAPL, hits lowest levels since March 10.

      Apple - watch it for overall risk sentiment as this remains the number one sentiment name
      Thomson Reuters

      European banks - momentum up lasted for 2 days...

      This sector just can't catch a bid.

      SX7E vs German 10 year yields.

      European banks - momentum up lasted for 2 days...
      Thomson Reuters

      Positioning: very clean

      Who will be the stressed seller in that leg lower that everyone knows will come soon...?

      Positioning: very clean
      HSBC

      MOVE moving lower - what does VIX say?

      Bond volatility, MOVE index, exploded higher during the crash, but Fed fixed that one quickly. As we all know, elevated levels of MOVE index is something Fed dislikes. MOVE index has fallen rather dramatically over past sessions, although equity guys tend to overlook this index.

      VIX remains elevated for reasons we outlined last week, but consider that last time MOVE was here, the VIX was around 33/34....

      MOVE moving lower - what does VIX say?
      Thomson Reuters

      What about credit protection?

      Note that US credit protection, CDX IG, has been "fading" recently, despite S&P continuing higher.

      For now nothing huge, but pay attention to this.

      CDX IG inverted vs Spuz.

      What about credit protection?
      Thomson Reuters

      FRA-OIS - biggest down candle in a long time...

      ...but it has been a poor "indicator" of equity direction lately.

      FRA/OIS spread vs S&P.
      FRA-OIS - biggest down candle in a long time...
      Thomson Reuters

      S&P - continues trading inside the trend, approaching "delicate" levels

      Watch the 2650 level closely as this is the resistance area. As we have been pointing out since the most recent lows, VIX has been holding well, despite the sharp bounce in equities. This offers interesting opportunities, especially for the "brave" ones that went long/add longs during the sell off, looking at overwriting strategies. Given the still elevated levels of VIX selling upside makes a lot of sense should you wish to hold longs but you are feeling a bit "nervous" here. It is called dynamic hedging...

      Spuz vs VIX front month futs.
      S&P - continues trading inside the trend, approaching "delicate" levels
      Thomson Reuters

      MS QDS: Asset Allocation Rebal is now mostly in the price

      A week and a half ago QDS forecast $160bn in month-end equity buying as pensions and asset allocators would need to reallocate portfolios. Since then the S&P 500 is up 10% and is up 17% off the Monday lows. Our models now suggest $50bn still to buy globally (with $25bn in the US) and while that figure is still large, much of the impact may already be in the price. Low liquidity (need to start earlier to spread the flow out over more days) plus an attractive opportunity to monetize the rally in bonds and rotate into equities likely has brought forward some demand (dispersion over the last few days has been in the 8th %ile since 2012 suggesting index led moves), and conversations with clients appear to suggest allocators are looking more favorably on credit than equity now. Equity allocations are likely now less than 1% off of target weights, which may be close enough for many allocators in this uncertain environment.

      While markets can certainly keep going higher (QDS still does forecast net equity demand over the next few days), the risk/reward of being long on asset allocation expectations alone is less clear and QDS is no longer as tactically bullish. QDS favors overwriting longs here or buying 1x2 call spreads to position for more modest near-term upside. Looking beyond month-end, QDS is concerned about a) retail MF redemptions and b) risk of L/S HF selling of Tech stocks after a strong rally in crowded longs.

      MS QDS: Asset Allocation Rebal is now mostly in the price
      MS QDS

      Dividends decoupling?

      In this new normal world anything seems possible. Watch this as a potential mean reverting trade going forward.

      SX5E vs 2023 div futures.
      Dividends decoupling?
      Thomson Reuters