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    QTD
    QTD
    Bloomberg

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    Change in size of the Fed balance sheet
    Change in size of the Fed balance sheet
    Goldman
    Fund flows equities: Still growth over equities

    Based on fund flows still no love for value.

    Fund flows equities: Still growth over equities
    Goldman Sachs
    Fund flow: More money into tech

    Another strong week of inflows into tech funds. Especially post FAAG massive earning beats.

    Fund flow: More money into tech
    Goldman Sachs
    GS: Raising our S&P 500 year-end 2020 target to 3600

    Kostin: "A plunging risk-free rate partially explains why equities have performed so well despite downward revisions to expected earnings. On net, the equity risk premium (ERP) has increased but the fall in bond yields means the effective cost of equity is unchanged. Looking forward, a falling ERP will outweigh a rise in bond yields, and combined with our above-consensus EPS forecast, will lift the S&P 500 index to 3600 by year-end (+7%). Our prior forecast was 3000"

    GS: Raising our S&P 500 year-end 2020 target to 3600
    Goldman Sachs
    Zombies stay elevated
    Zombies stay elevated
    Mizuho
    face masks slow case growth

    A surge in mask usage has been followed by a decline in new case growth in the Sun Belt

    face masks slow case growth
    JHU
    USD net positioning
    USD net positioning
    Haver
    Covid deaths

    Reported COVID-19 deaths as % of population in countries w/ more than 10 million people:

    1) Belgium: 0.086%

    2) Peru: 0.078%

    3) Spain: 0.061%

    4) UK: 0.061%

    5) Italy: 0.058%

    6) Sweden: 0.057%

    7) Chile: 0.054%

    8) USA: 0.052%

    9) Brazil: 0.050%

    10) France: 0.047%

    11) Mexico: 0.043%

    Compound
    2nd wave: it is happening

    Chart below is infections in Germany. And this is pre-school opening, per-autumn flue season....

    2nd wave: it is happening
    Bloomberg
    Global fund flow: Cash is still king

    No uptick on global equity allocations.

    Global fund flow: Cash is still king
    Goldman Sachs
    US credit protection refuses buying the latest SPX exuberance

    CDX IG inverted vs Spuz.

    US credit protection refuses buying the latest SPX exuberance
    Refinitiv
    Equity fear....the last to implode?

    FRA-OIS uop, VIX down.

    Not a huge "dispersion" yet, but watch this space closely. Equity "people" are usually not the quickest to react...

    Equity fear....the last to implode?
    Refinitiv
    Abe implosion goes on

    Another shock according to Mizuho is:

    " The most surprising aspect of the NHK survey, to us at least, was that 57% think the government should

    declare a new state of emergency, far outnumbering the 28% who say it should not."

    Abe implosion goes on
    Mzuho
    Chinese internet drove us higher, will it lead us lower?

    KWEB vs QQQ

    Chinese internet drove us higher, will it lead us lower?
    Refinitiv
    Worst Q2 GDP growth rates
    Worst Q2 GDP growth rates
    Bilello
    Covid: Researchers has found that the virus leading a second wave of infections in the Australian states of Victoria and New South Wales is the same as the one that has dominated the COVID-19 pandemic in the United States.
    US is master of tech

    Europe is busy with other "stuff"...

    US is master of tech
    Mizuho
    Rents in urban ZIP codes fell more relative to their pre-pandemic trend than in suburban areas

    Interesting report from Zillow. Question is if we are in the early or late inning of urban rent declines?

    https://www.zillow.com/research/2020-urb

    Rents in urban ZIP codes fell more relative to their pre-pandemic trend than in suburban areas
    Zillow
    On that inflation...
    On that inflation...
    Mizuho
    Streaming Now Accounts For 25% Of U.S. TV Usage

    The structural shift continues.

    Interesting observation: "Notably, those 55 and older now account for 26% of streaming TV minutes viewed — up from 19% just a year ago."

    https://www.mediapost.com/publications/a

    Streaming Now Accounts For 25% Of U.S. TV Usage
    Nielsen
    What if Dr Copper is proven right?

    Copper vs US 10 year.

    What if Dr Copper is proven right?
    Refinitiv
    It's all about sports betting and gaming

    Betz +57% vs SPY +16% since early May.

    It's all about sports betting and gaming
    Refinitiv
    NYC: Real unemployment rate is 33%
    AAPL services - how much growth?

    Sanford Bernstein offers a deep dive into Apple's Services business.

    App Store and Licensing (largely payments from Google) account for ~50% of revenues and 63% of gross profit dollars today. Bernstein forecasts it to grow 15% ($61bn) vs. consensus at 13% ($60bn) in FY21, down slightly from FY20 due to tough App Store comps. Importantly, we expect AppleTV+ to add ~200 bps to revenue growth in FY21 – if Apple chooses not to offer free trials, it could be a YoY headwind. Beyond 2021, we see a path to continued double digit services growth for at least 2-3 more years. Toni believes there is significant runway (of ~$7-12bn) from Apple’s new services (Apple TV+, Apple Arcade, Apple Card, etc.), which could be 300-600 bps accretive to top-line annually. Bloomberg reported Apple is expected to introduce a bundled service discount offering as part of a program known as "Apple One." This could be a step closer to Toni’s proposed "Apple-as-a-service" mega-bundle, where installed users pay a monthly subscription fee for their phone and all other Apple services (like care, iCloud, and media). By locking in recurring revenue streams, freezing the length of replacement cycles, and lowering earnings cyclicality, such a model can provide a high floor for any re-rating of Apple's multiple.

    Sanford Bernstein
    but mask maker Kawamoto (remember the crazy moves earlier this year) has gone nowhere over past months...
    but mask maker Kawamoto (remember the crazy moves earlier this year) has gone nowhere over past months...
    Refinitiv
      GS: Raising our S&P 500 year-end 2020 target to 3600

      Kostin: "A plunging risk-free rate partially explains why equities have performed so well despite downward revisions to expected earnings. On net, the equity risk premium (ERP) has increased but the fall in bond yields means the effective cost of equity is unchanged. Looking forward, a falling ERP will outweigh a rise in bond yields, and combined with our above-consensus EPS forecast, will lift the S&P 500 index to 3600 by year-end (+7%). Our prior forecast was 3000"

      GS: Raising our S&P 500 year-end 2020 target to 3600
      Goldman Sachs
      Equity fear....the last to implode?

      FRA-OIS uop, VIX down.

      Not a huge "dispersion" yet, but watch this space closely. Equity "people" are usually not the quickest to react...

      Equity fear....the last to implode?
      Refinitiv
      Lumber the real tech - beats mighty NASDAQ any day

      Lumber futs +82% YTD, NASDAQ +28% YTD.

      Lumber the real tech - beats mighty NASDAQ any day
      Refinitiv
      How costly are hedges here (2)?

      1, Term structure is extremely steep - we agree with GS view of rolling short term protection is to prefer over buying longer term protection. You simply pay too much for the elections "kink".

      2, Short-dated skew is not steep...short term puts make good sense here.

      How costly are hedges here (2)?
      GS
      How costly are hedges here?

      GS points out:

      "A one-month, 96%-of-spot (roughly 25-delta) put option on the S&P 500 currently costs

      1.1%. The premium is in its 85th percentile compared with the last five years, when the

      median cost of the same structure was 0.49%. However, compared with the past six

      months’ high-volatility period, the current premium is at its lowest level since February,

      and far cheaper than the median 1.9% premium over the past six months."

      Given the "interesting" autumn schedule, we at TME doubt VIX will collapse much more. It is not "dirt" cheap, but getting very close to long protection levels here.

      How costly are hedges here?
      GS
      FRA-OIS continues the recent move higher

      From very low levels, but still worth watching.

      1X4
      FRA-OIS continues the recent move higher
      Refinitiv
      Skew you

      People refer to skew as the real fear index, but as we have explained many times before, that is not accurate. Skew basically shows how expensive downside protection is on a relative basis. As we "trade along the vol curve", skew dynamics change, but that is a longer conversation.

      Below chart shows SPX and skew index. Note that rising skew index has nothing to do with market about to crash as many pundits tell you. What is more interesting is the fact how skew trades after long periods of rising markets and rising skew. Before the bigger moves lower over past years, skew started coming down slightly before the market headed lower. Skew has been on the rise since March lows and has over past weeks been trending small lower.

      Are people "giving up" on hedging the downside on a relative basis?

      Skew you
      Refinitiv
      FRA-OIS up VIX down - have not seen this in a while

      Nothing huge, but worth watching, just in case.

      FRA-OIS up VIX down - have not seen this in a while
      Refinitiv
      Do you trust bond or equities vol?

      As we pointed out early this year, MOVE was busy moving higher, while equity guys did not even bother looking at the MOVE index.

      Recently MVOE and VIX have started "diverging".

      Watch this very carefully.

      Do you trust bond or equities vol?
      Refinitiv
      GS: "we are now towards the end of that rotation pain and the move higher lead by large cap tech will resume shortly"

      When high beta momentum laggards outperform by 15%, it tends to mark the end of the rotation.

      Chart: 5day % change in high beta momentum winners vs high beta momentum laggards

      GS: "we are now towards the end of that rotation pain and the move higher lead by large cap tech will resume shortly"
      GS trading desk
      VIX term structure - shift higher, but no "extra" stress in the short end of the curve
      VIX term structure - shift higher, but no "extra" stress in the short end of the curve
      vixcentral
      Gold volumes exploding as gold crashes

      Our gold logic remains and can best be described by what we have written about over past days:

      "We would rather look for long VIX plays at post Corona lows, than chase gold with the crowd. VIX offers much more interesting "convexity" here..."

      "In gold we trust - but don't trust too much

      Parabolic moves often end in tears for the late crowd."

      Looks like we are in tears phase today...

      Gold volumes exploding as gold crashes
      Refinitiv
      Positioning: 7 reasons to be worried

      1. highest net buying in US equities since the sell-off (early march)

      2. "Fear" has not closed this low since the Corona crisis peak..VIX and V2X implosion feeding through the system.

      3. JPM Prime Brokerage: Net Exposure: Level at 99%-tile since Jan-2018.

      4. GS Prime Brokerage: Net leverage at 77.4% (99th percentile)

      5. Put/call ratio at extreme

      6. major positioning unwind / killing of generals. Tech+MoMo+Growth+SaaS - the absolute leaders of this rally - up against some serious selling

      7. Cross-asset price action showing major reversals (silver, gold, bonds)

      Russell - back as (short term) king

      On Aug 3 we suggested one should start looking for laggards. We wrote;

      "Russell - chasing laggards time (1)?

      Reigniting momentum after being stuck for weeks..."

      Since then sleepy Russell is up 7.5% and is now "well above" the 200 day moving average. We are keeping this relative long laggard, but laggards are laggards for a reason...

      Russell - back as (short term) king
      Refinitiv
      US 10 year - just when everybody saw the break down lower, yields decided reversing higher...last at 0.595%

      Is that a take out of the negative trend line?

      US 10 year - just when everybody saw the break down lower, yields decided reversing higher...last at 0.595%
      Refinitiv
      Positioning: getting the longest at the top...

      JPM Prime Brokerage: Net Exposure: Level at 99%-tile since Jan-2018.

      GS Prime Brokerage: "Net leverage at 77.4% (99th percentile)"

      Although not high in "absolute" numbers - it is noteworthy that HF positioning finally is at a 30m extreme....

      GS and JPM
      QQQ - trend channel remains intact, but is this losing momentum?

      No worries as long as the 21 day moving average stays intact, but unless we take out new highs immediately, this could lose some momentum for the short term .

      QQQ - trend channel remains intact, but is this losing momentum?
      Refinitiv
      Right tail by the master of tails

      Just a gentle reminder of the great chart Chris Cole posted in late July...

      Right tail by the master of tails
      Artemis Capital Management
      How Europe’s pandemic response reduced market uncertainty

      Excerpt from the working paper, "Volatility indices and implied uncertainty", on new VIX type of indices for measures of European government bond futures (Bunds, BTPs, or OATs), which do not yet exist, and also show a number of practical ways how to measure bond market uncertainty from option prices. (ESM)

      "The eruption of the Covid-19 pandemic resulted in large market movements, as investors feared the financial and economic consequences of the crisis. A swift European policy response restored market confidence, and data from the fixed-income options market has vividly demonstrated this return to stability.

      Streamlining the implied uncertainty into a single measure, new volatility indices from option prices on German, French, and Italian government bond futures provide insights into investor sentiment and forward-looking market uncertainty in the underlying European sovereign bond market."

      The easier read,

      https://www.esm.europa.eu/blog/how-europ

      as well as the more technical paper by Jaroslav Baran and Jan Voříšek,

      https://www.esm.europa.eu/sites/default/

      How Europe’s pandemic response reduced market uncertainty
      ESM
      GDP/QE - go figure

      QE is not generating "much" GDP but certainly has delivered a lot of joy for the top 1%.

      GDP/QE - go figure
      St Loius Fed/Confoundedinterest
      VIX - can't see the wood for the trees?

      VIX drifting lower while VXN pushing higher recently. If things go properly "dynamic", big books will need to hedge big positions, and for that purpose, only VIX can help you.

      VIX looks relatively "cheap" here...

      VIX -  can't see the wood for the trees?
      Refinitiv
      It's all about the dollar (3)...in pricing of fear as well

      We have been arguing for VXEEM to "must" trade above VIX recently. This is occurring today for the first time in a while.

      We see EM volatility as too low relatively speaking despite the recent uptick.

      It's all about the dollar (3)...in pricing of fear as well
      Refinitiv
      It's all about the dollar (2)

      Watch your EEM here as it approaches the 21 day moving as well as the longer term trend. Note how the entire EEM bull started when the DXY reversed (inverted).

      The DXY is one thing, but EEM also got the Trump news regarding Asian tech companies going today.

      It's all about the dollar (2)
      Refinitiv
      Turkish lira as the Euro canary?

      1, Europe is much more exposed to Turkey than the US, especially Germany has a large relative exposure.

      2, EM "feeds on" cheap USD liquidity and currently more USD are being withdrawn from US Treasury than printed by Fed (via Nordea)

      3, Turkey is a hue tourist country....and despite everything cheap again, the industry is dead.

      4, As TME has been pointing out for the past week, European banks hold some Turkish exposure...people often talk Unicredit etc, but the main exposure is with BBVA

      Euro vs TRY
      Turkish lira as the Euro canary?
      Refinitiv
      Turkish lira collapse continues - not great for the Euro and very bad for some European companies

      Nothing new to TME readers, but BBVA is feeling the pain from Turkey via its stake in Garanti Bank. BBVA owns 2093700000 shares of Garanti, just below 50%.

      Add to this the exposure in Spanish imploding economy (IBEX can't catch a bid) as well as big LatAm exposure, and you understand why BBVA remains our favourite way to play the Turkish situation.

      BBVA vs TRY inverted
      Turkish lira collapse continues - not great for the Euro and very bad for some European companies
      Refinitiv