Stocks, Bonds, Bitcoin, & Bullion Jump As Dollar Dumps

“Bad” news from JOLTS this morning prompted more buying of ‘all the things’ today as the hope/hype continues that The Fed will pause/pivot sometime soon, unicorns will ride through the streets, and everything will be awesome once again. There’s just one thing… rate-hike expectations rose today (but we do note that expectations for subsequent rate-cuts are soaring once again – after The Fed pushes the world into recession, much to The UN’s chagrin)…

Source: Bloomberg

Financial Conditions ‘eased’ as yields and the USD fell…

Source: Bloomberg

However, if anything, the market’s action over the last two days makes a Fed pivot less likely any time soon. With both Treasury yields and the dollar falling, rate and liquidity pressures are much lower than they were last week… reducing the pressure on Powell to go full ‘Bank of England’… and round and round goes the big reflexive wheel of leverage.

In the short-term, equities are simply about unwinding hedges (last week’s extreme negative delta), as everything went up in sync. Small Caps are outperforming but the rest of the majors are basically up 5-6% since Friday’s close (and up 6-7% from futures overnight on Sunday…

The last two days have seen the biggest gain in stocks since April 2020 and the last 5 days have seen the biggest drop in the dollar since March 2020, also the best start to a quarter since 2009 and the best start of a Q4 since 2002, according to Bespoke

This is the week of the barbell trade: deep OTM calls and puts as things either break or CBs panic.

— zerohedge (@zerohedge) September 26, 2022

Tick, tock…

Source: Bloomberg

Put volumes are lagging call volumes notably…

Source: Bloomberg

And today’s lift managed to ignite momentum in ‘most shorted’ stocks this time…

Source: Bloomberg

Once again, investors shrugged off Lehman-Suisse (as its stock rallied but its CDS really wouldn’t play along)…

Source: Bloomberg

Bonds were broadly bid again today with the 30Y yield underperforming (unch) while the 5Y yield dropped 4bps more. The belly of thew curve is now down 25bps since Friday’s close and the long-end down around 10bps…

Source: Bloomberg

Notably, 2Y Yields dropped back below 4.00% briefly today…

Source: Bloomberg

The dollar dumped back to 10-day lows – falling 5 days in a row and the biggest 5-day drop since March 2020…

Source: Bloomberg

As the dollar fell, bitcoin rallied, topping $20k once again…

Source: Bloomberg

Spot Gold rallied back above $1700 today, and gold futs neared $1740…

Silver extended yesterday’s gains and topped $21, back at 3-mo highs…

Oil prices spiked further on OPEC+ production cut headlines with WTI touching $87 intraday highs…

Which will drag retail pump prices higher…

Source: Bloomberg

And what nobody seems to recognize yet – will pull inflation higher once again…putting more pressure on The Fed to stay the hawkish course.

Finally, the last 3 times that US financial conditions have been this ‘tight’, central bankers folded like a cheap suit: early 2016, global central bank balance sheets started to expand once again rapidly; late 2018, Powell rapidly about-faced on The Fed’s rate-hike cycle as stocks puked; and March 2020 when every policymaker in the world unleashed money-printing hell on a globally locked down citizenry…

Source: Bloomberg

The difference this time: raging inflation and Fed credibility literally on its last legs.

And don’t forget it’s not just The Fed that is reducing its balance sheet…

Source: Bloomberg

Just remember, correlation is not causation (but if it looks like a dead cat, and smells like a dead cat, it likely is a dead cat).