US funding market stress >>> Surging SOFR rates signaling a liquidity shortage
The most important indicator, as always, remains the SOFR rate: should the recent drift higher continue, the self-fulfilling cascade of a liquidity shortage will almost certainly be activated. And it did worsen... Source: zerohedge
Key Events This Week:
1. OPEC Monthly Report - Monday 2. Fed Chair Powell Speaks - Tuesday 3. NY Fed Manufacturing Index - Wednesday 4. Philly Fed Manufacturing Index - Thursday 5. NAHB Housing Market Index - Thursday 6. ~10% of S&P 500 Companies Report Earnings The data blackout on the US government shutdown continues.
Key Upcoming Events This Week:
Tuesday - NY Fed Inflation Expectations data Wednesday - Fed meeting minutes release Thursday - Fed Chair Powell speech Friday - MI Consumer Sentiment & Expectations data, September Jobs Report (if govt shutdown ends) Source: investing.com
A "too much growth" scare on Wall Street?
Interesting to see that yesterday's pullback was NOT prompted by bad US macro data: on the contrary, Thursday's economic number beat expectations across the board: 👉 Initial jobless claims unexpectedly tumbled to YTD lows, proving that the Texas-driven spike 2 weeks ago was indeed a one-time event... 👉 Durables goods ex-transports rose for a 5th straight month.... 👉 US Q2 GDP was unexpectedly revised sharply higher, printing at a whopping 3.8%, above all estimates, and the highest in 2 years driven by a bizarre surge in consumption - see chart below 👉US home sales were also well above expectations. In other words 4 for 4 on the data front. So much for those stagflation concerns... ‼️ But good (macro) news become bad news for the markets as the market quickly priced out odds of 2 rate cuts by December, closing the day at 1.56 rate cuts expected, down from 1.7 at the start of the day. It also pushed the 10 year yield and the greenback higher... At the time when equity valuations are extended, a rise in bond yields could indeed trigger some profit taking on US stocks Source chart: zerohedge
This table from BofA is a fantastic reminder that "all good things eventually come to an end."
Source: Lance Roberts, BofA
Mystery Trader Makes Record Bet On 50bps Rate Cut Today
The trade took place in the October fed funds, for an amount of 84,000 contracts which is equivalent to $3.5 million per basis point in risk. the price and timing of the trade was consistent with a buyer, potentially indicating a hedge against a half-point rate cut at Wednesday’s policy meeting, given a quarter-point cut is now fully baked into the swaps market. The CME confirmed this was the largest ever block trade in Fed Funds Futures... Source. zerohedge
The YTD performance of gold is the best since 1979
Source: Augur Infinity
Markets Up, Morale Down: A Summer of Disbelief by JC Parets, CMT
Throughout the summer, investors were wrong about stocks. And it was one of the greatest summers in stock market history. Below is the futures positioning among asset managers and hedge funds: the blue line represents the S&P 500, and the lighter green line shows you how underinvested they've been. They sold into the hole and never got the chance to get back in. This was a textbook V-bottom, and they're still not back in. This is one of those things that can help keep a bid underneath the market. Source: J-C Parets
