Intraday Market Update: Equities In The RED
SOFR and ES
I want to provide a short intraday update on the flows we are seeing in the market right now. We have sold off considerably in ES intraday at the same time that the Z5 SOFR contract is pricing 75bps:
It is going to be difficult to make any durable above 96.50:
As I noted here, watching the Z5Z6 spread is critical here:
Implied volatility premiums continue to accumulate and I will be watching the 28 level in the VIX:
The stock and bond flows continue to move in lockstep:
Intraday, we have flipped into a bit of bull steepenin, which will be important to watch:
The ES strategy is published every day in the Macro Regime Tracker for paid subscribers:
Yesterday’s skew was bearish, and we continue to realize the returns in confluence with the macro risks that are taking place. In my models, we are at significant positioning premiums but a reversal and buy signal has yet to occur. WHEN a buy signal does occur, it will be published in the Macro Regime Tracker (link). The KEY is increasingly moderating actions in the macro regime. Everyone is looking to buy the exact low with tight stops instead of incrementally managing their exposure and risk.
You will also notice that EURUSD is up on the day as equities are down. Why is this?
If a recession and further contraction in growth aren’t realized (likely in my view), then we are likely to see the Z5 SOFR contract reprice closer to 50bps and equities find the beginning of a bottom. EURUSD is having a unique role here because the ECB curve has way more aggressive pricing than the US right now. So if rates in the Eurozone move higher to reprice a less dovish ECB, that can cause EURUSD to rally, but this doesn’t necessarily mean US equities are going to rally
From Yesterdays Report: Link
Final Thoughts:
It is highly unlikely that real GDP is negative right now and that we are in a recession. We are likely to remain ABOVE 5600 in ES as we move into NFP this week, but the ranges in equities are clearly expanding, so being nimble is critical.
Bitcoin continues to move in lockstep with equities, which is to be expected because it is just another risk asset. We need to see a clear shift in the macro liquidity impulses before a durable bottom is formed. However, given the volatility premiums we see in equities, if ES bounces, Bitcoin is likely to bounce as well.
Gold is clearly showing its diversification benefit as equities fall and Bitcoin falls. Gold continues to be a beneficiary of the new geopolitical regime we are entering and being long in BOTH gold and Bitcoin on a volatility-weighted basis remains an optimal strategy. Everyone dumps on gold until it is rallying as Bitcoin is selling off. It is times like these when people who own both are able to rebalance dynamically.
I will be publishing an additional update after market close, updating the equity strategy, bonds, and Bitcoin since things are moving so fast in this environment.
Thanks
As always, a Pepe for the culture
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