February 4, 2023

Dawson County Journal

Dawson County, Nebraska

Negative-Delta Squeeze Sustains Stocks As Hawknado Hammers Rates Higher : by Tyler Durden

Negative-Delta Squeeze Sustains Stocks As Hawknado Hammers Rates Higher

ECB rate-hikes (and Lagarde jawboning even more tightening) combined with Fed’s Powell reiterating his hawkish stance towards US monetary policy (inflation-fighting trumps recession-induction) sent rate-hike expectations higher…

Source: Bloomberg

and pushed the odds of a 75bps hike in two weeks to almost certain…

Source: Bloomberg

But the unwind of the monster negative delta…

…and extreme short positioning provided the floor under every dip today…

Which allowed the massive short-squeeze from yesterday to extend (most shorted up over 8% from yesterday’s open)…

Source: Bloomberg

At around 1200ET, a headline hinted that ECB would do 75bps at its next meeting too and that dragged stocks down after they squeezed higher off Powell’s earlier comments, but that also saw the negative-delta-squeeze bid lift stocks back again and it held all day leaving all the majors green…

The Nasdaq is still down 6.5% from Powell’s Jackson Hole Speech (S&P -5%), but all the US Majors are holding gains on the week…

Treasury yields ended higher today after ramping higher after Powell (up 5-6bps across the curve on the day), erasing yesterday’s drop…

Source: Bloomberg

Treasury breakevens have tumbled, indicating that inflation is no longer a tailwind for the dollar. The two-year US inflation gauge is 2.19%, well below its 4.97% peak in March and about a percent above its pre-pandemic average. It is also nearing the Fed’s inflation target of 2% and is below the five-year, five-year inflation swap rate of ~2.50%.

Source: Bloomberg

The drop coincides with a more than 30% drop in West Texas since its June peak of $114 per barrel. The current price of ~$83 per barrel is slightly above the 2018 OPEC+ agreed ceiling rate during the Trump administration. Global inflation pressures may drop further if central banks elsewhere do the heavy lifting on rate hikes.

The dollar ended the day flat – though chopped around on Powell and Lagarde comments…

Source: Bloomberg

Bitcoin was relatively quiet today finding support at $19,000 intraday…

Source: Bloomberg

Gold ended lower on the day after giving back ovenight gains following Lagarde and Powell’s hawkishness…

Oil managed gains on the day but remains well below its ‘death cross’ levels from yesterday…

Oil’s plunged has helped drag breakevens dramatically lower and send real yields soaring…

Finally, we note that US Financial Conditions reached their mid-June peak (tight) this week and have reversed lower (eased) – likely on the back of real yields collapsing…

Source: Bloomberg

Will the massive negative delta unwind – as we saw from mid June to mid August – replay and once again force The Fed’s hand into ultra-hawkish jawboning?

One thing of note for equity market bulls…

Either 10Y real yields drop soon and bigly (either nominals slide or breakevens, i.e., oil, rise) or it gets ugly pic.twitter.com/rzfLsJwlIl

— zerohedge (@zerohedge) September 7, 2022

Be careful what you wish for.

Tyler Durden
Thu, 09/08/2022 – 16:01

​ Negative-Delta Squeeze Sustains Stocks As Hawknado Hammers Rates Higher

ECB rate-hikes (and Lagarde jawboning even more tightening) combined with Fed’s Powell reiterating his hawkish stance towards US monetary policy (inflation-fighting trumps recession-induction) sent rate-hike expectations higher…

Source: Bloomberg

and pushed the odds of a 75bps hike in two weeks to almost certain…

Source: Bloomberg

But the unwind of the monster negative delta…

…and extreme short positioning provided the floor under every dip today…

Which allowed the massive short-squeeze from yesterday to extend (most shorted up over 8% from yesterday’s open)…

Source: Bloomberg

At around 1200ET, a headline hinted that ECB would do 75bps at its next meeting too and that dragged stocks down after they squeezed higher off Powell’s earlier comments, but that also saw the negative-delta-squeeze bid lift stocks back again and it held all day leaving all the majors green…

The Nasdaq is still down 6.5% from Powell’s Jackson Hole Speech (S&P -5%), but all the US Majors are holding gains on the week…

Treasury yields ended higher today after ramping higher after Powell (up 5-6bps across the curve on the day), erasing yesterday’s drop…

Source: Bloomberg

Treasury breakevens have tumbled, indicating that inflation is no longer a tailwind for the dollar. The two-year US inflation gauge is 2.19%, well below its 4.97% peak in March and about a percent above its pre-pandemic average. It is also nearing the Fed’s inflation target of 2% and is below the five-year, five-year inflation swap rate of ~2.50%.

Source: Bloomberg

The drop coincides with a more than 30% drop in West Texas since its June peak of $114 per barrel. The current price of ~$83 per barrel is slightly above the 2018 OPEC+ agreed ceiling rate during the Trump administration. Global inflation pressures may drop further if central banks elsewhere do the heavy lifting on rate hikes.

The dollar ended the day flat – though chopped around on Powell and Lagarde comments…

Source: Bloomberg

Bitcoin was relatively quiet today finding support at $19,000 intraday…

Source: Bloomberg

Gold ended lower on the day after giving back ovenight gains following Lagarde and Powell’s hawkishness…

Oil managed gains on the day but remains well below its ‘death cross’ levels from yesterday…

Oil’s plunged has helped drag breakevens dramatically lower and send real yields soaring…

Finally, we note that US Financial Conditions reached their mid-June peak (tight) this week and have reversed lower (eased) – likely on the back of real yields collapsing…

Source: Bloomberg

Will the massive negative delta unwind – as we saw from mid June to mid August – replay and once again force The Fed’s hand into ultra-hawkish jawboning?

One thing of note for equity market bulls…

Either 10Y real yields drop soon and bigly (either nominals slide or breakevens, i.e., oil, rise) or it gets ugly pic.twitter.com/rzfLsJwlIl
— zerohedge (@zerohedge) September 7, 2022
Be careful what you wish for.

Tyler Durden
Thu, 09/08/2022 – 16:01 

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