Extreme Volatility as Financial Conditions Set to Tighten

In this week's Macro Insight I discussed...


HUGE MOVES ON EARNINGS

Last week we saw pockets of extreme volatility both on the macro and micro front. Starting with micro, there was massive post-earnings volatility in Megacap tech stocks with Google +10%, Meta -25%, Amazon +10%. Snapchat +60% (looked like a short squeeze). Peleton up 45% pre-market yesterday on takeout rumours.

WILD MOVES IN EUR RATES

EUR rates had a 6 sigma move higher on ECB guidance in the press conference. Market’s reaction was certainly one of surprise signalling a capitulation from the ECB that inflation was getting out of hand, and they would likely hike this year contrary to what they said in December.

CRACKS APPEARING IN CREDIT MARKETS

These wild global rates moves are finally starting to have an impact on credit markets. BTPS-Bund spread started gapping higher which, should it continue, will keep a lid on the EUR I imagine.


BUYING DIPS IN SPX USING OPTIONS

I had been looking for a retest of the lows from Jan before loading up on more tactical exposure but am now thinking the impulsive leg higher may be in play already and dip buying is the way to go.

GAMMA POSITIONING MORE BALANCED

Gamma positioning in SPX appears more balanced at these levels but above 4600 would expect thing to get stickier and reduce vol into next Friday’s expiry. NDX positioning is still firmly in short gamma territory which may keep that relatively choppier.


EUR RE-ADJUSTS TO HAWKISH ECB PIVOT

Market’s reaction was certainly one of surprise signalling a capitulation from the ECB that inflation was getting out of hand, and they would likely hike this year contrary to what they said in December. UK rates decision was also hawkish.

OIL TAKES A BREATHER

After breaking above 90 in WTI, oil is taking a short breather helped by the fact that front futures time spreads have also cooled back off their recent highs of above $2.00 suggesting slightly less tighter inventories at Cushing.


Filmed on on Tuesday 8th February 2022.


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