Stocks whipsaw after FED hikes 50 BPS

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


MARKET ACTION LAST WEEK

Roller coaster last week as FOMC delivered the highly anticipated 50 bps hike but took 75bps off the table for June.

This was initially taken as a dovish surprise which triggered a vicious short covering rally as VIX dropped 5 points and SPX squeezed from 4150 to 4300 in short order.

HAS INFLATION PEAKED?

With central banks all now in aggressive tightening mode (except BoJ and ECB) the big question remains, has inflation peaked yet and how far will they need to take rates up.

BONDS OVERSOLD

The move in bond yields has been wild this year. The total return in bonds hasn’t been this bad in decades and after initial curve flattening which took yield curves briefly inverted, we are now seeing some steeping.


RETAIL CAPITULATES

The poster child for retail trading ARKK has been decimated and is tracking very closely the Dot-com bust analogue. MS quant research has approximated that all the gains made by retail since early 2020 have evaporated and we know they have also been the marginal buyer in recent months as real money liquidated.

SPX PRICE ACTION

SPX has it’s customary vol reset, short cover vanna rally after Powell press conference taking it up from 4150 to 4300.

That part had been quite easy to anticipate. It was however, the speed of the reversal down to new lows that was a bit surprising as the rally couldn’t even hold for 24 hours.


VIX UNDERPERFORMING

SPX is making new lows but VIX is struggling to spike much. This suggests that the dealers are not as short as we might think and some hedges may have been put spreads that gave vega to dealers reducing the need to buy vol on selloffs.


DXY REMAINS FIRM

After a very brief pullback on FOMC, DXY is perched at highs whilst all other assets are getting liquidated. EUR and JPY have been major driver of USD strength lately, but GBP has recently been hit hard on UK economic concerns as well as CNH being allowed to slide to maintain competitiveness against Japan.


COMMODITIES ROLL OVER

Most commodities remained weak even though uranium, oil, wheat, & natural gas seemed to benefit from the mid-week FOMC squeeze.

However, those gains have been all but given up as even nat gas has managed to find negative territory after being up around 20% last week.


Filmed on on Tuesday 10th May 2022.


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