Posts tagged volatility
In the Pipe, Five-by-Five

I recently said that markets were cruising for a bruising. For now, they’re just cruising, mirroring the path set by Corporal Ferro as she guides her drop ship to a perfect landing on LV-426 in James Cameron’s Aliens.

There is still little stopping risk assets, short vol is paying steady premiums for those picking up dimes in front of the proverbial steamroller, and risk-free instruments still offer 4-to-5% for anyone who feels like temporarily getting off the train. In other words, it’s very pleasant indeed for investors. From the perspective of the macro data, that’s easy to explain. Markets are still being fed information that the (global) economy is doing ok, inflation is falling and while interest rates are set to stay high, they’re also about to come down, by 50-to-100bp. Does this story still check out? Just about.

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Global Economy, Markets and Trading, Monetary Policyclaus visteseninterest rates, bonds, fixed income, volatility, inflation
A change in focus?

Let’s start with the good news. The panic brought on by the failure of Silicon Valley Bank, Signature, and more recently, the shotgun wedding between UBS and Credit Suisse has not produced a financial crisis, at least not yet. The bad news is that it could be the proverbial straw that breaks the camel’s back for economies in North America and Europe. We’ve now likely reached the point that markets pivot from looking at the monthly CPI numbers to a broader set of data to determine their view of the world. Investors will be spending a lot of time in Q2 perusing data on lending, deposit flows, and credit standards for evidence that turmoil in the banking is driving tighter credit conditions, and slower growth in the economy. This then will also invite investors to look beyond inflation in forming their view on, and expectations for, monetary policy.

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Markets and Tradingclaus vistesenbonds, fixed income, MOVE, equities, growth, banks, volatility, inflation, CPI, core inflation
Systemic?

The big news in the past week in financial markets is the accident report on the demise of Silicon Valley Bank—SIVB—which was put into receivership by US regulators on Friday. This was a very quick death spiral. At the beginning of the week, the stock was trading at a cool 280 bucks, and now my assumption is that the equity is zero. You’ll read many versions of this story this week, but I’ll try to sketch the stuff that everyone seems to to agree on. I will then highlight some of the areas where analysts and commentators disagree, and where there should be scope to make, or lose, money. 

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Markets and Tradingclaus vistesenSilicon Valley Bank, volatility, recession, banks
The Triumvirate of Doom

It was heartwarming to see equities attempt a rebound from the initial knee-jerk plunge in the wake of yet another consensus-beating U.S. CPI print last week. BofA’s Michael Hartnett called it the ‘bear hug’, noting that the “SPX was up 5% in 5 hours after a hot CPI because it was simply so oversold”. By the close on Friday, however, the hug had turned into a strangulation. The S&P 500 fell 2.4% on the day, finishing the week with a 1.8% loss. It is difficult to see anything but pain in equities as long as the triumvirate of doom—DM core inflation, bond yields and fixed income volatility—are making new highs. My next three charts show that they are doing exactly that. Barring an outlier in the UK September print, my gauge of OECD core inflation rose further at the end of Q3, bond yields are at new highs, and so is the MOVE index.

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Markets and Tradingclaus vistesenequities, bonds, MOVE, volatility, inflation, bond yields, 60/40 portfolio, CPI, China