Last week was very much a game of 2 halves. However, the 2nd half proved significantly more critical in terms of the go forward from here, after a significant NASDAQ led tech underperformance. Volumes picked up across the board, the NADAQ 100 volumes were 1.7x the previous week.
Many weekend commentaries highlighted the high-profile options activity that was seemingly behind the recent NASDAQ move higher, which makes for exciting reading and goes some way to explain the pick up in VIX and VXN alongside the market rally.
It also tries to explain who the real marginal buyers were up here in parts of the market that were exuberantly rallying on "stock split" announcements. While these are important technical factors (and the market remains short NDX gamma), it does not take away from the fact that tech remains very well owned, and concentration risk remains elevated.
Stocks, Bonds, Gold, Oil, and Vix were all down, suggesting hedging was difficult. Therefore, it was a perfect time to examine one's sectoral exposures.
As it turned out, my September 2 calling for a pullback despite my long-term bullish view was correct. As was the estimated contribution from month end rebalancing, which triggered $30 – 40 billion equity selling over the last two days by risk control funds, in a one-off position cull.
The holiday in the US today led to limited interest in UST futures. The equities' weakness has not provided much of a bid to fixed income, as the weakness on Friday spilled a bit into the Asia session.
With the Fed now in a blackout ahead of next Wednesday's meeting and little data of note until Friday's US CPI print, the focus will be on supply. The supply slate starts tomorrow with $50 bn of US 3y followed by $35 bn 10y on Wednesday and $23 bn 30y Thursday. I struggle to see USTs performing against this backdrop and likewise for gold as new issuances provide yet another obstacle for gold to climb.
Flow wise; FX traders continue to prefer catch-up plays like long USD/JPY and USD/CNH as opposed to getting back into long EUR/USD. With lots of caution around the ECB meeting, I prefer waiting for a more significant dip in the EUR/SUD back to 1.1600 before scaling back in, although I remain flat on the day.
Japan PM Abe's decision to step down marks an end of one of the most enuring eras for the Yen and suggests tail risk skew left. Lower USD/JPY. The other trade which looks interesting again with the FED pulling back from the September bazooka is NZD shorts supported by the RBNZ unabashedly dovish stance