Relief Rally Ruined By Ratings Agencies & Russia; Bitcoin Bid

No dead banking bodies overnight – and lots of bank CEOs claiming ‘absolutely no outflows at all happened here’ prompted gains in regional banks and pulled markets overall higher. CPI – which printed as expected, but offered no relief from the threat of inflation that The Fed is dealing with – did nothing to stymie the rebound in stocks. It was Ratings Agencies (Moody’s overnight and S&P during the day) and Russia (environmentally unsound attack on a US drone) that wiped some lipstick off this pig today. The Dow fell all the way to unch briefly in the last hour before the panic-bid MoC orders hit…

A late-day panic-bid lifted Nasdaq into the green post-SVB-Fail, but all the others are still in the red…

The S&P failed at its 200DMA today…

“Most Shorted” stocks were squeezed at the cash open, erasing all the losses since Thursday’s close, but they could not maintain the squeeze and the basket slumped all day long…

Source: Bloomberg

On Friday 37.4M Put option contracts traded. This is the largest number of puts traded in history. The second largest put options ever traded was 33.6M contracts on September 23, 2022. Yesterday another 27.3M Put option contracts, this was the 8th largest put option volumes in history. Said another way, 64.30M put option contracts traded in the past two days, for the largest two day period in history, by a mile.

Source: Bloomberg

Today saw those puts being monetized as VIX plunged post-CPI…

Source: Bloomberg

Record volumes do not equal liquidity. S&P 500 futures liquidity is $2.0M. This is the lowest level since March 30th, 2020 (Covid times). At the start of March 2023, you could trade $17M on the screens, and today is $2M, a decline in 88% month-to-date…

Additionally, 10 year bond futures DV01 liquidity is 19K. This is the lowest since March 23rd, 2020 (Covid times). At the start of March 2023, you could trade 114k DV01 on the screens, and today is 19K, a decline in 83% month-to-date…

Regional banks soared this morning on relief that no new bodies were found overnight, but as the day progressed, things worsened, as S&P placed First Republic on Negative Creditwatch (which could potentially make their collateral ineligible). The S&P downgrade came after Moody’s cut its outlook for the US banking system to negative from stable Overnight and placed six US lenders on review for downgrade: First Republic, Western Alliance, Intrust Financial, UMB Financial, Zions, and Comerica – citing concerns including unrealized losses in the lenders’ asset portfolios and risks to profitability. The S&P headline along with broader Russia news impact took the regionals down, erasing all the earlier gains…

PACW was the best performer on the day (along with FRC and SCHW) but they all remain lower in price post-SVB-fail on Friday and well off the day’s highs…

Source: Bloomberg

Credit Suisse credit risk hit another new record high…

Source: Bloomberg

As the S&P rallied from the open, 0DTE traders were fading those gains and unwound that negative delta flow as stocks faded after the Russia/Drone headlines. Notably, as stocks fell, aggregate options trader flow was very positive delta…

HIRO Indicator | SpotGamma™

Bonds were sold across the board today after yesterday’s panic bid with the short-end dramatically underperforming. Today’s comeback (in yields) still leaves the whole curve lower post-SVB on Friday morning (with 30Y lagging)…

Source: Bloomberg

After collapsing over 60bps yesterday, 2Y Yields exploded over 40bps higher today the third biggest one-day spike ever (behind the post-Lehman chaos in Sept 2008 and Oct 1982 as Volcker sparked volatility on shifting policy). In fact from Friday’s close, 2Y Yields were down almost 80bps at their trough overnight before European selling started and that pulled the 2Y Yield back above 4.00%, up almost 60bps from its lows to the highs of the day, before a rally in bonds (as stocks sank late) pulled 2Y back down to 4.20%…

Source: Bloomberg

The dollar ended back at yesterday’s lows after a rebound overnight…

Source: Bloomberg

Bitcoin extended its recent gains, soaring above $26,000 intraday…

Source: Bloomberg

Oil prices plunged – as perhaps once again the only clear indication of a recession – with WTI back at 3-month lows with a $71 handle…

Gold was flat today, holding on to its gains above $1900…

Finally, Fed rate-trajectory expectations continue to swing violently. September expectations have swung from +110bps on Thursday to -65bps yesterday to +10bps shortly after the CPI print to end at -16bps (i.e. rates are expected to be 16bps lower than now in September). The market is laying 75% odds that The Fed will hike by 25bps in March (next week) – that is up from around 40% yesterday (favoring a pause) and down from 85% odds this morning after CPI…

Source: Bloomberg

The curve has been wild to say the least over the last few days. The terminal rate has plunged and pulled forward; the curve has inverted dramatically – pricing in rate-cuts before year-end; and shifted slightly hawkishly today after CPI…

So, what will The Fed do?

For now, the market seems more biased towards a 25bps hike – which makes sense since, if The Fed doesn’t hike next week, isn’t that an implicit admission that the ‘bailout’ mechanism that Biden and Yellen have said will work to stabilize the financial system… won’t work.