Move lower in Spoos


China’s Big cap ETF, FXI down 2% on the news. 1 minute chart below

The president is quite Active on Twitter today so maybe just a bit of frustration on his part and thus lashing out at all of his Enemies.Something to monitor obviously but since it is from Washington Post President may call it Fake news. Fake or not the story did pressure stocks causing new session lows across the major indices,Spoos -1.7%,nasdaq -1.3% Russell -3.3%. European stocks are trading heavy all morning so this headline just gave them a nudge lower,Stoxx -3.3% Dax -3.1%. No worries though Month to Date,MTD, Stoxx +5%,Dax +9.3%( in euros)

Treasury’s Trading with a bid but keeping a lid on treasury upside is another heavy Slate of IG,Investment Grade paper .Ten new IG deal announced today(IFR) highlighted by Boeing seven trance deal and IBM four part deal with maturities ranging from 3 year to 40 year so a bit of hedging ongoing today.

Once chart that has caught many people eye gasoline demand,update yesterday post EIA release.This is Total change in U.S. Gasoline Demand, a very nice rebound,

Nomura’s McElligott talking Volatility & CTA models

From Heisenberg report

Nomura’s Charlie McElligott knows many market participants are stunned right now.

And not just by the size of the bounce in equities off the March lows, but also by the apparent resilience of the rebound.

It’s just not “right”, some folks indignantly proclaim, railing against the apparent injustice of a Fed-engineered surge in assets that “should” be struggling mightily to catch a bid.

Instead, global stocks were close to logging their best month since 2009.

But this is no real “mystery”, McElligott reminds you, and while the Fed has played a crucial role, it’s not just Jerome Powell.

The rally comes “to the shock of many who ‘fundamentally’ remain focused on the obviously horrific economic ramifications of the COVID-19 shutdown”, Charlie writes, in a Thursday piece, before noting that most market participants are operating “without an appreciation of the ability [for] equities to ‘pull forward’ future inflections, on top of client positioning dynamics, vol.-dealer positioning, hedging realities and the ‘sling-shot’ that is a market structure built upon ‘negative gamma’, which creates [a] seemingly rolling ‘crash down, then crash up” cycle”.

Regular readers are acutely familiar with all of this. Indeed, it was just two days ago when McElligott recapped the dynamics. I talked about it at length in “CTAs Set To Flip Long In S&P As Vol Normalization Triggers ‘Second-Order Slingshot’“.

It’s all a function of vol. resetting lower and otherwise “normalizing” in a world where, to quote Charlie’s classic March 5 note (see here), everyone “operates under frameworks which allow for greater leverage deployment into trending markets, and conversely, dictate de-grossings into ‘VaR-events’”.

One way or another, we’re all momentum traders operating under the same VaR risk management regime. Volatility is everyone’s exposure toggle.

The “slingshot” occurs when vol. resets sustainably lower, dictating mechanical re-leveraging from the vol.-control universe. As equities push through key levels, CTAs are drawn back in, as momentum builds.

Nomura’s QIS CTA model flipped this week in S&P futures from a “-69% Short” signal to “+100% Long”. That, McElligott writes, made “a total of $36.8 billion to buy across US equity futures on the session [Wednesday]”.

At the same time, we’re now back into territory where dealer hedging should act to dampen volatility or, at the least, won’t exacerbate directional moves in the kind of hair-on-fire fashion seen during March.

“With the flip in aggregate SPX / SPY dealer positioning to what had been ‘short gamma’ to then a ‘neutral gamma’ and now increasingly outright ‘long gamma’… we see the benefits of ‘vol suppressing’ dealer hedging behavior with these grinding, less spastic market moves”, Charlie writes.


None of this is to downplay the significance of the unprecedented collapse in economic activity both in the US and abroad. And it’s certainly not aimed at trivializing the plight of those affected. Nor is it to suggest it’s necessarily a good idea to buy into a market that’s already run ~30% off the lows.

Rather, the point is simply that you cannot understand price action in modern markets without at least attempting to grasp the dynamics outlined above.

This is an ongoing theme in these pages – these are modern markets, and if you’re going to trade them (as opposed to just “invest” in them and sit there for four decades), it is imperative that you become some semblance of fluent in the language spoken by the likes of McElligott and Marko Kolanovic.

That doesn’t mean it’s your native tongue – just that you can order a sandwich and a Coke if you need to.

Morning 4-30

 Stock Headlines (CNBC):

 Economic news (Not Pretty)-Trading Economics the Eurozone economy shrank by 3.8% on quarter in Q1, compared to market expectations of a 3.5% contraction, a flash estimate showed. It was the steepest contraction since comparable records began in 1995(Graph via BBG)

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Italy’s GDP shrank 4.7 percent on quarter in the three months to March of 200, following a 0.3 percent contraction in the previous month and entering a recession, preliminary estimates showed. It was the steepest contraction since comparable records began in 1995

Mexico’s gross domestic product contracted 1.6 percent on quarter in the three months to March 2020, after shrinking 0.1 percent in the previous period and compared with market consensus of a 2.1 percent decline, a preliminary estimate showed. It was the steepest contraction since the first quarter of 2009

  Next week’s Non-farm payroll number will show job losses in the Millions likely tens of millions, still hard to grasp the magnitude of Job losses. Today’s jobless claims expected to be +3.5 million a big number, but trend is down let’s hope it stays that way

 What does all this bad News get you?  The Best Month for the SPX since 1974!


 Tomorrow is May Day or Labor Day for most of the World many exchanges are closed. China is closed to Wednesday May 6th

Yesterday China Released the first of 3 PMI reading for April, Manufacturing PMI missed expectations 49.4 vs 50.5 expected

ECB left Rates unchanged but lowered the rate on the short-term loans they provide for banks from -.5 to -1.00 Okay I guess press conference at 7:30

Tyson Foods has doubled work bonuses and increased Health benefits to lure workers back

All eyes on Gilead science as they may give more details on the Corona Virus therapy treatment. Headlines and stocks movement are a big Driver of Sentiment and all markets these days so pay attention to headlines. Gilead reports after close

Apple and Amazon earnings tonight


 Nasdaq Higher but Dax, Spoos, Stoxx 50 all lower. Bunds Higher yields -4 Bps Gold +.7% Silver +1.1%

Risk On

Good News Regarding Gilead Virus Drug;


Sobering News from Muhammad El erianm;

Worse than expected drop in US Q-1 GDP — at minus 4.8% —is indicative of the huge economic hit. With the shut down not reaching critical mass until the start of the fourth week of March, quick back of the envelope calculations suggest the Q-2 contraction could be as large as 40%

Weekly EIA report Bullish as Gasoline stockpiles dropped vs expectations of A Build,Oil build less then Expected also providing fuel for the bulls. More fuel ,four US oil companies will collectively cut oil production by 300k a day in May and June ,Russia said it will cut 2 mln barrels a day of production under OPEC deal,believable or not June Oil +29% Brent +11%

WSJ running a handful of articles regarding the increase in number of accounts on retail trading platforms.The no fees ,the ” if it’s free for me “thinking has caused this surge from WSJ

TD Ameritrade said last week that retail clients opened a record 608,000 new funded accounts in the quarter ended March 31, with more than two-thirds of those opened in March. E*Trade saw a net gain of 363,000 accounts in the quarter—a company record—around 90% of which were retail. Charles Schwab Corp. reported a record 609,000 new brokerage accounts in the quarter, including individuals’ self-directed accounts and those managed by financial advisers.”

From reports I know lots of these trades were in USO and other leveraged oil Funds.I don’t know for certain but the 3x long nat gas ETN saw a record Volume day on Monday maybe just a coincidence.

FOMC decision today Maybe a change in IOER,Fed may also move to a Monthly QE amount instead of weekly amounts.If so pay attention to where on the curve the Fed will be buying.MS believes more focus on longer maturities as Short end will continue to see an increase Auction size. Q&A portion will likely see questions on Feds tool box,negative rates,yield curve control.

Risk on Continues due to Gilead news,Scorecard:

Morning 4-29

Busy Calendar Today Starting with Q1 GDP which will show the First negative print in 10 years and as Bloomberg headlines describes this will be the Storm before the Storm. Consumer spending to be negative and PCE, feds favored Inflation gauge is expected to move higher. Market reaction should be close to nil as Markets have priced in a lot of this ugliness, plus Q2 GDP is the Timeframe most people want to see.

   Big Tech Earnings after the close Tesla, MSFT, Facebook, Qualcomm. Alphabet reported yesterday and Stock is Higher +6% or so. Yesterday Starbucks reported 50% drop china’s Same store sales. Boeing is targeting a 10% reduction in workforce and cutting commercial Airplane production(bbg). Ford reported a $5 billion loss (BBG)This morning, Master card, general Dynamics and Yum have reported. Per WSJ More companies so far have suspended or canceled dividends this year then in previous 10 years combined.” Companies doing all they can to save money.

  The Fed meets today and will hold a Virtual press conference at 1:30, No change in rates expected but it is Possible the Fed adjusts its IOER higher. Fed statement unlikely to have many changes, no updated Economic projections as normally would be the case on a Quarterly meeting. Questions during the press Conference will focus on What tools to Fed have left, What about Negative rates, pace of QE purchases and Yield curve control.

 President trump Will sign an Executive order to keep slaughterhouse and packer plants opens during the crisis, these facilities have been hit hard by the virus due to the close confines of the workers. Food supply chain is experiencing many hiccups thus causing retail prices to move near all-time highs. Workers and Unions representing these workers are none too happy, who can blame them with their life on the line. Hogs were strong double limit bid yesterday but finished little changed after this hit wires

 Tonight 8:00  China PMI to be released


 Lots of green everywhere Except Italian Bonds as Fitch downgraded company to BBB. June Crude on the Bid +19% Brent +4.5%, Dollar slightly Lower

A Few Things

Growing number of Representatives in Congress Complaining about Size of Deficit but yet President and His advisors talking about tax cuts for middle class and another stimulus bill.A time and place for Deficits discussion but now is not it.

President Trump to sign an Executive order to mandate that meat processing plants stay open.He will use DPA, Defense production act ,to enforce this.Now it looks great on paper but will enough workers Show up for their jobs if they are still Concerned about Safety?Market reaction in Hogs and Cattle,Similar to how I interpret it Confused.As I type, Hogs have given back all of the extended Limit gains and flirting with going Red, an aggressive move lower.My thinking is That with 33% of production off line causing Carcass values to surge,the forced openings could alleviate the upward pressure on Spot prices.

7 Year auction went off right on the screws,But Bid To cover was below Last months.This was a bit of disappointment after the big beats from both the 2 and 5 year auctions Bid to Cover , yesterday,But still solid demand as it was above the last 7 auction average. Treasuries have been bid All day and as History has told us we should respect the move in bonds and not in Stocks.

Nasdaq started out strong today but has turned tail and trades down 1% .Big tech Earnings start tomorrow after close so it appears traders,investor taking some chips of the table, as the other main US indices and the Semis SOX, trade unchanged to higher. Take a look some Loss leaders in stocks:

Bloomberg TV and a handful of people talking about this “bullish” happening in the Vix,the Spot has moved below the first month future for the first time in weeks indicating just a bit less anxiety today .Circled area shows this occurrence.

How about we look at Vix Curve One Month ago and Today! No words needed

This will leave mark

The Just released April Consumer Confidence Number was ugly on the headline Number 86.9 vs F/C of 87 down form lasts months 118.8 but it met expectations.If you look At some of the Sub Sectors this is where the Shocks are .Consumer Confidence from the Confidence board focus more on labor Markets then its peer U of Mich Confidence,below is the Spread between Jobs plentiful – Jobs hard to get, just WOW! what a collapse what a turn around in one months time that Jobs Plentiful could just disappear

Now the Second Component I want to highlight is the present Situation metric , definition is in the title how confident are the 3000 respondents in their present situation.It dropped from 167.7 last month to today’s 76.6 again Just WOW. We all know things are going to Be bad in Q2 but sometimes a reminder,in graphical form is needed to drive home point.

Morning 4-28

Front Month Crude, June, was hit hard overnight down almost 20% at its worst levels, the reason:


 Treasury Curve  was Undergoing a bit of Flattening over the last 2 weeks or so as the Fever pace of Fed QE purchase was starting to cause a bit of scarcity in the long end and the Increase in Auction size on the short  end causing a bit more selling. Now that the Fed Pace of QE has been cut Aggressively thus  less of flattening bias for curve, A bit of Commentary from IFR News below

  Now that the Fed’s purchases and the risk-parity bid for duration is waning the tight supply/demand technical in the long-end are starting to loosen up. It appears as well that the market was carrying a substantial curve-flattening position into the week that was at least somewhat unwound in today’s 2 & 5-year auctions. Indeed, since the 2-year auction the 2s/10s spread has steepened by over 2 bps and since the 5-year auction the curve 5s/30s spread has steepened by roughly 1.5 bps.

  A pause in the steepening may be in the cards for month-end (and its portfolio duration extensions) with the curve then expected to reengage steeper right through the May Refunding (to be announced next Wednesday) if not beyond

 Virus news:

   Sentiment and Actions continue to be  positive for Virus the latest from Europe

   Spain and France will give details today on plans to ease lockdowns as Europe moves to loosen restrictions. Spanish Prime Minister Pedro Sanchez plans to announce loosening measures after Tuesday’s weekly cabinet meeting, and France’s Prime Minister Edouard Philippe will present the government’s blueprint to the National Assembly (Mizuho)

  Here in the US Optimism continues to be high that  the Worst is  behind us and Economy will be open sooner rather than later, Thus the Risk On Sentiment so far today, Spoos Trading above the Most recent highs is A  good sign for the bulls if a close above 2785 is achieved.

Stock News, Earnings News:

3M, Merck Cat say worst is yet to come as they report earnings this morning

HOG Harley Davidson to cut pay, freeze hiring, this company is one of the Proxy’s for Discretionary Spending.

– 3M reported quarterly earnings of $2.16 per share, beating the consensus estimate of $2.03 a share. The healthcare and safety products maker’s revenue also beat forecasts, but the company withdrew its full-year outlook due to virus-related uncertainties.(CNBC) company also setting up Hotline to report Price gouging, suspended Dividend, Cuts Capex forecast Suspended Buybacks and Outside of Protective gear sales not so good

BP (BP) – BP’s latest earnings beat estimates, but profit fell by two thirds and debt levels rose to the highest level in five years. The energy producer kept its dividend intact, however, even as it warned of extreme uncertainty in the energy markets and its future results (CNBC)

UPS– To cut Capex and said “we wont even try to Guess what next quarter   or year will look like” or how Long disruptions might last(BBG)

Plenty of Good information about US economy within today Earnings reports I only touched on a few, earnings conferences calls will start shortly which could cause some gyrations in Spoos and Dow.

Markets:   A bit of Risk on Sentiment but treasuries and Bunds both Higher. Russell your U.S. leader once again to the upside, +2.1% Spoos +1.2%, Stoxx 50 +2%Dax +1.9% Copper little Changed as is Gold. Dollar working om a 3rd consecutive lower close, as we Know a weak dollar good for markets. Nat Gas Expiration for may Contract today June +3.2% today after rallying some 7% yesterday of Lows to finish higher by 1.1%. Hogs limit bid in

2 Year Bid to cover

Increase in auction size not a worry as the bid to cover at the just completed 2 year auction hits 3.1. Today is One of these days were treasury has a 10:30 and 12:00 Auction 5 -year is at noon.

Russell trying to be a market leader once again the most recent attempts have ended in failure but no harm in trying . Nasdaq +.9% Russell +4% as the latter moves above most recent peak possibly hinting that up trend to continue. The others Spoos and Nasdaq have yet to take out or trade above their respective most recent highs.


Another day another filing from the creators of the USO the latest is that the ETF will roll out of all remaining June Oil contracts by end of Month,There are a few other new directives and features of the ETF but for right here, right now this is the most important news and the reason for Drop in Front month Crude prices,Could be an interesting close. CME did report first Negative oil Option trade the -.5 puts

Nat Gas option expiration today and we have seen some big moves in outright may Contract and the Front month Calendar spread K/M.Attention should be paid to the last half hour of trade

Morning 4-27

Risk On:

 Worldwide Countries will start or already started to loosen restrictions on lock Down measures, Germany allowing schools to restart, Italy announced a timetable for reopening economy and Spain allowed kids to play outside for first time in weeks  (WSJ)

Per white House Trump will move focus of daily Press briefings on Reopening states and not the Health statistics. Also, The President supposedly will pull back from appearing at these daily press briefings and turn it over to HUD secretary.

U.S. States taking steps to reopen, NY will move in stages and Georgia will expand which business are reopening this week. Top Two retailer trade groups representing such retailers as target, Walmart and best buy are calling on Governors to come up w a Uniform plan to reopen states (BBG) New York reported least amount new fatalities in a month. Besides Georgia Alaska, Tennesse,Texas and South Carolina begun to slowly reopen economy(WSJ)

No Downgrade for Italy on Friday is lifting European Bond prices and Providing a bid into Stocks

3-month libor is just .10 bps above the March Lows, pre-crisis levels as Credit worries subside


 NKY closed higher 2.7%, Stoxx 50 +2.3% Dax +2.5% Mib +2.75% Spoos +.9%, Nasdaq +1.2% Russell +1.95%,10 year Italian yields -10 Bps. Treasuries a bit Heavy Recall that Fed has once again cut the Nominal size of QE purchases this week, on the flip side a heavy Dose of Treasury Auctions this week with increased size of 2s,5s and 7-year paper.

  Front month crude getting crushed today -22% Brent -5.7%. South Korea has run of storage room. The Cost to rent  Oil tankers near an all time high as floating storage surge and Tanker  becoming a problem (BBG)  The Head of Gunvor Group the giant oil trading firm said the “peak of the chaos could come in early to mid-May (BBG) Talk that  Chinese Investment arm got hurt badly in the Oil Plunge and has Notified Investors that no new positions will be open in oil and relayed commodities for the time being(BBG)


 Heavy week for Earnings

  • Tuesday -Google Cat, Merck 3M
  • Wednesday tesla, Microsoft, Facebook, Lowes, Yum Boeing, ADM,Exxon
  • Thursday Amazon, Apple, MCD, American Airlines, United and Visa

Central bank meetings

  • FOMC 4-29
  • ECB 4-30