Dave Lutz of Stifel, Nicolaus passes along this set of observations he has made watching his Bloomberg terminal over the last half an hour or so while the market was getting smoked.
Aloha Folks – Lotta red out there today – Seems the theme continuing of Macro HF Leverage coming off, and ETFs De-Leveraging hard – Couple that with the Expiration creating $15B of PRESSURE today…. Here are some of the things I’m chattering about:
We have de-leveraging across all asset classes – Commodities, Equities, Credit. Kinda feels like that Gold “Flash Crash” back in April. This is being driven by EM spreads on sovereigns have widened considerably today. VERY important to note that this vol is amplified bc dealers cannot hold inventory like before. As FX Vol picks up – HFs have to lower leverage. Brazil and China CDS taking off like a rocket today. EMB (Em Bonds) off 4%+ today. We will see spreads BLOWING wider in the PIIGS – No bueno fer those EU Banks (EUFN)
Right now 41% of the Total US Equity DOLLAR Volume traded is coming from ETFs – YTD avg $ volume around 24%. There is VERY light single stock volume – this is all Futures / ETF driven
Nikkei Futures are off 2% – Most of those losses since the headers from FT that IMF pulling away from Greece Aid unless ECB ponies up some more dough…
WATCH THE 10Y – Kept failing 2.45% – clearly the upward momentum is whacking the Yield Sectors like REITS, Utes and Staples. REMINDER – Heavy inflows into these sectors of late from those Bond Funds (Highest # dedicated bond funds holding equity EVER right now).
HYG getting the baby seal treatment – HY CDS a ripping towards the highest close in 2013. LQD getting worked as well – and IG CDS making the gapper to YTD highs as well – ALL THIS ETFS? As these unwind, the underlying market getting swamped. Do ya really think the broker community catching the falling knife?
WE HAVE PRESSURE FROM Q REBALANCING – We have S&P 500 options expiring tomorrow – I “hear” from JPM that Currently, there is ~$15bn gamma imbalance tilted towards the puts, and $8bn of this gamma imbalance is in June expiry options (~$5bn gamma imbalance in S&P 500 options, and the remainder of the imbalance is on SPYs, Emini futures and levered ETFs). This could accelerate pressure into the last 30minutes of US trading.
VIX UPDATE: NDX + 26%, near YTD highs – SPX 23%, AT YTD highs, approaching Dec highs – Russell + 16%, YTD peaks – GOLD JUST BELOW “FLASH CRASH” Highs – OIL not as elevated YTD, but is + 24% today. Single Stock: GS + 14%, AMZN + 12%, AAPL + 10%, IBM + 10%, GOOG + 5%
BUT IS THIS A BIG FAT BUYING OPPORTUINITY? – the 3M VIX Curve is in BACKWARDATION. Happened Dec, Feb, April. All ended up being BUYS – Why? Cause the market is pricing sharp NEAR-TERM Stress, while the rest of the curve not as elevated (Attached)
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