Read on the Trading Floor - 21 Dec 2023
Today’s focus… Trying not to overanalyzes moves in thin holiday liquidity
Macro Themes At Play
Theme 1 - The Power of 9...
For those who like DeMark, yesterday's sell off probably didn't come as much of a surprise. After all we had triggered 9 green days in a row.
However, for the sake of argument, on a quiet pre-Xmas session, what may have triggered the move?
#1. Yearend holiday liquidity, profiting taking, fat finger... the standard go too stock reasons (pun very much intended) that sell side use to explain shock moves that occur within a news vacuum, without a clear trigger or noticeable headline catalyst.
Academy Securities - The-Party-is-Over
#2. As they become more popular, 0DTE get the blame
Bloomberg - Vilified Zero-Day Options Blamed by Traders for S&P Decline
Spot Gamma - Options Flows & Yesterday's Surprise Sell-Off
but I prefer @Mayhem4Markets take
#3. Ugly 20-year bond auction? This part of the curve is always difficult for the Treasury to fund, so why would a weak auction generate cross asset fear? I thought the Fed were delivering a soft landing?
The BondBeat - USTs lower 'unwinding yest afternoon's risk off SPASM bid' on extremely LIGHT volumes
#4. FedEx demand warning a bellwether for a weak consumer in 2024?
Steno Research - Something for your Espresso: What happened to stonks?
Finally, where did we find support?
H/T
- The ESA sell off was contianed by their weekly implied vol level of support
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Theme 2 - Softer US data
The US gapping down to the RoW trade continues as the Q3 exceptionalism unwinds. Today's final Q3 GDP print was an outstanding 4.9% (well done Taylor Swift) but it means the peak US performance wasn't as good as expected. Naturally we've seen a softer USD post data but it's 3 months old data (ZeroHedge - Markets Go Wild On 3-Month-old (Revised) Data), tomorrow's PCE is the main event. If it comes in at 3.1%, will the Fed need to cut more than is currently priced in the market to stop real rates from breaking north of 3%.
The Gryning Times - Is Fed Policy 40 bps Tighter?
ZeroHedge - US Leading Indicators Slump Signals "Short & Shallow Recession" In 1H24
JPM - Inflation monitor
The Fred Blog - Watching CPI and PCE inflation in Fred
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