ACTV - Weekly Commentary: Thesis Corroboration
2024-06-01 05:55:46 ET
Summary
- Markets for the most part corroborated the "higher for longer" and rising global yields thesis.
- The Nasdaq 100 declined 0.7% Wednesday in bearish trading action, as the Semiconductors slumped 1.9%.
- The yen has ominously little to show for the month's chunky $62 billion worth of Japanese currency intervention.
It was an eventful week worthy of some dissection. Markets for the most part corroborated the "higher for longer" and rising global yields thesis. Ample volatility supports the heightened currency instability thesis, with the yen, renminbi, and EM currencies all in the crosshairs this week.
The equities speculative melt-up appears increasingly vulnerable. After closing the previous week at 11.93, the VIX (equities volatility) Index approached 15 (one-month high) during both Thursday and Friday sessions. Late-cycle blow-offs feed off bearish positioning, ensuring there's always a thin line between a downside reversal and (yet) another rejuvenating short squeeze. The ridiculously over-loved tech sector is indicating vulnerability. But in the spirit of markets inflicting the most pain on the largest number of people, perhaps Mr. Market will deviously spark a destabilizing rotation before succumbing to a long-overdue selloff.
Tuesday's two- and five-year and Wednesday's 7-year auctions were all met with tepid demand. From Bloomberg (Will Hoffman and Ira Jersey): "The final auction cycle of May marks one of the worst coupon auction cycles in recent memory. All three issues tailed market expectations, with a cumulative tail of 3.6 bps surpassed only by February 2021 and September 2023's 2-, 5-, and 7-year auction cycle."
Two-year yields traded as high as 5.0% Wednesday, with 10-year yields at 4.63%. Markets made it through Friday's monthly PCE release without a negative inflation surprise. Still, Tuesday's bearish trading action appeared important. Endless supply coupled with elevated inflation risk weighs on market sentiment - at home and abroad.
Italian yields traded to 4.02% in late Wednesday trading, up a notable 20 bps from Monday's lows. For the week, Italian yields jumped nine bps, the largest increase since the global "risk off" week of April 19th - with yields near highs back to December. Greek yields rose eight bps to the highest close since November 28th. UK yields jumped 12 bps in Wednesday trading, to the high (4.40%) since November 13th. Rising 10 bps, German (2.70%) and French (3.17%) 10-year yields both traded to highs back to November.
Wednesday was also a rough day for EM currencies. The Chilean peso dropped 1.6%, the Hungarian forint 1.5%, the Polish zloty 1.1%, the Mexican peso 1.1%, and the Russian ruble 1.1%.
The Nasdaq 100 declined 0.7% Wednesday in bearish trading action, as the Semiconductors slumped 1.9% (losses included Advanced Micro Devices 3.8%, Microchip Technologies 3.3%, and Intel 3.0%)....
Weekly Commentary: Thesis Corroboration