‘I Come Back To You Now’: Kolanovic Returns, Everyone Panics

Well, it would be virtually impossible to come up with a better clip than this one to sum up today’s action in the US:


As detailed here earlier, JPMorgan’s own Marko Kolanovic, known affectionately as “Gandalf” appears to have triggered a rather abrupt turn in sentiment at 12:30 EST when his latest note began circulating among traders.

“I come back to you now”…

“Volatility near or at record lows by a handful of measures should give pause to equity managers,” Kolanovic warned, before cautioning on the pernicious feedback loop embedded in markets courtesy of the interplay between short vol. vehicles and systematic strats that, thanks to suppressed vol, have likely levered up and could be forced to unwind into a falling market.

Here was the “turn of the tide,” in stocks…



….and in the VIX (which spiked to an 11-handle following yesterday’s plunge to a record low around the Fed decision)…


…and in USDJPY….


The DAX underperformed in Europe, thanks in no small part to Deutsche Bank and Bayer, whose shares both fell notably after results:



The euro took a breather after surpassing its 2015 August high on Wednesday falling to a fresh low for the day at 1.1650 before rebounding. Basically, this was profit taking.


Also notable was EURCHF hitting 1.12 for the first time since the SNB abandoned the floor:


The broad dollar had a better day, recovering from the post-Fed doldrums:


Oil was a bit of a rollercoaster, but ultimately hit another 8-week high as sentiment is bullish as reflected in Bloomberg’s weekly survey which yielded the following results:

  • 24 of 41, or ~59%, bullish
  • 10, or 24%, neutral
  • 7 bearish

And it’s easy to understand why, with the inventory data inflecting, the Saudis making promises, and the threat of disruptions from Venezuela.


Do note that Asian equities are at post-crisis highs, as the MSCI Asia Pacific Index rose overnight:


Copper is of course riding a 6-day hot streak, is sitting at a 2-year high on the LME, and has everyone who believes in the copper/gold ratio (a group that includes Jeff Gundlach) pretty fired up about global reflation again:


Emerging market risk got hit hard today at the same time as everything else, resulting in the following rather amusing chart which shows EEM completely retracing its post-dovish-Fed rally (and then some):


Oh, and as Bloomberg notes, “Treasuries ended lower on the day as early sell-off coinciding with AT&T deal announcement bear-steepened the curve although the early afternoon equity slide saw Treasuries edge off lows to leave 5Y-30Y yields higher by 1.5bp-3bp.”

And guess what was back – the “blocks“:

  • Futures block trades again provided volatility in Treasury futures; activity on the session included $1m/DV01 10Y and 5Y buy, $785k/DV01 10Y buy and a pair of 5y and 10y futures for $500k/dv01

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