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‘Corr 1’ Shock Won’t Soon Be Forgotten, One Bank Says
Was the extreme market turbulence witnessed over the past several sessions the product of a growth scare or was it indicative of crowded trades unwinding in unison?
Both. The answer's both. The critical nuance -- and I went into more detail on this in the new Weekly -- is that the growth scare emanated from the US, and the attendant recession vibes and front-end rates repricing was fuel on the fire for a multi-week yen rally that was already in the process of stopping out shorts and forcing unw
Goldman is right. The system went through a forced deleveraging. Fortunately the unwind was quick. Had it lasted longer, the Fed would have been forced to step in to prevent a system wide collapse. Credit markets reopened quickly, thankfully. But fed needs to ease and end qt. Otherwise this one will be a dress rehearsal.
That is quite an image!
I didn’t see anything about credit markets seizing up, repo rates going nuts, etc last week. Also no chatter about big shops teetering or other destabilization. Granted I’m not super plugged in, being on vacation, but I wouldn’t like to think I’d missed that.
My impression is that a whole lot of forced selling got done very quickly, but there was apparently a whole lot of bid too, and I don’t see why there won’t be a bid for the straggling forced sellers next week. SP50 broke 100D but didn’t even test 200D, and neither estimates nor macro data are breaking down, as opposed to weakening.
The Fed very likely will cut in Sept, I’d guess FOMC doesn’t have a strong lean on 25 or 50 yet, Treasury’s shift from coupon to bills has probably partly neutralized the remaining QT, and I’d guess Fed’s decision on QT is driven more by its assessment of reserve levels than by 2% and 3% swings in the S&P 500.