Uddrag Fra Zerohedge:
Latest ISM data screamed stagflation…
“Customers are pulling in orders due to anxiety about continued tariffs and pricing pressures.”
“Business condition is deteriorating at a fast pace. Tariffs and economic uncertainty are making the current business environment challenging.”
“New order levels have increased and are better than expected. We suspect that our customers are trying to build inventory at current prices to get ahead of expected tariff and related cost increases. We expect this surge in demand to be short-lived.”
“Overall concern is whether or not demand destruction will occur with higher pricing.”
…with prices soaring and orders/production plunging…
Source: Bloomberg
…while the new orders-to-inventory component stayed well below one and slipped to its lowest level since 2020. The component gives a reliable short lead on the headline ISM index…
Source: Bloomberg
Although hard data continues to soar…
Source: Bloomberg
…and then White House spokesperson Karoline Leavitt gave us the answer everyone had been looking for – “Tariffs will go into effect with immediate effect after announcement.” – which stalled the equity gains on the day, taking everything back into the red. The last hour saw buyers return with Nasdaq leading strongly on the day and The Dow lagging as Small Caps broke even and the S&P managed modest gains. All-in-all, a wild day ahead of tomorrow’s malarkey…
The S&P’s gains were all thanks to the Mag7…
Source: Bloomberg
As Nomura’s Charlie McElligott notes, the yield curve is flattening (and challenging still-crowded longs in steepeners)…
Source: Bloomberg
…and real-yields are plunging in what’s a clear nod to ‘Stagflation’…
Source: Bloomberg
The long-end is seeing renewed demand for Duration on risk-off “Growth Downside Risks”…
Source: Bloomberg
And as McElligott highlights, the Market read is that “Growth Downside Risk” reigns supreme over The Fed…
Source: Bloomberg
…with rate-cut expectations rising…
Source: Bloomberg
…and SOFR Options implied prob distribution is reflecting those increasing odds of not just a deeper Growth slowdown necessitating more Cuts… but outright Hard-Landing / Recession -potentials
‘Spot up, Vol up’ yesterday and again today in US Equities is a bit uncomfortable, because it’s becoming increasingly evident to many that tomorrow’s ‘Liberation Day’ is not ‘clearing’ much of any ‘event-risk’…
Source: Bloomberg
Instead, as McElligott notes, it’s being perceived as a spring-board for further policy uncertainty via tariff retaliations, rhetoric escalations, or (hopefully) concessions… because this is good for nobody, as a clear “Growth Shock” catalyst which ultimately fattens left tail “Hard-Landing” / “Recession” -risks.
And as the following chart from Goldman Sachs indicates elevated economic policy uncertainty is typically associated with a higher risk premium.
Given uncertainty is the one thing we can be certain of with current administration we would expect so see risk premium rise sharply.
And the vol term structure sees the ‘events’ coming…
Source: Bloomberg
Goldman’s Stagflation basket suggests there’s room to run on this trade…
Source: Bloomberg
The dollar ended the day unchanged after a choppy day…
Source: Bloomberg
Gold was monkeyhammered lower at 11amET tested $3100 ($3149 record high intraday) and bounced…
Source: Bloomberg
Crypto ripped higher with stocks and bitcoin topped $85,000, not giving it back as stocks faded…
Source: Bloomberg
Notably, gold’s drop and bitcoin’s pop were simultaneous slamming the BTC/Gold ratio up above 27x again…
Source: Bloomberg
…finding support at the pre-election lows…
Source: Bloomberg
Oil prices leaked modestly lower on the day, holding most of yesterday’s gains…
Source: Bloomberg
Finally, we attempt to answer – what happens next?
In line with recent market proclivity to “do what hurts the most” relative to consensus / groupthink, Nomura’s Charlie McElligott sees – after the initial market spasm – a ‘pain trade’ higher in Equities on some kneejerk “Less bad than feared” / “Not worst-case scenario” that means investors don’t get a real ‘Dip to buy’.
The tape rallies higher and leaves people in the dust, which means you could get de facto behavioral ‘Short Gamma’ type dynamic to the upside and see a scramble chasing the rally and buying the higher it goes… particularly if SYSTEMATICS get ‘stopped-into’ higher prices, alongside Options Dealers Short Puts in Mag 8 and Leveraged ETF rebalancing Demand into a rally being ~1.5x’s that of Supply into Downside slides, and all while hedges would hypothetically be rallied away from and see short Delta bought back.
BUT… then the second part of this hypothetical pain-trade would then hit, as the ultimate damage (psychologically and ‘hard’) from the Tariffs would then begin to evidence itself across US Growth data, and-or Profit Warnings / Guidance Cuts from US Corporates, theoretically then leaving those recent buyers holding the bag, sending Equities lower again as the source of derisking flow.