Crypto Rips, Bonds & Stocks Dip As Hawkish Sentiment Soars

‘Good’ macro news is ‘bad’ market news as this week saw macro surprise data soaring, crushing the ‘imminent recession means Fed pivot’ narrative. Combined with hawkish FedSpeak, the terminal rate spiked to cycle highs (above 5.30%)…

From Mester and Bullard to Williams and Barkin, every Fed Speaker was hawkish this week – ‘higher for longer’, ‘more work to do’, ‘no rate cuts this year’… etc… and while the stock market tried to shoot them down, there was too many of them…

Rate-hike odds rose across the March (12% odds of 50bps), May (95% odds of a 25bps hike), and June (60% odds of a 25bps hike)…

Source: Bloomberg

As the terminal rate has hawkishly shifted, so all the major asset classes have mean-reverted from their coordinated January shift… all that is apart from stocks…

Source: Bloomberg

But this week did see stocks give up the short-squeeze attempts during the week with all dropping into the red before a major gamma-squeeze dragged nasdaq green into today’s OpEx. The S&p was the biggest loser on the week followed by The Dow. Small Caps outperformed…

The S&P found support multiple times at the Put Wall but from around 1300ET into OpEx, puts were covered and calls bid (potentially written calls covered) lifting the market…

Source: SpotGamma

We had a feeling this would run earlier in the day…

sneaky call buying creeping higher all day with puts flat (from @spotgamma HIRO) pic.twitter.com/Bi5lH0U28A

— zerohedge (@zerohedge) February 17, 2023

Skews continued to drive higher this week (downside protection demand dominating upside exposure)…

Source: Bloomberg

The week was dominated by the massive short-squeeze from Tuesday morning to Wednesday’s close…

Source: Bloomberg

Interestingly, Utes outperformed on the week (defensive bid despite higher bond yields) while Energy stocks puked…

Source: Bloomberg

Bonds were also clubbed like a baby seal on the week with the belly underperforming. 30Y yields rose the least on the week with all TSYs relatively well bid today…

Source: Bloomberg

All of which has seen financial conditions start to tighten back towards The Fed’s monetary policy direction (though we note that financial conditions are still dramatically looser than even at the start of the year)…

Source: Bloomberg

The dollar ended the week modestly stronger despite selling pressure that started today in the European session…

Source: Bloomberg

Bitcoin rallied over 12% on the week, its 4th weekly rise in the last 6 weeks, topping $25,000 intraday – the highest since June 2022…

Source: Bloomberg

Ethereum also soared this week, topping $1740 intraday, its highest since Sept 2022…

Source: Bloomberg

Copper was the only major commodity to make gains this week while PMs were down modestly, oil uglyish, and NatGas puked…

Source: Bloomberg

Gold was down for the 3rd straight week (after rising for 6 straight weeks), unable to get back above $1900…

WTI closed the week lower, with a $76 handle…

NatGas prices fell for the 8th week of the last 9, closing at the lowest since Sept 2020…

Source: Bloomberg

Finally, Goldman notes investors’ sentiment has turned much more bullish since the start of the year, with surveys rebounding sharply from record lows. However, the latest data point suggests that positive sentiment might be hard to sustain.

While the current sentiment cycle could last a bit longer – our research shows that sentiment-driven reversals last on average a month and a half, but could extend up to three months – we think better macro data on both growth and inflation are needed to confirm the optimism markets have built up. We therefore see risks from the recent turn in sentiment and positioning, and we think it is likely to make markets more vulnerable from here, especially as it has come alongside a significant compression in risk premia.

Stocks continue to be bullishly decoupled from The Fed’s bank reserves…

Source: Bloomberg

That hasn’t ended well in the past.