Not my typical weekly roundup at all ↑
Markets Reviewed / Examined & Explained
In this note- market related matters from the week:
•Global Central Banks
•”The Dollar” / the yen, FX
•Gold & crypto
•June quarterly options expiry/meme calls
I was going to discuss markets on RVDB Thurs but didn’t make it on. Not every day is a markets discussion day- but day after FOMC certainly was. We saw some major moves that had left many puzzled. So here are some points below, covering cross asset market observations, explanations, and what to look for going forward.
I’m writing a separate post for this following up on Japan: The World’s Biggest COVID Failure but given the US COVID risk discussion, will quickly mention the FAR more pressing COVID catastrophe looming with an exact date slapped on it: Tokyo Summer Olympics. Japan currently 5% vaccinated - yes, FIVE PERCENT have at least ONE SHOT, lowest per capita among developed AND developing nations, trailing even Brazil & India), less than one month away from people from every single country coming into Tokyo for two weeks in the worlds largest and one of most densely populated metropolitan areas, and then returning back to their respective countries in every corner of the world. And as far as I can tell, NONE of this is on anyone’s radar, so if you want to talk COVID, this is prob the discussion that matters most right now. Just my view.
And as always, I’m focusing on what was absent broader headlineso, and what I personally feel is being largely missed and overlooked, and I won’t be simply regurgitating headline observations of what’s obvious and already out there. So- no need to “inform” me that there was an FOMC meeting this week just because I don’t mention it… because like, I know there was an FOMC meeting, and you should prob know that I know.
In fact, here’s my addressing of FOMC right off the bat (no pun intended) ↓
Central Banks: 2020 Globally Coordinated Policy Accommodation → 2021 Uneven Recovery and Global Dispersion of Eco Policy
Fed: June FOMC is not over. Fed’s Bullard was the “real start” of June FOMC, the morning after Powell’s press conference. What the Powell & the Fed are now doing is- Powell gives his routine, not rocking the boat, neutral and bland as possible presser as step 1. Starting with Bullard the very next day, along with the slew of Fed gov & FOMC board members public engagements coming over the next week- this is the setup for the real communication from the Fed. Likely will be 2 steps hawkish, one step dovish, and if anyone accidentally tilts markets too far in either direction, the next speaker will come out swinging the other way to neutralize some of the impact. But the broader course is to start prepping for EXPECTATIONS (not actual intentions- those are only realized when they happen) of tapering and hiking.
Again, the aim here isn’t to actually hike or taper, it’s to catch the perception of the Fed with where certain markets already are as a hedge- because if “transitory“ continues onward (thereby becoming less transitory by definition) and the Fed message and policy remains unchanged, problems occur. This is recalibration of expectations.
Other CB Policy Meetings from this week of note:
BOJ (Japan): “no official change“ other than announcing a climate change fund to be officially rolled out at next MPM in July and implemented by year end. Basically my takeaway is - BOJ has run out of shit to buy, which is a problem when trying to flood printed yen into the system. Funding the private sector in their “climate change initiatives“ (which is purposely extremely vague) allows for really endless printing after every JGB has been scooped up, and leaves the ETF market alone. And it will likely be big- very big. maybe not right from the start, but will become the primary channel of easing and/or primary distraction away from slowing down in JGB buying as limits are approaching. And socialized debt monetary policy with a climate change agenda is far more acceptable to domestic and foreign market participants and policy critics - if Japan can print their way to solving climate change, who’s really going to complain about “green MMT” - destroy the yen to save the world?
Also, the little side note of “no more upper bound on YCC” snuck into the language from last meeting still remains- this is BOJ admission that yield curves cannot be controlled - hear that Fed YCC inevitables? The CB which already owns half of outstanding debt and has been YCCing for half a decade can’t control the curve - so maybe not just so casually assume US YCC as a given? see BOJ June Policy Meeting: New Fund for Firms’ Climate Change Agendas Roll Out By ‘21 End
CBRT (Turkey): No change, rates held at 19%. Lira still right up against yet another all time low. Pressure is coming in from Erdogan’s opposition party demanding where the missing $128bn in reserves (-75%) has gone (the last CBRT head that was fired was fired not just for hiking rates to 19% from 10%, but because he started poking around conducting an autopsy for the drained reserves).
Idk if they’re genuinely asking or rhetorically, but in case they really don’t know- it went to propping up the lira in fx interventions this time last year, a time when global asset markets were ferociously jn the rebound move, and yet USDTRY suddenly just flatlined and lira volatility died for a quarter. The only other asset that just froze in place over that exact time horizon last year was BTC, and no, obviously not a coincidence:
Norgesbank (Norway) hold- hawkish, rate hike explicit
Market Relevant Geopolitics from the week: G7, NATO, Biden & Erdogan, Biden & Putin, Cyber
Biden/Erdogan: As explained in a recent note- the Biden & Erdogan meeting was hugely significant. April- Biden admin labels Turkey’s massacre of Armenians in WW1 as genocide → California stare senate unanimous bipartisan vote to divest CalPERS out of Turkish assets → lira plunges to yet another record low → BTC falls -20% in tandem (pre May crypto sell off). Chain reactions. Apparently the meeting went smoothly, the lira didn’t get the message though, breaking new lows as we speak, dragging BTC down with it.
Biden/Putin: why does this matter? It only matters if you’re living in the US or are invested in stocks/risk assets. Russia has cyberattacked the US twice - whether or not this is coming directly from the Kremlin or a rouge hacker is unknown, but it’s coming from Russia according to US and allied officials.
Does anybody find it hard for believe that people who are IT/tech savvy enough to hack into US beef production and energy / fuel systems didnt know that BTC ransomware can be traced back? If I, the polar opposite of a cryptologist knew that, then these people certainly did. - especially if its the same people as solarwinds hack. Which suggests- maybe they’re not in it for the money?
The 2 most recent attacks were on JBS meat processing, and Colonial Pipeline gasoline - yes, these are only 2 data points, but what’s the common theme/thread? They’re attacking America‘s reopen- or, if you include SolarWinds, a supply chain disruption- they’re attacking whatever America is trying to desperately normalize back and create great social distress and unrest to further inflame from within.
Watch the next one (there will absolutely be a next one given the Biden/Putin meeting of confirmed mutual hatred). If indeed this “attack the reopen” is the theme- then that’s an additional and non consensus risk to the reopen trade (in financial markets) that is not being factored in. And if the reopen trade gets derailed, risk assets get derailed.
China’s Photoshop Revenge
China is pissed, given the G7 doesn’t look kindly upon the CCP. These (admittedly pretty well done and clever) images are going viral on Chinese social media - pushed by the state.
G7 Last Supper ↓
“Jesus” - American bald eagle with $ printer
Japan - Akita dog pouring cocktails of nuclear tainted fukushima water
Canada - beaver with a doll (Huawei CFO prisoner)
India - elephant with a COVID oxygen tank
Australia - kangaroo taking American money but with a Chinese syringe - hooked & dependent on China junkie
This might be amusing, but is a very real state of affairs and perceptions. First of all, if ANYone (seated at this table or anywhere else in the world) made a painting a thousandth as “offensive” (none of these countries give a shit), we all know that the CCP would be fiercely demanding apologies. More importantly, this is China’s version of Trump’s “America first / America alone“ - only difference is that there is no election cycle to get back to mend ties with non existent allies. A China alone is a China running on more potent nationalism, and a feeling cornered is a China prone to hostile measures.
Markets this Week
10y USTs & SPX
10y USTs spike & drop w/ equities & vol at the sharp directional swings & pivot points, but yields also seem to lead equities.
Note the divergence - 10y can sharply reverse (as it has shown to do), but if 10y yields continue to fall (yields charted inverse on chart - so “continue to rise” in context of chart), can see immediate term SPX ↑, VIX ↓
5Y UST as well as 2y USTs saw a massive move, far than the longer end of the curve. 2yr yields ↑ reflects FOMC policy adjustment, and have been pinned down in place despite the long end swings - until June FOMC. 5yrs are a hybrid of FOMC policy expectations and market inflation expectations (amid a myriad of other factors), and have most closely tracked equity & equity volatility price action
5y US yields, Gold & USDJPY ↓
↑ +SPX EMINIs ↓
The “Dollar” (really- the yen)
Last week I noted the yen specifically as a pair against rising USD & took a long position via calls on CME listed JPY futures, but I also converted a large % of my USD cash to yen.
Indeed “the dollar“ has made a major move to the upside against all the key major fx pairs (and also reflected in my most hated index instrument: DXY). All major FX pairs weakened vs USD - with the notable exception of one:
You can applaud me on my call but you shouldn’t, as I can be wrong and have all reverse at market on open - my market call isn’t what I’m “right” about to take away. My main point that I nailed was/is/will always be: stop calling it / looking at it as the fucking “DOLLAR” without saying what the other side of the currency pair is. The dollar is NOT some special stand-alone half-pair, it goes up and down relative to every other currency, just like, well, every other currency, and differently with respect to each one. As far as I’m concerned with my funds, “the dollar“ didn’t have any bit of “vicious strengthening“ - in fact from where I executed, “the dollar” has weakened. So, I “don’t know” wtf people are talking about with this “dollar higher” commentary.
”The dollar” The US Dollar / Japanese Yen Cross (USDJPY) against other things:
10y UST yield vs USDJPY - recall that wild move on the US 10y intraday that took SX7E (eurostoxx banks index) that opened EU cash open +2.3% positive and closed deeply red pulling all of Europe down sharply after a 9 day win streak to new record highs? Look at USDJPY (”the dollar”)
Gold dropping -5% on the day? USDJPY:
✓ USDJPY & 10y UST yields
✓ USDJPY & Gold
X Gold & 10y UST yields
The history of Yen vs Gold (when the dollar is everything’s safe haven, JPY & gold are the two safe havens from USD)
See my note from Thurs + trades:
✓ Long JPY/SHORT “THE DOLLAR” (long CME listed calls on JPY futures)
✓ Long Gold futures
X Long 5y UST Futures (destroyed / stopped out)
✓ Long 30y UST Futures
US Futures & Options June Quarterly Expiry
Before we get to “Quadruple Witching“ - note the general revival in options activity from retail. And let me remind you last RVDB I shared my thesis on the “frothy flow” migration between meme calls and crypto since Jan. That’s very real.
See my charts via data from OCC below
Month of June following quad witching showing significant MoM avg volume increase. You might look at the chart above and say “yes but it’s not at Jan levels” - true. And I’m not saying June will exceed Jan by this metric. However, keep in mind 2 points Regarding daily avg options volume traded:
- June is not over yet. If you compare to this point in Jan, June exceeds Jan. Jan’s volume came in the final week (final 2-3 days) of the month, when 1/27 was the largest single day options traded volume in history, as well as the largest single day cash equity volume traded in history. And I’m not saying end of June is when massive volume will come- just saying it can at any time.
- the quantity of options contracts traded is important- but the notional $ value traded is far more significant. On Jan 27, 1.25bn shares of AMC traded at VWAP (volume weighted avg price) of around slightly more than $11/share, or about $14bn notional for that record breaking day. On june 2, AMC hit $70/share, or about 6x higher price per share than on Jan 27. VWAP a bit over $60/share x 775mn shares = $50bn notional value traded in AMC.
AMC itself has out-GME’d GME. In the first week of the month, AMC options traded $1 trillion in notional value. A trillion dollars of AMC derivatives in a week.
Safe to say that perhaps some of that crypto froth came into AMC options? And safe to say that the Feb-May crypto bull market was not at all the serious sticky capital- and was just temporary froth intrusion?
And by the way- these meme / call / crypto traders are not a monolith, nor are they ONLY in meme calls OR crypto - they can walk and chew gum simultaneously.
Some more charts
BTC Exchange traded volume vs US listed options monthly trading volume ↓
Side note- I use data from OCC when making charts like the above (OCC→ Options Clearing Corp- the main US options market clearing house- the ones that gave Robinhood the infamous “3am phone call / tap on the shoulder for collateral“ which led to RH cutting off GME buy orders). And when I was on the OCC website, I noticed an interesting/terrifying press release buried away on homepage- OCC’s newly named head of risk (the guy who would be making the 3am robinhood call asking for $3 billion) is this guy David Ye- former Chief Risk Officer at Nomura Americas. The very guy who allowed for Archegos to do what it did. THATS the OCC’a new head of risk- the one who failed to do his job and say “no“ to Archegos- how is he going to (not) handle the Robinhood (or anyones) 3am “collateral needed“ call? He won’t- which means risk will build up in the system until it explodes. Keep a close eye on his predecessor John “J.J.” Fennell - as he leaves OCC to “explore new opportunities“ and see where he lands.
Please leave feedback on the weekly roundup structure- thanks as always