As we navigate the currents of financial markets, the landscape reveals a precarious situation. Reflecting on the March 2020 crisis, which extended beyond the realm of COVID-19 to a massive blowout of the basis trade, the present scenario raises alarms. Collateral haircuts hover at zero or near-zero levels, with banks shouldering increasing risks. Astonishingly, the forward P/E ratio for the ‘Magnificent 7’ is just below average, signaling potential vulnerabilities.
The recent whirlwind in rate expectations adds another layer of uncertainty. In a span of six months, markets swung from anticipating four rate cuts in 2023 to expecting no more hikes and potential cuts starting in May 2024. The growing probability of rate cuts as early as March 2024 further intensifies the turbulence. Futures, in turn, are experiencing unprecedented volatility, echoing the heightened fragility of the current financial landscape.
Remember the march 20' crisis ? It wasn't so much a covid matter, it was a massive blowout of the basis trade (future-spot arb)
Guess what ? We are at a higher level now. Collateral haircuts are at 0 or nearly, and banks are sponsoring the risks. How could it turn bad ? 🤣 pic.twitter.com/zrXr6GaSCe— Dorian Gray (@Analystlearner) November 21, 2023
Forward P/E ratio for Magnificent 7 now just slightly below average going back to 2015 pic.twitter.com/fIqTzl9RIw
— Liz Ann Sonders (@LizAnnSonders) November 20, 2023
This is incredible:
6 months ago, markets were expecting 4 rate CUTS in 2023.
4 months ago, markets switched to expecting 3 more rate HIKES in 2023.
2 months ago, markets saw a 50% chance of 1 more rate HIKE in 2024 and CUTS starting in September 2024.
Now, markets expect no… pic.twitter.com/b9eIgSP8ra
— The Kobeissi Letter (@KobeissiLetter) November 21, 2023
BREAKING: Nasdaq officially closed at new 52-week highs
Reaching levels unseen since January 2022 pic.twitter.com/38fhPTAErV
— Game of Trades (@GameofTrades_) November 21, 2023
CTAs bought $153bn of global equities over the past 10 days, the most on record. They are buyers in every scenario over the next week, per GS models.
via GS Cullen Morgan pic.twitter.com/jUrCVUrUfT
— Daily Chartbook (@dailychartbook) November 21, 2023
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