Zero­Hedge News

• Rate-​Hike Odds Slide As Stocks Puke; VIX Term Struc­ture Inverts Most Since COVID Crash
  Rate-​Hike Odds Slide As Stocks Puke; VIX Term Struc­ture Inverts Most Since COVID Crash

  Update (1200ET): US equity mar­kets saw no bounce at the Euro­pean close, instead they legged dra­mat­i­cally lower with Nas­daq down over 4%, and S&P down over 3%.

  This leave Small Caps in a bear mar­ket, Nas­daq very close to a bear mar­ket, S&P in cor­rec­tion, and The Dow on the verge of enter­ing correction…

  VIX is spik­ing to its high­est since Oct 2020 and the term struc­ture is now the most inverted since the COVID crisis…

  The sil­ver lin­ing? If one could call it that. It appears mar­ket par­tic­i­pants are start­ing to dovishly reduce their rate-​hike expectations…

  In other words, the mar­ket is scream­ing “get back to work Mr.Powell”.

  * * *

  It’s offi­cial: as of this morn­ing, the S&P is in a cor­rec­tion, hav­ing tum­bled 10% from its all time high recorded at the start of the month…

  … with the Rus­sell suf­fer­ing an even more humil­i­at­ing fate, as it entered a bear mar­ket at roughly the same time, tum­bling 20% from its early Novem­ber all time high.

  The open­ing puke was pre­cip­i­tated by a mar­ketwide flush, man­i­fest­ing in the most neg­a­tive open­ing TICK in a year at –1,897…

  … which was also the 2^nd most neg­a­tive TICK of 2022 as every­one hit the sell but­ton at the same time.

  And as stocks (and cryp­tos) crash, and yields tum­ble, the VIX is explod­ing above 35, the high­est since Jan 2021, and the level which Data­Trek said would likely mark the bot­tom in sentiment.

  Com­ment­ing on today’s mar­ket tech­ni­cals, SpotGamma writes that Fri­days expi­ra­tion leads to a reduc­tion in gamma, but we still antic­i­pate high volatil­ity for today. Resis­tance is at 4400 fol­lowed by 4453. Sup­port lies at 4356 and 4330. We are now clearly below both supports.

  As SG warns, “This is a very frag­ile, unsta­ble mar­ket which is likely prone to large, direc­tional swings” and continues:

  As there was a sub­stan­tial expi­ra­tion on Fri­day, we expect that many hedges need be set­tled across indi­cies and sin­gle stocks. Based on this we antic­i­pate some open­ing chop due to these hedge adjust­ments. For exam­ple TSLA, which had nearly $20bn in call deltas expir­ing Fri­day, is quoted in pre­mar­ket trad­ing at ~$900 (-4.5%)

  How­ever, we gen­er­ally believe that the expi­ra­tion of large put options can lead to a short cover rally in mar­kets. Due to large neg­a­tive gamma posi­tion, we think these ral­lies could be vio­lent, but offer lit­tle sta­bil­ity and could mean revert quickly.

  Echo­ing Gold­man, SpotGamma notes that it does not think there can be a mate­r­ial rally in stocks until after Wednes­days FOMC. Aside from investors wait­ing to assess var­i­ous pol­icy impli­ca­tions, its likely that traders are hedg­ing the event which will hold implied volatil­ity high. This lim­its the pos­i­tive vanna flows that could enter the market.

  With this in mind, both short dated S&P options & the VIX are at 30 which implies a 1.8% 1 day move. This places the term struc­ture in a back­war­dated posi­tion, which sug­gests a fair amount of fear in mar­kets. Again, given the FOMC, we think that traders may look to sell very short dated “pre-​FOMC” IV which could pro­vide a brief mar­ket tail­wind, too.

  And with stocks tak­ing out low after low, SpotGamma cau­tions that there are essen­tially 2 zones for sup­port. One is at 4275, and the other is well south at 4080. If traders elect to ini­ti­ate new put posi­tions that would pres­sure mar­kets lower, and increase ele­vated IV lev­els. This could accel­er­ate the veloc­ity of any down­side move.

  Tyler Dur­den Mon, 01/​24/​2022 — 12:07
• Rus­sia Plan­ning “Light­ning War” To Take Out Ukraine’s Cap­i­tal: UK’s John­son In Dra­matic Claim
  Rus­sia Plan­ning “Light­ning War” To Take Out Ukraine’s Cap­i­tal: UK’s John­son In Dra­matic Claim

  As we detailed ear­lier, EU for­eign pol­icy chief Josep Bor­rell dur­ing Mon­day state­ments to the press appeared to openly mock the UK and US for their dra­matic announce­ments of embassy per­son­nel evac­u­a­tions due to threat of a Russ­ian inva­sion of Ukraine. He said there’s no need to “dra­ma­tize” the sit­u­a­tion given there’s high hopes that ongo­ing diplo­macy will pre­vail. Moscow too has con­tin­ued to con­demn what it called “dis­in­for­ma­tion hys­te­ria” pre­vail­ing in the West, which is fuel­ing the cri­sis further.

  But it seems Lon­don is con­tent to hype things fur­ther, with Prime Min­is­ter Boris John­son on Mon­day cit­ing “gloomy” intel­li­gence from UK intel offi­cials warn­ing that Rus­sia is plan­ning a “light­ning war” to take out Ukraine’s cap­i­tal of Kiev. John­son said in a mes­sage directed at Rus­sia that an offen­sive would be a “dis­as­trous step“and “bloody busi­ness”.

  While con­firm­ing that some British diplo­matic staff have begun to exit the embassy in Kiev and depart of the coun­try, John­son affirmed “We do think it pru­dent to make some changes now.”

  That’s when he said in dra­matic fash­ion…

  “The intel­li­gence is very clear that there are 60 Russ­ian bat­tle groups on the bor­ders of Ukraine, the plan for a light­ning war that could take out Kyiv is one that every­body can see.”

  “We need to make it very clear to the Krem­lin, to Rus­sia, that that would be a dis­as­trous step.”

  He added dur­ing the com­ments that “from a Russ­ian per­spec­tive, (it) is going to be a painful, vio­lent and bloody busi­ness.” He con­cluded with: “I think it’s very impor­tant that peo­ple in Rus­sia under­stand that this could be a new Chech­nya.”

  More than just issu­ing jin­go­ist rhetoric, threats, and claims, the UK has over the past week been fly­ing mil­i­tary plane-​loads of weaponry into Kiev, some­thing Rus­sia has con­demned as a highly dan­ger­ous esca­la­tion. This is mostly believed to be anti-​take and anti-​armor sys­tems, mis­siles, and munitions.

  Allies are send­ing more ships & jets to enhance #NATO defen­sive deploy­ments in east­ern Europe. A strong sign of allied sol­i­dar­ity.
  
  Offers include:
  🇩🇰 F-​16 jets to Lithua­nia
  🇫🇷 troops to Roma­nia
  🇳🇱 F-​35 jets to Bul­garia
  🇪🇸 frigate head­ing to the Black Seahttps://t.co/2GnJKupEA9 pic​.twit​ter​.com/​U​v​s​R​X​p​k​v​L​T

  — Oana Lungescu (@NATOpress) Jan­u­ary 24, 2022

  Over the week­end the Krem­lin accused Britain of unnec­es­sar­ily stok­ing ten­sions even as Lon­don remained on the side­lines of the direct diplo­macy cur­rently tak­ing place, which has involved talks between US Sec­re­tary of State Antony Blinken and Russ­ian FM Sergey Lavrov in Geneva. Fur­ther Nor­mandy for­mat talks will be held in Paris this week, involv­ing the Rus­sians, Ukraini­ans, French, and Ger­mans. Accord­ing to the news wires, Biden will also hold a call with Euro­pean lead­ers today:

  BIDEN TO HOLD VIDEO CALL W/​EUROPEAN LEAD­ERS ON UKRAINE TODAY

  The New York Times had observed over the week­end that the UK has pur­sued a much “more mus­cu­lar” stance on Rus­sia in recent days. “Britain seized the world’s atten­tion on Sat­ur­day by accus­ing Pres­i­dent Vladimir Putin of plot­ting to install a pro-​Russian leader in Ukraine, a dra­matic late-​night announce­ment that instantly thrust it on to the front lines of the most dan­ger­ous secu­rity cri­sis in Europe in decades,” the Times wrote.

  Rus­sia has of course, denied both of these lat­est bomb­shell accu­sa­tions, which included the fol­low­ing: “We have infor­ma­tion that indi­cates the Russ­ian Gov­ern­ment is look­ing to install a pro-​Russian leader in Kyiv as it con­sid­ers whether to invade and occupy Ukraine,” the UK state­ment pub­lished Sat­ur­day began. Inter­est­ingly, EU coun­tries appear to be mov­ing away from this type of charged rhetoric, also with NATO show­ing it’s not ready to present a uni­fied posi­tion of “mil­i­tary options” on the table, given espe­cially Ger­many has lately bro­ken with its West­ern allies on the ques­tion of arm­ing Ukraine.

  Tyler Dur­den Mon, 01/​24/​2022 — 12:00
• Peter Schiff: Has Fed Talk Pricked The Mother Of All Bub­bles?
  Peter Schiff: Has Fed Talk Pricked The Mother Of All Bub­bles?

  Via Schif​f​Gold​.com,

  It appears talk of looser mon­e­tary pol­icy has pricked the bub­ble. Peter Schiff talked about it in a recent podcast.

  We’ve seen a sig­nif­i­cant rota­tion out of the over­priced, high-​risk momen­tum stocks that enjoyed the ben­e­fit of the bub­ble. They are now col­laps­ing – not because the Fed has actu­ally tight­ened mon­e­tary pol­icy, but just because it talked about it.

  That’s all it took to prick the mother of all bub­bles. But as the air is com­ing out, that air is flow­ing into the ‘value’ sec­tor of the global mar­kets, which have been over­looked for the entirety of the move up as peo­ple were using those stocks as a source of funds, sell­ing value dividend-​paying stocks to free up the cap­i­tal in order to invest in the momen­tum stocks.”

  Peloton’s announce­ment that it will stop pro­duc­tion of its bikes was one of the cat­a­lysts for last week’s sell-​off.

  I think that caused peo­ple to worry. Hey, look what’s hap­pen­ing to Pelo­ton. This could hap­pen to other stocks. Demand is not what we thought, and this could apply to a lot of com­pa­nies, not just Pelo­ton.So, I think other stocks were sold in sympathy.”

  Pelo­ton ral­lied a bit on Fri­day when the company’s pres­i­dent did some dam­age con­trol. But that didn’t help the rest of the mar­ket. The Dow was down 450 points and the NAS­DAQ plunged 385 points (2.7%). Friday’s car­nage was sparked by Netflix’s 4^th quar­ter report reveal­ing weak­en­ing sub­scriber addi­tions. Net­flix stock lost about 20%.

  Look­ing at some of the yearly num­bers, the Dow is down 5.7% on the year and 7.3% from its peak. The S&P500 is down 7.7% on the year and 8.7% from the high. The NAS­DAQ is down 11.6 year-​to-​date and 14% from its peak. That means the NAS­DAQ is in cor­rec­tion ter­ri­tory. The Rus­sell 2000 is doing even worse. It’s down 11.5% so far this year and 19.2% from its pre­vi­ous high.

  Peter said the dip in the Rus­sell 2000 isn’t because of declin­ing tech stocks. It’s more a reflec­tion of the real US economy.

  This really tells the story of what’s going on, and we are almost in bear mar­ket territory.”

  Then we have the Ark Inno­va­tion Fund. It reflects these momen­tum tech stocks. It was down 5.7% on Fri­day alone. It plunged 10.9% on the week. Year-​to-​date, Ark is down 24.4%. And from the high — it’s down 55.2%.

  Some of the “stay-​at-​home” stocks are also get­ting clob­bered. Zoom video is down 65% from its top. DocuSign is down 63%. Teladoc is down 77%.

  Peter noted that this isn’t a global sell­off.This isn’t like 2008 when every­thing tanked along with the US stock mar­ket and the dol­lar went through the roof. In fact, the dol­lar was down slightly on Fri­day, and it’s also down a bit on the year. Investors cer­tainly aren’t tak­ing refuge in the dol­lar at this point.

  What’s more sig­nif­i­cant is it’s not up.”

  Gold and sil­ver both fin­ished with gains on the week.

  There is some tremen­dous under­ly­ing strength in that sec­tor that I think is going to man­i­fest itself in a much big­ger way in the weeks and months ahead.”

  And Peter said it’s not too late to get in on this rotation.

  This cre­ates a dilemma for the Fed. It is about to embark on a mon­e­tary tight­en­ing cam­paign even as the econ­omy and the mar­kets are rolling over. That’s why the Fed has telegraphed this incre­men­tal tight­en­ing even though a more aggres­sive approach is war­ranted with 7% infla­tion. It doesn’t want to spook the mar­kets. But they’ve already caused a sell­off in the mar­ket sim­ply by talk­ing about rais­ing rates. The same dynamic hap­pened in 2018, but the Fed was actu­ally able to raise rates a few times before the mar­ket broke.

  But at this point, the bub­ble is now so big that the mar­ket breaks even before you raise rates. The mar­ket breaks just on the talk that in the future, the Fed may raise rates, which means they may never get around to doing it. Because, what’s going to hap­pen in March, when every­body expects the Fed to raise rates if we’re in a bear mar­ket in stocks? If the econ­omy is rolling over? Will the Fed raise rates? I doubt it. And in fact, what the Fed will say is they will claim that the weak­ness in the econ­omy, the reverse wealth effect from falling stocks, the increase in unem­ploy­ment, that will take care of the infla­tion problem.”

  Well, they’re wrong.

  Tyler Dur­den Mon, 01/​24/​2022 — 11:42