Thursday, December 3, 2015

Widow Maker

What you are seeing in the EURUSD, the Bund, and the Treasuries are widow makers.  Six sigma moves.  You don't often see the Bund yield up 20 bps in one day.  Along with the euro up 3%.  It is rare indeed.  Treasuries are selling off to the tune of 16 bps so far, with a few hours left in today's session.  Ahead of tommorrow's nonfarm payrolls report, there are no willing buyers here.

All because Draghi didn't UPOD.  Underpromise Overdeliver.  He overpromised, got the markets all excited, and underdelivered.  That is a no-no in the QE driven world we are in.  It has crushed the European indices and the spillover is carrying over to the US.  This is an overreaction.  But so much hot money is in the short EURUSD and long European stocks trade that the hit is massive on both sides.  For a euro-hedged buyer of European stocks, you are getting the worst of both worlds.  An absolute crushing.  And that just happens to be one of the Street's favorite trades.  The unwind is extremely painful for the hedge funds.

The pain in equities should easily extend into next week, with nothing to look forward to, with Yellen intent on raising rates come hell or high water.  The market is scared to death of the Fed raising rates while crude oil is hovering around $40 and with ECB not delivering the goods.  I see ES 2020 in the cards next week.


MM111 said...

Wow walked into that one. So much for xmas rally. Must be later in month.

Market Owl said...

It will be bloody for the next few days. I believe we will bottom before the FOMC meeting, around SPX 2000 to 2020. This market is always topping out or bottoming out before the anticipated events.

MM111 said...

Well a rally into fomc looked too early. Do you think we may get s small bounce from 2050 before going down again?

Market Owl said...

I would say any bounce before the end of next week is a sell. I wouldn't bet on a bounce. The complacency got built up to extremes over the past 2 weeks. The Street got comfortable holding stocks and this is what happens when they are comfortable.