Some back-and-forth on trade: Modi remains defiant on India, while Switzerland is scrambling to secure a deal before the midweek deadline. Bolsonaro headlines won’t help Brazil’s case. NFP already feels like a distant memory, with markets snapping back aggressively from Friday’s losses.
Hard to explain beyond mechanical vol compression lifting spot. There was significant protection bought last week, and the relative calm over the weekend seems to have reinforced a reversal. Markets feel choppy—but they’re broadly higher. Bull markets don’t die of old age. Objectively, the only lasting impact of the slew of negative U.S. payroll revisions appears to be a weaker dollar and lower rates—perhaps a testament to the strength of the secular drivers behind U.S. mega-caps and the AI vertical.
See Palantir’s print overnight: “artificial intelligence was having an astonishing impact on its business” (BBG)...
It seems to be having an astonishing impact on the SPX too. Back to the technicals: CTA models should now flip to sell. Roughly $20bn globally this week, and as expected, they’re for sale across every scenario. There’s limited to no vol-control demand. VIX spiked to >21 but is already back to 17.5. We’ve lost the mechanical re-leveraging tailwinds that previously supported the tape (see side-note).
That said, I expected continued weakness from Monday—and it sounds like others did too.
Focus today is on ISM Services, especially after last week’s soft manufacturing and jobs prints. If today’s data is stable, it should be taken as supportive, confirming last week’s numbers were likely an aberration. Still, I’m left puzzled by the price action. Consumer commentary has been poor, and corporate outside AI very mixed.
In Europe, this reporting season has seen the worst reaction to earnings misses in 20 years. It’s not a time of year where you expect inflows or seasonal support. It’s also unclear where systematic demand is coming from—yet the market is bidding in levered corners like the Russell and SX7E, both well above pre-NFP levels. AI can carry one vertical, but I’m concerned about the rest. Watching ISM Services, AMD and UK 10yr auction.
