Despite a robust jobs data, it did not stop a wild choppy...

Despite a robust jobs data, it did not stop a wild choppy session as the downdraft continued, the Dow hit an intraday loss of 600pts before recovering in late session to close 93 pts lower, the S&P500 hit 4068 within the first hour of trade but closed 0.57% down at 4123, while Nasdaq continued to stay under heavy pressure, with 10 year yields hitting a new high of 3.14% , closing 1.4% lower at 12144 although did cross below 12k intraday. The Russell 2000 faired worse lower by 2.08%. BTC closed at $36k and bears a strong correlation with tech (for now, if you avoid tech, holding BTC is not going to cut it). Gold was a tad higher but remains below $1900 but recovery seen with AUD Gold largely due to the weaker Aussie at 70.77c. As I stated before, nibbling AUD Gold below A$2600 has decent risk-reward. Gold equities followed equities lead not Gold, GDX dropped 1.13% and GDXJ -1.54%.

XLF was 0.7% lower and here's what Sentiment Trader has to say about financials...financials likely to define ASX next leg down



BoA's Michael Hartnett indicates that the rout we've seen is not over yet, he expects a bottom around 3000 on the S&P500. That is even lower than I am prepared to go at this point (3800-4000) but when the bond and now equity carnage as well as remnants from the earlier commodity price squeeze, you'd imagine the losses stacking up in some of instos players and we can quickly see implosions once margin calls come into play.

Interestingly , this below highlighted by Hartnett
the average entry point for $1.1 trillion in inflows to the S&P 500 since January 2021 was 4,274 index points, meaning that investors are “under water but only somewhat” for now, with the gauge at around 4,147 points.

What I sense over the past 2 days has been LIQUIDATION but imagine with such a huge amounts of inflow into equities over the past year, a big capitulation aka Minsky moment when most of this $1 Trillion funds seeking to exit all at the same time, even Hartnett's 3,000 projection on the S&P500 may well be conservative.




Historic Rout Isn’t Over Yet, Bank of America Strategists Say

• Stock lows, yield highs yet to be reached: BofA’s Hartnett
• Strategist says current positioning shows paralysis, not panic

By
Nikos Chrysoloras and
Michael Msika
May 6, 2022, 7:22 PM GMT+10

The global market selloff that saw the S&P 500 Index post its worst first four months of a year since 1939 has further to run, according to Bank of America Corp.
“Base case remains equity lows, yield highs yet to be reached,” BofA strategists led by Michael Hartnett wrote in a note.

Every asset class saw outflows in the week prior to the Federal Reserve’s meeting, with real estate posting its biggest outflow on record -- $2.2 billion -- and investors piling into safe havens like U.S. Treasuries, BofA said, citing EPFR Global data through Wednesday.

The Nasdaq 100 Index tumbled 5.1% on Thursday, the most since September 2020, slumping along with most bond markets and unwinding the prior day’s post-Federal Reserve bounce. The wild two days for markets leaves the tech-heavy gauge down 21% for the year amid concerns about inflation, aggressive rate hikes and an economic slowdown.

European stocks and U.S. futures fell on Friday morning in London, signaling the selloff may continue.


Source: Bloomberg
“Paralysis rather than panic best describes investor positioning,” Hartnett wrote, saying the market is grappling with how to price in inflation and slowing growth.


“‘Recession shock’ was priced-in too quickly; this is a problem as stronger-than-expected economic data in the first half is causing the market to price-in longer/bigger inflation/rates shock,” he wrote.

Still, Hartnett noted that the average entry point for $1.1 trillion in inflows to the S&P 500 since January 2021 was 4,274 index points, meaning that investors are “under water but only somewhat” for now, with the gauge at around 4,147 points.

Stocks Suffer Longest Losing Streak In 10 Years, Long-Bond Battered As Fed-Cred Crumbles

BY Zero Hedge
SATURDAY, MAY 07, 2022 - 06:01 AM

Absolute chaos intraday in stocks this week... and for a brief period today, there was hope that things would 'get back to even' magically on the week... But all that hope evaporated after Kashkari's comments (which briefly lifted stocks back to unch) faded into the ether and stocks pushed back towards the lows of the day and week (before a late buying panic)...

The machines worked extremely hard in the last few minutes of the day to try and get the S&P into the green for the week - anything to avoid "the worst losing streak since 2011"

As BofA's Hartnett said: "Paralysis rather than panic best describes investor positioning."
S&P 4131.9 was last week's closing level...just a coincidence!

This is the S&P 500's longest weekly losing streak since June 2011.
VIX was also chaotic this week...

Here's why - equity market liquidity is near record lows...

“The mess we’re seeing in the market is about liquidity,” explained Mohamed El-Erian.
“I’m willing to put my neck out and say we have mostly priced in interest rate risk.
We haven’t priced liquidity risk, we haven’t priced credit risk, we haven’t priced market functioning risk.
We are still in the process of pricing it.
The days of abundant and predictable liquidity are gone.”
The market's message to Powell's 'Soft Landing' narrative this week...

All the majors made new cycle lows...

FANG stocks crashed almost 10% from the post-FOMC spike...

Source: Bloomberg
But while stocks looked 'unch' on the week, the bond market saw a dramatic change of tone with the long-end battered and short-end bid...

Source: Bloomberg
...massively steepening the yield curve...

Source: Bloomberg
The entire yield curve is above 3.00% from 3Y out...

Source: Bloomberg
'Real' yields surged on the week with 10Y real back above zero...

Source: Bloomberg
The dollar managed gains this week, pushing up against 20 year highs, amid some extreme swings around The Fed...

Source: Bloomberg
Crypto had another down week...

Source: Bloomberg
With Bitcoin leading the drop (back below $36k), as the correlation between the major crypto and the big tech stock index has reached basically '1'...

Source: Bloomberg
On the commodity side, things were mixed with crude surging once again (as Biden started buying and EU oil embargo threats were tossed around). On the other side, copper was the biggest loser, as fears over China's economic growth continues...

Source: Bloomberg
Gold was unable to hold $1900...

NatGas had a wild ride this week, soaring to within a tick of $9 and plunging today...

Oil is back above Biden SPR levels...

And Retail gas prices are back above Biden SPR levels...

Source: Bloomberg
Finally, we give the last word back to Mohamed El-Erian, who warns that The Fed has a trust problem with financial markets and the nation over inflation.
“It has a credibility issue with the American people and that is why chair (Jerome) Powell chose to address the American people at the beginning of his press conference” on Wednesday, the chair of Gramercy Fund Management and former chief executive officer of Pimco, said on Bloomberg Television’s The Open on Friday. “It increasingly has a problem with the marketplace.”
El-Erian added that “it is essential that the Fed regain credibility. It will not do so until it does what the ECB did last week, tell us why the inflation forecasts were so wrong for so long and how to improve the inflation methodology.”
“You cannot come on TV and speak about all the uncertainties and then rule out a certain policy response -- 75 basis points,” El-Erian said. “We don’t know enough about the path of inflation to rule out certain policy actions at this point.”
And if you need to visualize The Fed's loss of credibility, here it is... Volatility across every asset-class is surging...

Source: Bloomberg
Get back to work Mr.Powell!