The velocity and volatility are beyond insane. Equites surged the most since 2008 as the President stated he will pause some tariffs on dozens of countries for 90 days while at the same time levying even a greater rate on China.
The S & P 500 surged 9.5% and the NASDAQ 100 an incredible 12% as utter crack induced euphoria swept over the markets following 4 days of a bruising sell off.
Treasuries are equally volatile. Before the tariff news was announced the 10-year Treasury auction was regarded as “strong” given the 50 bps increase in yields over last week. Following the news, the two-year Treasury or the instrument most sensitive to monetary policy was crushed, increasing in yield by over 30 bps from its early morning low while the 10-year Treasury recovered about half of its early day losses. The yield curve flattened about 15 bps on the news
Perhaps a quote that encapsulates the current fixed income and equity trading environment reads “Liquidity is terrible, so anyone with just a decent sized order is going to move the market.”
Another pundit wrote “the markets are particularly vulnerable to wild swings right now due to a combination of thin liquidity and headline driven algorithmic trading bots.”
Treasury Secretary Bessent, who in a former life was currency hedge fund trader, stated “there is one of these deleveraging convulsions that’s going on right now in the markets…it is in the fixed income market. There are some very large leveraged players who are experiencing losses, that are having to deleverage.”
Bessent further stated that it “just of those things,” adding he has “witnessed these very often in his hedge fund career.”
Fear [and losses] are starting to rise in the markets, with many looking for some type of reassurance that all will be ok.
Fear is more powerful than greed and when uncertainty rises (uncertainty today is huge), many irrational thoughts appear rational.
No one knows the outcome of recent events. As noted the only certainty to write is uncertainty is at levels not experienced in many years. Perhaps the only other certainty is that if the economy implodes as some are suggesting, President Trump would go down as one the worst Presidents in history given that the current volatility and angst is largely self-induced.
This too shall pass, the outcome eliminating the economic and market excesses that have been built over the years.
Further commenting on yesterday’s action, China’s central bank weakened the yuan’s daily reference rate for a fifth straight session, causing the offshore yuan to sink to the weakest levels since the creation of the market in 2010.
China was warned by US officials not to engage in currency manipulation. Some might ask is this not what the US is attempting to accomplish…utilize currency relationships to make international trade more conducive?
What will happen today? The CPI is released at 8:30. Some might write that if you don’t like what is going on now, just wait 15 minutes and something radically different might be occurring.
Last night the foreign markets were up. London was up 4.42%, Paris up 5.48% and Frankfurt up 5.57%. China was up 1.16%, Japan up 9.13% and Hang Seng up 2.06%.
Dow and NASDAQ futures are down 1% and 2%, respectively, following yesterday’s historic surge. The 10-year is up 6/32 to yield 4.31%.
