Markets Show Signs of Stress As Investors Question System Stability

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Risk off flows unwind yesterday’s gains
US Consumer data on tap
Nikkei -1.89% DAX -0.95%
UST 10Y 1.07%
Oil $52.8
Gold $1857/oz.
BTCUSD $36761/oz.

Asia and the EU
EUR GDP – 2.9% vs. -3.4%

North America
USD PCE 8:30
USD U of M 10:00
USD Pending Homes 10:00

It’s been a night of relentless selling in Asian and early European trade with stock index futures unwinding most of yesterday’s gains as signs of stress started to appear across the asset spectrum.

This was the first day in quite a long time that stocks declined and bond yields rose suggesting that investors are becoming concerned about the prospect of systemic risk. The wild gyrations in short squeeze stocks have created a slew of clearing problems with Robin Hood having to do an emergency raise of 1B dollars in order to maintain its capital requirements while at the same time suspending trading in a number of most volatile stocks.

Although there was massive outrage over the move and although Robin Hood did a very poor both communicating and preparing for the event, the truth of the matter is that the financial system is unprepared for multi-hundred percent daily swings in single stock securities as brokers must post collateral for a 2 day settlement process and the vast absolute moves in these stocks have quickly exhausted their capital supplies.

The markets are clearly concerned that the general clearing system could come under risk of fracture if these bull raids persist unabated and US legislators have already called for hearings into the matter.

The signs of stress were evident across the board as Gold and Bitcoin rose in sympathy while the dollar strengthened against both Swissie and the yen also upending long practiced long held risk flows.

The stock market drama has pushed all macro news off the front page, but there will be a smattering of reports on the state of the US consumer with markets getting a look at the PCE and U of M data later today. The PCE numbers are expected to print at a very muted 0.1% and the U of M is forecast to be unchanged at 79.2 as the economic rebound off the pandemic lows has clearly stalled.

With little macro support and ongoing concerns about market stability the North American is shaping up as a risk off bias day with selling flows likely to accelerate if there is even a hint of financial trouble for any of the players involved in the short squeeze drama.

Boris Schlossberg
Managing Director

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