According to CFTC data, asset manager positioning in the SP500 has reached 2021 highs, suggesting proximity to a market peak, while hedge funds have halted their buying spree in US tech stocks, shifting to selling at the highest rate in seven months. This pivot, combined with a resumption of euphoric sentiment reflected in the SP500 Skew dropping to pre-February levels, hints at a need for a rather more cautious outlook. The market's lack of short-term catalysts post-NVIDIA results, together with technical overextensions and hedge fund rotations out of tech, underscore a bearish bias in the short term.
The focus now shifts to the upcoming PCE data release, amid rising inflation concerns after a strong CPI print. Expectations for an increase in both Headline and Core PCE rates highlight these worries, while the response to recent inflation data has seen a recalibration of interest rate cut expectations, with markets now anticipating fewer cuts in 2024, reflecting a cautious monetary policy stance in light of these inflation risks.
Chinese stocks are beginning to recover from their significant underperformance, buoyed by the announcements of government stimulus packages. This recovery comes as the US tech market's rally seems to be waning, with investors eyeing China for its attractive valuations. The disparity in valuations between Chinese growth stocks and their global counterparts, combined with China's potential economic stimulus, indicates opportunities in sectors like mining, with companies such as Rio Tinto poised to benefit from a rebound in the Chinese economy. BBVA Equity Derivatives: Trade Idea – Rio Tinto: Long 2x Sep 24 6000 Calls financed by Sep 24 4400 Puts
We continue with a short-term bearish bias for the markets, due to stretched technicals, a paused liquidity impulse and the end of the bulk of the Tech reporting season, in addition to higher risks of a stickier inflation ahead of the PCE print on Thursday. We maintain our put positions on the Nasdaq, as detailed in our note Equity Derivatives Weekly – A not-so-big short