Sunday night and Monday saw some volatility that we have not seen in a very long time in financial markets with the surge in the VIX to levels only seen in 1987,2008 and 2020 albeit not as high.
That has calmed down as markets stabilised somewhat yesterday. That, however, does not mean that the trends that we were seeing into the weekend have ended albeit it is likely that they are going to be more 2-way going forward.
So ,what are some things to watch?
Yields
The US 2-year yield got to our 3.55-3.65% target (low was 3.65%) and has bounced. The big breakdown area in that fall was 4.12-4.13% and that should provide notable resistance now.
US 5-year yield resistance is a little closer at 3.75-3.80%
My financial bible - The US 2's 5's curve tested but so far held major resistance at minus 19 to minus 21 bp's and retreated also
Despite that I still expect that this level will soon break (weekly close) and open up the way to head higher towards the target centered on +40 bp's.
Such a move IF seen, would likely be bull steepening and have implications for the 2-year yield and by definition Fed policy in terms of the magnitude and timing of the first cut.
The US 10-year yield bounced off the 76.4% retracement level opening up the way for a pause here also
A move lower to 3.25% is still the bias over time but for now some further consolidation/correction looks likely. The speed of the move makes levels difficult to pinpoint but 3.90% and 3.98% should be decent levels to watch
Equities
Is this 2000 which would therefore suggest a bounce throughout August?
The last few days feel diffferent, and we have seen Es1 fall more than the 8% seen in the move lower which began on 17th July 2000 (10.5% this time) as well as the NASDAQ fall more than 14% (17.3% this time)
So, the jury is out here. Levels I am watching in that respect on Es1 are 5,333.50-5,368 and 5,433-5,466 on the topside. On the downside levels are 5,120, 4,963-5,040 and 4,900
I think it is too early to say that this move is over...but from here it is a work in progress.
Japan
The Nikkei bounced strongly overnight albeit some of those gains have been given back with the Nikkei futures down about 2.7%. The picture here seems ominously like we saw in 1990 after the Nikkei peaked close to 40k only to fall below 20k by October that year. For now, it is hard to project that this move has run its course and a return towards 30-31k looks a danger
The JGB 10-year yield bounced back to test the double bottom neckline at 90 bp's and has so far held. The target on that double top is for a move to 70 bp's
USDJPY has bounced as US yields rose and could still push a little higher. Some good resistance is met around 145.90 to 146.50 as a first area to watch
FX
EURUSD failed just short of the 76.4% pullback level at 1.1012 and has fallen away since . A move back towards 1.0778 looks possible while that level holds.
Commodities
WTI continues to look soft overall. It will have episodic bounces on Geopolitical headlines but then constantly comes off quickly. Absent a material conflict escalation that has actual supply issues for Oil (Russia invading Ukraine being an example of an actual supply effect) then the path here still looks materially lower.
Interim support stands at $71.40-$72.40 but a move towards $67.70 still looks on the cards
Gold remains choppy in this risk environment, but I still like it higher in this backdrop. Below $2,353 would be a short-term concern as it would suggest a s much as another $120 downside, but we need a break of $2,477-$2,490 to open up for material gains towards $2,600+
