“Our Clients Are Shifting From “End-Of-Cycle” To Outright “Recession” Trades”
by Tyler Durden
ZeroHedge.com
Tue, 12/04/2018
One way – the simple way – of describing market action this morning is that the relief “trade truce” rally has fizzled (again).
The slightly more convoluted way is to say that “the ongoing collapse in UST yields along with concerns therein surrounding the nascent inversions in the front-end of the UST curve (3s5s, 2s5s, 2s5s swaps, 1m USD OIS 2Y-1Y fwd spread) have markets again “reverse-engineering” a growth-scare. This fear in-turn is at least partially contributing to “risk-renter only” behavior with signs of widespread monetization of tactical G20 upside trades in everything from SPX (upside call- and call wing- vol was crushed yday) to EMFX tactical longs.”
The latter description of events in the past 12 hours is what Nomura’s Charlie McElligott uses to explain why the euphoric rally observed on Monday after this weekend’s “historic” dinner date between Trump and Xi – and which concluded with even more questions than answers – has ended, and the gap is on its way to be filled, while the yield curve inverted at two key front-end junctions, the 2s5s and 3s5s, signaling that either a policy mistake or a recession may be imminent.
But it’s not just the market recoil on the realization that little was achieved over the weekend – adding to the selling pressure are increasing signs that the global economy is headed for a slowdown as overnight we saw South Korea and Taiwan Mfg PMIs slump into “contraction” alongside declines from Singapore, Indonesia and Malaysia over the weekend, which in turn has slammed Australian 10Y bond yields which are nearing lows while Chinese 10Y bond yields currently sit at 20 month lows and, according to Nomura’s Charlie McElligott, “reflecting the severity of the growth slowdown.”
The Rest…HERE
