The week after Lehman anniversary, and markets are doing what was unexpected of them...
Throughout this tightening cycle, global risk markets have been front-running the end of rate hikes. Each rally has proven to be a false dawn. It has never occurred to bulls that THEY are the reason this tightening cycle can never end. Recently, the oil market has been spiking in 100% correlation with every other global risk market. Which is why, as I said would happen, economists are now saying that a higher CPI is assured in the coming weeks. Which, will put the Fed back on the tightening path after only one pause. Deja vu of what happened this past June:
"We already know that due to base effects, the roll-off of the CPI is going to lead to very likely inflation going back up"
On a global basis, recall that last week, the ECB was also hawkish. Today, the Bank of England paused for just the first time in almost two years. Next, we are waiting for the BOJ to render their decision tonight (Friday in Japan).
Also leaning hawkish, Japan is now declaring victory over deflation while being on the cusp of the most deflationary market event since the 1930s.
"We won"
All of this hawkish tightening is finally catching up with markets.
Or should I say, catching down.
Here we see the S&P Tech index has taken out the key support level from August, but we also see that the Nasdaq VIX still signals complacency.
In this chart we see that the Nasdaq (100) equal weight is below where it was in August, but the oscillator is above where it was in August. Which signals the market is not yet oversold.
Away from Tech, here we see that the Industrials rally was a bull trap.
In summary, the VIX has now closed below the 200 day moving average for 128 trading days in 2023. That is the longest streak of reduced financial anxiety since the END of the financial crisis. The only difference is that back then the VIX was coming down from 100. This time around, the VIX is coming down from the March level which was 30.
Which begs the question - do bulls even know what is the difference between the end of a financial crisis and the beginning?
And the answer is $Everything.
