Nasdaq Nearing August 2022 Highs

Equities continue to seek out higher prices and this new round of buy side vigor has pushed the Nasdaq Futures close to its August 2022 highs (14067) which also happens to be the 0.50% Fib Retracement level from the overall highs:

We talked about the strength of the Nikkei as well yesterday and its on the heels of a much weaker Yen so price action higher in the Nikkei is reflective of higher prices partly due to weakening underlying currency:

We suppose foreign investors can go long the Nikkei and Short the Yen! We have also seen weakness in the Yuan which is following the Yen lower. Maybe the US higher rate policy is starting to show in FX and the fact that the great China reopening has been a dud thus far. With the metals complex also weaker, we can see that the Gold futures have tumbled some $125 off their highs. Buyers should support here at the 100pVwap initially but selling has been solid:

The US bond market continues to realize the higher for longer campaign as yields have backed up now in the 2 year to 4.27%, an area that has been resistance post the banking debacle in early March:

We talked about the 2Y being a good proxy for future Fed Funds and we like this 4-4.25% area over the next 2 years. We feel that the FRB can be more rigid on the Fed Funds as long as its balance sheet doesn’t get reduced much, which it hasn’t and we know the Chinese are always willing to lower the RRR to spur things, so remember its not just U.S. monetary policy that matters.

As far as the overall bond market today the 30Y was the star performer down 1.2bp on the day, while the 2Y gained 8.5bp:

Basis in the long end has been strong due to cash swappers out of front end paper and chasing the long end duration…Yield curves continue to flatten:

The 5s30 was 43bp a week ago now 22bp, The 2s30 was 0bp 2 weeks ago now -35bp by today’s closing marks! So you can see the dramatic shift. Equities are also ignoring the jump in yields here and we feel this is more to do with momentum chasing and short covering than real longer term buying, especially given both the Yen is weaker and US Yields are higher.

Finally let’s see the MEGACAP TRACKER for today:

Our options hedge is losing right now but the overall value of the Equities is +5.3% so as we noted, we are willing to risk upside gains to hedge longer term as we track this, because eventually the markets level out and we can capture some premiums when we short calls vs the equities basket.

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