• Equities try and shake off Monday rout, VIX below 30
• $2 trillion still related to volatility trade, another spike likely
• Crude oil weakens on EIA report citing higher stocks, production
• Tesla surprises market with very positive earnings release
• 'No reason for BoE's Carney to do anything hawkish': Hardy
By Michael McKenna
The VIX index is sitting at 27 and stocks are clawing their way higher after the two-day rout that started last Friday. In Saxo Bank head of equity strategy Peter Garny's view, the market is determinedly trying to shake off the effects of the plunge but we cannot dismiss the possibility of a second wave just yet.
"The volatility trade is still very large with over $2 trillion related to vol on Wall Street... this makes another shock likely".
In Saxo Bank head of forex strategy John Hardy's view, the risk-sensitive nature of the Japanese yen, along with an elevated speculative long in EUR (and short in JPY) makes EURJPY an interesting pair in the event of another major move in risk appetite.
"We are seeing a reversal of the recent rally and are presently just over the Ichimoku cloud" says Hardy.
Source: Saxo Bank
With the Bank of England up today, sterling is seeing a degree of focus in forex markets, but GBP may not be able to run much higher without central bank news and in Hardy's view, there is simply "no reason for Governor Carney to do anything hawkish".
In stocks, Peter Garnry points to an unexpectedly decent earnings report out from Tesla in which the electric carmaker was able to point to a much better than expected rate of negative cash flow (-$277 million), a 68% gain in projected revenue for 2018, and a commitment to its 5,000 cars/week production target by the end of June. Shares rose 3.3% on the news.
Finally, crude oil prices sank dramatically Wednesday on the most recent EIA report; the report showed a rise in inventories as well as a data adjustment on the production front that resulted in a massive boost to 10.3 million barrels/day in the US.
According to Ole Hansen, seasonality and technical factors are staring down crude oil bulls while the stronger dollar is weighing on the broader commodities complex with gold breaking key support at $1,316/oz (the 33% retracement of the December-January rally) and now looking to $1,301/oz (the 50%).
Oil bulls face a variety of headwinds at this point. Photo: Shutterstock