Bitcoin & Big-Tech Rip On China QE Hope; Cash Bonds Closed

Equity markets continued their melt up amid a quiet session with cash bond markets closed for Columbus Day.

Rumors from China that authorities will issues 6 trillion yuan in bonds to support stimulus plans prompted talk of the inevitability of a China QE to maintain bond yields… and that QE talk sent stocks and crypto soaring.

However, as Goldman points out, 6 trillion is a decent number and a good start but nowhere near what they did in the past, to put it into context China did roughly 20 trillion over 2 years in response to the GFC.

S&P and Nasdaq were the outperformers. The Dow lagged but all the majors were up solidly on the day…

…with the Mag7 basket surging back near record highs as NVDA was lifted on more optimistic chatter from Huang…

Source: Bloomberg

NVDA hit a record closing high today…

…is closing in on AAPL’s market cap lead…

Source: Bloomberg

Small Caps were squeezed higher again. The question is – will it stall at resistance once again?

Source: Bloomberg

…as the vol term structure steepens into early November risk catalysts…

Source: Bloomberg

According to Goldman Sachs trading desk, overall activity levels are down -17% vs. the trailing 2 weeks in line with market volumes down -16% vs the 10dma

Our floor tilts -1% better for sale with HFs better to buy and LOs better for sale

HFs are +8% better to buy, continuing on from the largest net buying in stocks since Dec ’21 last week.  Demand is concentrated in Tech, HCare and Comms Svcs with supply coming from Energy, Staples & Cons Disc.

LOs are -15% better for sale and look to be running in the opposite direction from HFs – buying Industrials, Energy & Utes while selling Tech, HCare, Comm Svcs & Cons Disc

While cash bond markets are closed for Columbus Day, bond futures are nevertheless open and point to lower prices/higher yields (10Y around 1-2bps higher on the day)…

Source: Bloomberg

…as does the SOFR market…

Source: Bloomberg

The small hawkish shift in STIRs was also helped by comments from Fed Governor Christopher Waller who warned that recent economic data signals policymakers can approach subsequent interest-rate reductions with less urgency than they applied at their gathering last month.

“I view the totality of the data as saying monetary policy should proceed with more caution on the pace of rate cuts than was needed at the September meeting,” Waller said in prepared remarks on Monday at a conference at the Hoover Institution in Stanford, California.

“We can proceed with moving policy toward a neutral stance at a deliberate pace.”

Bitcoin soared higher on the China QE hopes, topping $66k (its highest since late-Sept) today…

Source: Bloomberg

The dollar continued its charge higher to two-month highs…

Source: Bloomberg

Despite the dollar strength, gold held on to recent gains…

Source: Bloomberg

Oil prices limped lower as China’s stimmy package underwhelmed…

Source: Bloomberg

Finally, as Bloomberg reports, investors are hedging more during this record run for stocks that they did in the first half of the year, boosting options volatility and put skew well above realized levels. There’s plenty of reasons for caution — the US election, the uncertain pace of Federal Reserve interest rate cuts (with a meeting in early November), Middle East tensions to name a few. It’s not unusual for volatility to elevate at this time of year.

Source: Bloomberg

The historical pattern during election years is for the VIX index to keep edging higher until late October before falling through the end of the year, according to Bloomberg Intelligence.