WTF Is Going On…

The markets are a little wild today and there is no specific item driving it from what we can see.

Here are a few that we are hearing

• 16th day of the shutdown and no signs of a break (chatter that it may last til Thanksgiving)

• Geopolitical risk rising: Lengthy Putin call, China-US trade tensions escalating, India ignoring Trump demand to stop buying Russian oil

• Hawkish FedSpeak – Waller sounded less dovish than normal

• Huge OpEx – The notional open interest for this expiration is the largest recorded for any October.

• Regional bank angst – Zions and Western Alliance down big on loan losses.

• US funding market stress – surging SOFR rates signaling a liquidity shortage

WTF is going on…

Stocks are tanking…

Regional banks getting slammed…

Bonds are aggressively bid with 2Y yields are suddenly collapsing (10Y back below 4.00%)…

Gold is going vertical (up)…

And crypto is going vertical (down)…

If we had to guess, we would say this is mostly related to the funding stress finally being recognized by a broader set of market participants as it seems demand for ‘good’ collateral is on the rise (gold and short-dated bonds) and leveraged risky assets are dumped.

The most important indicator, as always, remains the SOFR rate: should the recent drift higher continue, the self-fulfilling cascade of a liquidity shortage will almost certainly be activated.

And today’s SRF auction shows the stress continues to build…

In fact it’s worsening…

Trade accordingly.

*  *  * And if that’s not working out, try some lithium