US equities were stronger Tuesday, with S&P up 1.2% after better bank earnings. US10y yields are down 1bp to 4%. Gilts are relatively steady, where 10y UK Government yields are down 2bps.

A choppy session for the E-minis overnight has made the upside breakout a little fuzzy. The chart still points to one consolidation off the recent lows, but a close above 3777 will help improve the bullish landscape.

Likewise, for the US 10yr yield, there is some consolidation around the 4% level. But the fact that yields are not rising is a good thing in itself.

Markets continue to react to BOE news; gilts had another volatile session erasing all of the earlier losses to close up on the day and unchanged from the open. After conflicting reports, The BOE confirmed the reversal of its money printing program would begin on the 1st of November.


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Incredibly challenging markets to trade from a fundamental perspective as stocks march higher with no actual news headline to pin the move on.

It does feel like the risk management of the last few weeks will morph back into profit-making management. Stock market bears have had plenty of buckshot to hit the market lower – high inflation, unsightly sentiment, a consensus hawkish central bank construct, politically incitement, OPEC cuts, Russia escalation, China stagnation, a UK capital market implosion and a non-stop drum beat of recessionary rhetoric from vocal market participants. And yet, the S&P500 is where it was three weeks ago.

However, the market will pivot before the Fed, and there are always higher buyers, so with earnings coming in okay, astute stock pickers are likely adding some “beta with a balance sheet” to at least minimize some maximum negativity.

Still, a combination of extreme bearish positioning and sentiment could see US equities squeeze in the near term, with 3900 a likely short-term top. But this seems unlikely before November with the risk that any loosening in financial conditions is met by further hawkish jawboning. Anything more sustained, however, will require an actual shift from the Fed.

The key to equity markets is Fed certainty, and that is the crucial turn on the road before the rates markets can settle back into a groove and Treasury vol can decline. But for that to happen, the US data needs to roll over. Given the much hotter-than-expected inflation data, the Fed may do the opposite of what the market wants -turning volatility up again. In this scenario, the US 2y yield has further to rise, which will upset equity markets further. The S&P 500 has rallied strongly already this week. But this is a Fed message the market does not want to hear.


Oil traders are contemplating two pre-US midterm election policy measures by the Biden administration specifically designed to lower US gasoline prices. One is the SPR release, and the other is the friction between OPEC and the West, which incentives the Whitehouse to strike a deal with Venezuela or Iran. Both could be problematic for oil bulls over the near term. I’m not saying oil prices will plummet as SPR draws need to be replenished, but the topside could be limited until after the mid-term elections, especially if discussion centers favourably on Iran

Stephen Innes

Managing Partner