From 'Too Quiet' To Turmoil: Oil Up, Tech Wrecked, Bonds & Bitcoin Erase Monday's Gains

Tl;dr: For the first time since the war began, today felt 'normal'-ish for the first few hours and then the headlines turned up to '11' with traders weighing US 'boots on the ground' with reports that Tehran is 'willing to listen'. Trump then appeared and dropped various tape-bombs, confirming "we've won" again. Cross-asset correlations also creaked with stocks and oil rising together at one point (and yields higher - ugly 2y auction). Stocks ended mixed (Small Caps only green), oil up bigly, gold was flat as the dollar rallied and bitcoin broke back below $70k after Clarity Act leaks made it clear bank lobbyists win.

Update (1630ET): Israel's Channel 12 TV is reporting that a ceasefire period of one month will be announced shortly, based on a mechanism that Witkoff and Kushner are working on.

This pushed oil and Treasury yields lower and stocks higher...

We await the denials...

After more than three weeks of being punched in the face over and over again, today felt different early on with one trader MSG-ing us that it was "quiet, too quiet." However, within minutes of that (jinxing) comment, headlines regarding the deployment of 3000 elite Army Airborne soldiers and 'boots on the ground' chatter (to be clear, the decision to put boots on the ground in Iran hasn’t been made yet, according to officials, but it dominated desk chatter today) struck and reignited volatility... which alongside the dramatic tightening of global financial conditions, is not a good sign. March is on pace to see the biggest tightening of financial conditions since April 2022...

As a reminder, the dramatic tightening of global financial conditions in April 2022 was driven primarily by the ongoing shockwaves from Russia's invasion of Ukraine (which began in late February), amplified by China's intensifying zero-COVID lockdowns and rising expectations of aggressive central bank tightening (especially by the Fed amid dramatically elevated inflation data)... and prompted significant weakness in global bonds and stocks.

Despite this week seeing a resurgence in Iran-related volatility (both to the downside and upside), today saw some 'decoupling' as correlation between stocks, oil , and rates fell today. Around 1230ET, we saw stock and oil prices at the day's highs simultaneously... right before everything reverted to 'correlation one' once again...

As UBS notes, rates have been leading cross-asset move on a vol-normalized basis. Rates implied vols are still low on a cross-asset basis, trading below its 5y average in contrast to equity, FX and commodities where implied vols are above their averages (significantly above in the case of commodities)...

While oil still rules the waves, we did have some noteworthy macro today with US PMIs strongly signaling stagflation as growth/output lagged while prices (input and output) both surged. The Philly Fed Services activity index plunged to -23.9, capturing, perhaps, the mood of business operators as they seek out ways to cater to a distracted US consumer. 

Goldman's Stagflation basket is trading that way...

All of this is of course taking place in a world that is continuing to navigate the latest Iran conflict in the Middle East and the resulting disruption to energy markets.

Oil

Here's what we noticed driving oil moves today

• Overnight: Gas facilities hit in strikes on Isfahan, explosion and massive fire the diesel hydrotreater unit at Valero's Port Arthur refinery, Israel says it continues Iran strikes at 'full intensity', and Iran maintains that no negotiations with US are taking place - pushed oil up and stocks down

• Morning: Iran has stopped natural gas exports to Turkey, Iran named hardliner Mohammad Bagher Zolghadr as security chief - oil extended gains to high of day with WTI above $92

• 1000ET Pakistan says it stands ready to host talks between the US and Iran - oil rolled over (and stocks soared)

• 1145ET 82ND AIRBORNE DIV. COMMANDER ORDERED TO DEPLOY TO MIDEAST: FOX - oil reversed higher

• 1230ET *US TO ORDER 3,000 82ND AIRBORNE SOLDIERS TO MIDDLE EAST : WSJ - oil spiked above $93 (WTI) and stocks tumbled, yields spiked

• 1400ET US, Iran May Hold High-Level Talks as Soon as Thursday: Axios - oil reverses lower

• 1435ET *Trump: Iran 'Gave Us a Very Big Present' Worth 'a Very Big Amount of Money' - oil tumbled

• 1440ET *TRUMP: IT'S NOT A CLOSE BATTLE, IRAN IS DEFEATED, IRAN IS DEAD MILITARILY, WE'VE WON THIS WAR - oil remained lower

• 1445ET *TRUMP: I THINK WE CAN SAY THIS IS REGIME CHANGE - oil bounced higher

All of which left oil prices higher on the day with WTI around $92...

But, despite oil's gains, stocks were mixed on the day...

Stocks

A choppy day in stocks today with Small Caps (squeezing higher) outperforming, and Nasdaq notably lagging...

The S&P 500, Dow, and Nasdaq all remain below their 200DMAs.

Mag7 stocks drastically underperformed S&P 493 on the day...

Mega-Cap Tech stocks erased all of yesterday's gains...

Software stocks dropped on Tuesday after a report on new AI tools from Amazon rekindled the disruption fears that have roiled the sector in the past few months. AWS is developing an AI agent to automate some of functions for sales, business development and other groups that have been targeted in the tech giant's sweeping job cuts, the Information reported, citing people familiar with the matter. The agent being developed by AWS handles some of the workload of thousands of technical specialists in areas like cybersecurity and server networking, according to the report.

More gating and a credit rating downgrade did private credit no favors today...

Practices in private credit are becoming increasingly redolent of the sort of the financial chicanery that took place in the run-up to the GFC. Higher rates could well be what tips the sector over the edge.

Single stock activity very low with exchange volumes -13% vs 20dma.

Activity levels remain quiet and are at a 3 out of 10 with an even skew on the floor. 

• LOs are better for sale with supply in comms services, info tech, and macro products vs demand in energy and industrials. 

• HFs are better to buy lead by demand in consumer staples, health care, and macro products vs supply in info tech and materials. 

Price action dominated by macro hedging: ETF % tape tracking at 39% currently.

Liquidity continues to be poor with S&P Top of Book sitting at $4.39mm

ETFs are currently experiencing their most outsized month of trading volumes, averaging 37% of the overall tape.

Yesterday marked the 3rd-busiest session in terms of ETF share of the tape, at 42%, with today’s session trending just north of 40%. Short exposure in macro products has lingered near 5-year highs in our PB book, so it’s no surprise that we saw a handful of hedges pared back after yesterday’s move. Goldman's trading desk has been particularly busy in pockets that have seen extreme price action as of late: miners, Korea/Taiwan, financials vs. technology.

As top of book liquidity in futures reduces, ETFs are leaned on even further as a way to both add and reduce macro risk. However, when transacting in block form, lower top of book liquidity (coupled with higher vol) can lead to wider risk markets -- an important dynamic to keep on the radar. 

Rates

A terrible 2Y auction (with foreigners absent)...

...slammed yields higher (right as 'boots on the ground' headlines pushed oil to the highs of the day) as traders weigh the inflationary impact of higher oil prices in the short-term against the de-growth impact of higher-for-longer energy costs (and its second and third order impacts) for the global economy. For now, inflation fears are winning as the 'oil-up, yields-up' relationship continues to hold with the short-end underperforming (2Y +6bps, 30Y +2bps) - but yields well off the day's highs...

Rate-hikes are back in play for The Fed (40% odds of a hike in 2026 now) as markets increased their bets on multiple hikes for The ECB and BoE...

And that prompted a bear flattening in the 2s30s curve...

Everything Else

The dollar drifted higher today, recovering about half of yesterday's losses...

Despite the dollar move higher, gold was deadstick today, seemingly pinned at $4400..

Crypto was ugly as a draft of the US Clarity Act suggested the proposed legislation would bar rewards on passive stablecoin balances and ban structures "economically equivalent to interest," threatening a key incentive that has fueled USDC adoption.

That hammered CRCL (down 25%)...

...and weighed on the crypto ecosystem with the majors down on the day...

Finally, with no signs of appeasement anywhere - and Iran still claiming there are no talks ongoing - the question remains for many: what's the best hedge against volatility?

BofA's Savita Subramanian points out that if the VIX remains elevated (likely, given it is corroborated by other factors like the yield curve)...

...high quality stocks have generally outperformed, low quality stocks have generally underperformed and the relationship is monotonic and persistent...

Where is quality?

Large Cap Value is now higher quality than Growth. Stocks with higher idiosyncratic (stock specific) risk may also fare better.

And April is your seasonal friend...

...and as Citadel Securities' Scott Rubner noted earlier: "Upside tail risks appear underpriced, and in this type of environment, buyers tend to live higher."