Chaos Markets: Pressure Is Building Everywhere
Stress builds
Rates are ripping higher, energy is surging, and EM remains very stressed. Gold is holding the 200-day for now, but flows are turning and positioning is shifting across assets. Pressure is building everywhere. Welcome to chaos markets.
4.4%
The US 10-year has broken above key downtrend lines. The 4.4% level is the near-term resistance to watch, a close above risks triggering a further squeeze higher.
Source: LSEG Workspace
Who remembers the 1970s?
Time to start thinking about that second wave of inflation, and you don’t even have to go that far back. More on the rates and inflation here.
Source: ZH
Now you know…
…why we keep coming back to the idea that things can stay overbought (or oversold) far longer than most think. XLE has been overbought since early February and is up more than 20% since. We’re now reaching the most overbought levels since the space peaked in April 2024. More on XLE here.
Source: LSEG Workspace
Energy mania
Massive inflows into energy equity funds.
Source: GS
Gold tests the line in sand
Gold just tagged the 200-day and printed a textbook hammer, but rates are ripping and gold is trading like a risk asset, tracking rates and EM, while flows turn negative and puts flip to a premium.
Source: LSEG Workspace
Gold exodus
Massive outflows from gold over the past weeks.
Source: GS
Put hunters
Gold options positioning has shifted sharply as inflation risk picked up, with rising demand for puts. After a year of inverted skew (calls > puts), GLD skew has flipped to a 1-year high, with puts now trading at a premium to calls. Latest gold note here.
Source: CBOE
Nobody owns financials
GS Prime’s saying All Financials subsectors were net sold YTD except Regional Banks, with Capital Markets, Financial Services, and Consumer Finance leading … Gross allocation to financials as a % of the global prime book now stands at 12.1% in the 1st percentile in the past year and 8th percentile in the past 5 years. Net allocation to Financials now stands at 11.9%, the lowest level since October 2024, in the 15th percentile over the past five years.
Source: GS Prime
Extreme underweight
Financials have the biggest underweight across sectors, near the lowest in the last decade. More on financials here.
Source: Deutsche Bank
"Overshooting" VIX
VXEEM vs VIX is blowing out, markets are finally pricing EM risk for what it is. More the EM theme here.
This is how it starts. Rates move first, energy follows, EM cracks, and the pressure spreads. What looks contained rarely stays that way.
