Carnage on Wall Street

Carnage on Wall Street

Carnage Everywhere As Market “Begins To Break”

There is no other way to describe today’s market carnage than a market in turmoil where things are rapidly breaking as the sudden disappearance of Russia’s “toxic” commodity collateral is suddenly sparking contagion and widespread liquidations.

With S&P futures a one way elevator lower after a modest rip higher on Ukraine ceasefire optimism early in the session, sending spoos more than 120 points down from session highs and closing down 2.9%, below 4,200, its worst close since October 2020…

… and the Dow tumbling more than 800 points, everything was in the red, with the exception of the defensive utility sector and of course energy which is basking in the glow of a historic surge in the commodity space.

The Nasdaq tumbled 3.6% with the help of Facebook and Moderna both of which have wiped out more than 50% of their value from all time highs, and is now down more than 20% from its all time high, closing in a bear market, where it joins the Russell, which is now also down more than 20% from ATH.

Consumer discretionary stocks, with a decline of more than 3%, led the S&P 500 to a fresh session low. Companies with outsize exposure to Europe – Calvin Klein owner PVH and Ralph Lauren – were among SPX stocks with the biggest drops, while Amazon and Apple are among top decliners on a points basis. Higher energy costs and soaring food prices may crimp consumer spending in other areas, with oil posing a particular challenge. Consumer discretionary stocks are the worst performers among SPX sectors this year, shedding ~19% while the broader index falls ~11%.

While energy was the best – and only outperforming – sector, a testament to today’s dismal risk off mood is that the small-cap Russell actually outperformed both the S&P and the Nasdaq, with the latter tumbling more than 3%.

Europe was even worse, with Germany’s DAX closing down 2% – at the lowest level since November 2020 – and bringing total declines since its January record high to bear-market inducing 21%, while the broader Euro Stoxx 50 also ended 1.2% lower, and also closing more than 20% lower in a bear market.

Believe it or not, those were some of the more timid moves observed today. As Nomura noted earlier, there have been some truly historic swings across all assets, especially Energy where oil had its biggest daily swing ever, with Brent surging to near $140 before tumbling $20 after Germany said it has no plans to halt Russian energy imports, only to reverse higher again…

… to gas, with the European nat gas benchmark trading > 79% to an all-time high, before also reversing gains…

… to Industrial Metals, where Nickel exploded 82% in one day amid a wave of short squeeze in the largest dollar gain in 35 yr history of LME contract…

… and even FX, with the Swiss trading through parity with the Euro earlier, the first time since the SNB peg break in ’15…

… to Inflation, where even’s Europe’s 5y5y inflation swap soared to 8+ yr highs…

… to EU Financials, with Europe’s banks (SX7E) tumbling -34% in less than a month amid panic over Russian exposure.

Among other commodities, the type that actually matter when considering social unrest and revolutions, wheat futures closed limit up again at a record $1,425 translating into an all time high $12.94 per bushel on fear Ukraine and Russian output will be cut off.

While those keeping track of market dislocations did not find anything abnormal in today’s move in the FRA-OIS, which was roughly unchanged from Friday’s close after blowing out late last week…

… a look at the continued decline in the balance of the Fed’s Overnight Reverse Repo suggests that banks are starting to stockpile liquidity.

Even formerly invincible junk bonds cracked, and took out YTD lows, sliding to levels last seen in the aftermath of the covid crisis.

So as oil and commodities decouple from everything in the clearest signal yet that the summer of 2008 is in play (something we discussed 2 months ago in “Shades Of 2008 As Oil Decouples From Everything“) is the market finally pricing in the coming stagflationary recession? Not yet, but with the 2s10s just 24 bps now, the lowest since the covid crash, and a few days trade away from 0, we are almost there.

10Y Real rates plunged to -1.13%, a level which just a few weeks ago would have sent tech stocks soaring, only not this time because the entire move is driven by an explosion higher in 10Y breakevens, which soared 16bps today alone to 2.86%, the highest level on record as markets freak out about inflation over the next decade.

And yet, despite the beating drums of imminent recession, the Fed remains paralyzed as not only does it have to somehow contain inflation driven by a historic supply shock, over which it has no control, but it can’t cut rates as it is already at zero. As a result, the market continue to price in just under 1 rate hike in March and almost 6 rate hikes for the full year!

Finally, the VIX has continued its steady climb amid record put purchases, and hit a level of 36, the highest in over a year. This is a level where traders traditionally expect it to signal a market bottom. If that fails to happen, a quick trip to 50 is almost guaranteed.

Looking at the so-called digital gold, bitcoin tumbled along with the broader crypto sector, as the decoupling observed last week with high beta stocks has now been long forgotten, and the correlation algos continue to trade cryptos as just your garden variety tech stock.

Meanwhile, the original “old-school” gold, continues to creep ever higher in what many view as a harbinger of the next episode of monetary debasement, and after earlier rising briefly above $2,000 then sliding, gold has stabilized just below the $2k mark.

So is there any hope, even fleeting for a modest bounce? We doubt: after all, even the White House admits what is coming:

  • WHITE HOUSE SAYS U.S. NEEDS TO BE PREPARED FOR LONG, DIFFICULT ROAD AHEAD

It appears the market is getting the message:

2 thoughts on “Carnage on Wall Street

  1. Usually, far fewer graphs are my habit; since Putin ramped up aggression across Ukraine, those few have mostly been tinted red.

    Scroll-skimming down the above, might have zipped past Gold/Silver, if they were tabled. A check elsewhere showed Gold for 8th March having broken through $2,000; the first instance this year (after cracking the barrier in 2021, then falling back). At 3:42 AM MTN time, 9th March 2022, this most special metal glittered its value at US$2,019.04.

    (Does anyone remember President Nixon taking US off the Gold standard, 1970 wasn’t it? Could do another check to make sure it wasn’t ‘71, but am running out of time. Well, back then, Gold was just US$30 an ounce!!! We have come a ways!)

    Am never one to (mentally) speculate on Gold, but given the global events trend, now seems the time for Gold to do what real speculators have been anticipating —- reach for the sky.

    In one article posted by Robin the other day, did see an interesting mention of Russia encouraging its citizens to go for Gold, what with the great uncertainty over the now visibly wobbly Ruble seriously affected by sanctions from the West.

    A question: Was physical Gold stressed over the paper variety (as Gold backed by documents may turn problematic during times of great upheaval), and if so, how were ordinary Russians going to come by the real stuff at a time when financial authorities of China, India and of course Russia (and of other nations looking past the horizon) have long been buying up most of what comes available on the physical market, with China’s now super-heavy hoard far outweighing what’s sitting in Fort Knox???

    The present squeeze on energy, as real, foreseen, or imagined, that has come on with the Russian incursion into Ukraine, and as a reaction by the former to the reaction from the West, has pushed up oil — Brent crude now hovering around $140 per bbl.

    Am recalling that in 2006, gasoline and diesel in Vancouver Canada was around CAN$0.95 per litre at the pump. Yesterday (and that’s 16 years on), CBC radio news said a litre of gasoline in Vancouver had risen to $2.10 (2 weeks ago in Toronto, it was $1.60)

    Scanning MSM online, saw mention of stagflation, and also recession.

    Nothing on collapse.

    1. Before heading offline, not sure for how long, something prompted me to have a peek at the next article on The American Empire by Michael Hudson, posted by Robin, which I sensed was a must-read for later.

      Momentarily saw Hudson mentioning that US unpegged the Dollar in 1971, so for now am going to assume he’s correct and I was wrong writing ‘1970’ above.

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