0 24 min 8 mths


Futures, yields, oil, dollar, cryptos – everything is lower on this $3.1 trillion option expiration day

… as US traders relocate from their bedroom to their basement on the last day of the week, discovering a sea of red in most assets and a “total meltdown” in others. Emini S&P futures are down 0.5% or 22 points to 4,452 which by the way is well off the session lows which saw the S&P plunge as low as 4,429. Nasdaq futures are down 0.8% or 122 and Dow futures are lower by 95 points or 0.25%, while European stocks touched the lowest level in a month weighed by miners, travel and leisure and automakers. 10Y TSY yields are at 1.778%, rising from 1.76% at the session lows, but down from Thuesday’s close around 1.80%.

Cryptocurrencies crashed with Bitcoin trading below $38,000, the level that Mike Novogratz said is where he would be buying. Presumably he isn’t doing so. Ether, the second largest cryptocurrency by market cap, extends its decline to trade at around $2,750, in its longest daily losing streak since late July. Meanwhile, oil extends declines, with Brent falling 1.7% to below $87, while WTI falls over 2% to below $84 a barrel. Spot gold -0.4% to $1,832/oz, while the dollar also slips 0.1%.

“Risk appetite is widely down, and the cautious trading mood reflects the global uncertainty investors are now facing,” said  Pierre Veyret, technical analyst at ActivTrades. “Sentiment is being driven down by monetary policies, uneven corporate results, a bigger Omicron impact on economies as well as rising geopolitical tensions between the USA and Russia over Ukraine.”

Meanwhile, a report that Washington is allowing some Baltic states to send U.S.-made weapons to Ukraine stoked concerns about a standoff with Russia. 

“The 2022 outlook for risky assets is likely to be more challenging as central bank accommodation is withdrawn,” said Mohit Kumar, managing director at Jefferies International. “We would wait for more clarity from the Fed before shifting our cautious stance on equities.”

Besides the huge negative gamma overhang (much of which will fade by EOD as trillions in options expire) and the prospect of rising interest rates weighing on investor sentiment, corporate earnings aren’t helping the mood with disappointing earnings from PPG Industry and CSX, while Netflix plunged 21% in premarket trading  as analysts cut their ratings and slash price targets after the streaming company’s first-quarter subscriber outlook missed estimates, prompting worries over slowing growth. Alibaba Group dropped in U.S. premarket trading as market participants weigh the stock impact of a report that China’s state broadcaster has implicated Jack Ma’s Ant Group in a corruption scandal. Expected data on Friday include Leading Index, while Huntington Bancshares, IHS Markit, Schlumberger are among companies reporting earnings. Here are all notable premarket movers:

  • Peloton (PTON US) shares rise 8.6% in U.S. premarket trading, set to rebound following Thursday’s 24% tumble in the wake of a CNBC report saying the company is temporarily halting production of bikes and treadmills over slow demand, which CEO John Foley later disputed in a memo to staff.
  • Apple’s (AAPL US) price target and estimates are raised at Wells Fargo ahead of the tech giant’s results next Thursday. The shares edge 0.1% lower in U.S. premarket trading.
  • Alibaba (BABA US) drops as much as 1.5% in U.S. premarket trading as market participants weigh the stock impact of FT report saying China’s state broadcaster has implicated Jack Ma’s Ant Group in a corruption scandal.
  • PPG (PPG US) fell 3% postmarket after the chemicals maker forecast adjusted earnings per share for the first quarter that missed the average analyst estimate and cited “significantly higher operating costs.”
  • CSX (CSX US) shares dropped over 3.8% in postmarket trading as fourth-quarter profit and revenue beat was overshadowed by a miss in operating ratio, a measure of the railroad’s efficiency.

In Europe, stocks dropped to the lowest level in a month echoing Asia’s slump. Euro Stoxx 600 drops as much as 1.7% with most European cash indexes ~1% in the red.  Cyclical sectors such as basic resources, autos and travel led the declines, along with tech, while defensive stocks such as food, personal care and utilities outperformed. European e-commerce stocks fall on Friday, with Markets.com chief market analyst Neil Wilson noting the “total meltdown in anything tech and pandemic winners.” There’s a “huge momentum unwind” and “no one wants to touch them now,” with investors looking for defensive cash flows and value, Wilson writes in emailed comments: Naked Wines -6%, Home24 -5.4%, Global Fashion Group -5.2%, THG -3.5%, Moonpig -3.3%, Asos -3.2%, Made.com -2.9%, Allegro 2.6%, AO World -2.5%, Zalando -2.4%, Westwing -2.1%.

Earlier in the session, Asian equities resumed declines after a one-day reprieve, as global inflation concerns and the impact on borrowing costs weighed on technology stocks. The MSCI Asia Pacific Index fell as much as 1.4%, dragged down by shares of chipmakers TSMC and Samsung, as the global tech selloff deepened. The regional benchmark was headed for a weekly drop of more than 1.7%, its steepest since late November. Read more: A Year’s Worth of Nasdaq Tumult Gets Jammed Into Three Weeks   Benchmarks fell across Asia, with Australia’s main gauge sliding more than 2% and Japan’s Topix narrowly missing a technical correction. Elevated energy costs and rising prices of other goods amid supply-chain bottlenecks have added to worries about faster-than-expected monetary-policy tightening. “A world shaped by supply constraints will bring more macro volatility,” BlackRock Investment Institute strategists including Elga Bartsch wrote in a note. “Monetary policy cannot stabilize both inflation and growth: it has to choose between them.” Toyota also ranked among the biggest drags on the regional benchmark after the auto giant announced more production halts on rising Covid-19 cases. Alibaba dropped after a Financial Times report said China’s state broadcaster has implicated Jack Ma’s Ant Group in a corruption scandal

Indian stocks completed their biggest weekly decline since November, as concerns about policy moves by the U.S. Federal Reserve and a rally in crude oil prices dented investors’ appetite for riskier emerging market assets.  The S&P BSE Sensex dropped 0.7% to 59,037.18 in Mumbai, extending this week’s losses this to 3.6%. The NSE Nifty 50 Index also fell 0.8% on Friday. Technology stocks were hammered for a fourth consecutive session, with the sector gauge ending with the worst weekly performance since April 2020. Infosys Ltd., down 2.1%, was the biggest drag on the key indexes. All but one of 19 sub-indexes fell, led by a gauge of realty stocks. As the Federal Reserve looks at tackling higher inflation, investors are grappling with the prospect of reduced stimulus that had driven flows into emerging markets and bolstered riskier assets.   “The likely Fed action and crude surge have been negative for sentiment after the market had a strong start to the year, and we expect this downward pressure to continue,” said A. K. Prabhakar, head of research at IDBI Capital Ltd. “In earnings, tech results have been strong, but attrition is high, while for others, higher raw material costs are a drag.” Of the 13 Nifty 50 companies that have announced results so far, six have either met or exceeded expectations, six have missed and one can’t be compared. Reliance Industries Ltd., the nation’s most-valuable company, is scheduled to announce results in the day

Australia’s S&P/ASX 200 index slumped 2.3% to close at 7,175.80, its lowest level since June 1, following U.S. shares lower after the tech-heavy Nasdaq 100 slipped into a correction. The Australian benchmark shed 3% this week amid anxiety over interest rates and the outlook for corporate earnings, capping its worst weekly performance since October 2020. Paladin Energy was the worst performer on Friday, plunging 11%, and Whitehaven fell after trimming its full-year managed ROM coal production forecast.  In New Zealand, the S&P/NZX 50 index fell 1.2% to 12,348.00. The gauge lost 3.5% this week in its biggest such loss in 11 months

In rates, demand for havens pushed the 10-year U.S. Treasury yield below 1.80%. Treasury futures are off session highs reached during Asia trading hours, hold modest gains from belly to long end, trimming yields by ~1bp vs Thursday’s closing levels. 10-year TSY yield around 1.775% is ~2bp richer on the day after dropping as low as 1.763% during Asia session; German 10- year outperforms by 1.2bp with Estoxx50 down 1.7%. IG dollar issuance slate empty so far; three-deal docket Thursday consisted entirely of banks for combined $5.4bn. Bunds bull flatten, richer by ~3bps at the long end; gilts bull steepen with the belly outperforming.

In FX, Bloomberg Dollar Spot dips 0.2% into the red. SEK and CHF are the best performers in G-10; NZD, AUD and GBP lag, with cable near session low of 1.3562, one tick above the 21-DMA at 1.3561. The Bloomberg dollar index slipped as the greenback traded mixed versus its Group-of-10 peers. The pound lagged most of its Group-of-10 peers, extending declines after data showed U.K. retail sales plummeted in December. BOE’s Mann to speak later. Sweden’s krona is the best G-10 performer as it retraces about half of yesterday’s deep losses that took it to an 18- month low against the greenback in the U.S. session after a triggering stop-losses and options barriers. Australian and New Zealand dollars weakened amid risk-off price action in stocks and commodities. The yen strengthened on haven demand; BOJ minutes of its December meeting showed one board member noting that policy adjustment now would be too early.

In commodities, crude futures are deep in the red, but off worst levels, after a surprise climb in U.S. crude stockpiles. The White House also said it can work to accelerate the release of strategic reserves. WTI regained a $84-handle, Brent trades back above $87. Spot gold drops ~$5 before finding support near $1,830/oz. Base metals are mostly in the green and up on the week. LME lead and tin outperform.

Looking at the day ahead, data releases included UK retail sales for December, which missed badly, and the US Conference Board’s leading index for December. Central bank speakers include ECB President Lagarde and the BoE’s Mann.

Market Snapshot

  • S&P 500 futures down 0.2% to 4,467.50
  • STOXX Europe 600 down 1.3% to 476.89
  • MXAP down 0.9% to 191.91
  • MXAPJ down 1.0% to 630.82
  • Nikkei down 0.9% to 27,522.26
  • Topix down 0.6% to 1,927.18
  • Hang Seng Index little changed at 24,965.55
  • Shanghai Composite down 0.9% to 3,522.57
  • Sensex down 0.8% to 58,998.67
  • Australia S&P/ASX 200 down 2.3% to 7,175.81
  • Kospi down 1.0% to 2,834.29
  • Brent Futures down 1.9% to $86.66/bbl
  • Gold spot down 0.3% to $1,832.94
  • U.S. Dollar Index down 0.14% to 95.60
  • German 10Y yield little changed at -0.05%
  • Euro up 0.3% to $1.1344
  • Brent Futures down 2.0% to $86.63/bbl

Top Overnight News from Bloomberg

  • Federal Reserve officials will signal next week they’ll raise interest rates in March for the first time in more than three years and shrink their balance sheet soon after, economists surveyed by Bloomberg said
  • The European Union is ripping up the green investing playbook with plans to allow some gas and nuclear projects to be called sustainable. The bloc is poised to include these kinds of power generation with conditions in its rulebook for sustainable activities, or taxonomy. That’s divided the fund community, as some worry their holdings will no longer be in line with the rules, while others think it’s a necessary compromise.
  • China is quietly urging banks to increase lending after a slow start to the year, ramping up efforts to combat the weakest economic expansion since early 2020
  • Italy’s papal-style vote for a new president each seven years is the culmination of Rome’s political intrigues and power games. For the first time, the process is attracting international interest as Prime Minister Mario Draghi is touted as a top contender for the job. Voting will start on Jan. 24 at 3 p.m. local time, and it is expected to last a few days
  • Iron ore futures climbed to the highest intraday level since October as China made it clear that it will take action to stabilize the economy, bolstering the demand outlook for the raw material

A more detailed look at global markets courtesy of Newsquawk

Asia Pacific

  • APAC markets traded lower amid wide-spread risk aversion after late Wall Street selling . ASX 200 (-2.3%) underperformed as miners led the broad downturn.
  • Nikkei 225 (-0.9%) dropped more than 500 points intraday on currency strength but finished off lows
  • Hang Seng (U/C) and Shanghai Comp. (-0.9%) downside was somewhat cushioned on subsequently confirmed reports of further PBoC action.
  • US equity futures traded with losses across the board: NQ underperformed post-Netflix earnings.

Top Asian News

  • Rising Cases Spark Covid Superspreader Fears in Hong Kong
  • Alibaba Drops in U.S. Premarket on Corruption Report Speculation
  • Playtech Sinks as Former F1 Boss Jordan Pulls Possible Offer
  • Coal Soars to $300 a Ton as Asia Scrambles for Power Plant Fuel


  • Major European bourses are pressured Euro Stoxx 50 -1.3%; Stoxx 600 -1 5%. as the Wall St rally faded and reverberated through APAC trade . Although, the Stoxx 600 remains -0.5% on the week.
  • US futures have been lifting off overnight lows, though the NO continues to lag post-Netflix.
  • European sectors are all in the red. but defensives are faring slightly better than cyclicals

Top European News

  • U.K. Retail Sales Drop as Omicron Keeps Shoppers Away
  • Lotus Explores Electric-Car Battery Tie-Up With Britishvolt
  • Amazon’s Alexa Voice Assistant Reportedly Suffers Europe Outages
  • Greece Is Great Place to Be in Rough January for Europe Stocks


  • Franc finally evades SNB clutches to rally and outshine other safe-haven currencies.
  • Pound discounted after dire UK retail sales data and deterioration in consumer sentiment.
  • Buck betwixt and between as USTs rebound, but risk aversion gathers momentum.
  • Kiwi and Aussie lag due to unfavorable market conditions and their high beta characteristics but Yuan continues to rally as PBoC adds SLFs to the list of official rates being cut to support the Chinese economy Click here for a detailed summary.

Fixed Income

  • USTs extend rebound from post-20 year auction highs on amidst more pronounced risk-off positioning.
  • Bunds play catch up with Treasuries as demand for safe-havens picks up
  • Gilts also correct higher and pay some heed to downbeat UK fundamental


  • WTI and Brent March contacts remain pressured by the broader risk tone, with focus on geopolitics
  • Morgan Stanley has increased its Q3 Brent price forecast to USD 100/bbl vs prev. viev; of around USD 90/bbl.
  • Spot gold looks heavy as traders booked some profits from yesterdays rally, while the yellow metal found support around the USD 1 830/oz.
  • LME copper re-tested USD 10k/t to the upside but failed to mount the level

DB’s Jim Reid concludes the overnight wrap

Don’t tell anyone but I’m going to betray my first love this weekend. It’s with someone 5 years younger but much less attractive on the eye and with far, far, far less money. I’ll also be introducing them to my kids but will be meeting up in a place that it is far less likely I’ll be seen. Yes as Liverpool fight to keep alive in the Premier League title race I’ll be taking the twins to their first football match at non-league Woking Town who are around 105 places lower in the English football structure. Anfield was just too long a journey to be stuck with them for that length of time! The twins play for Woking Cubs although at this stage persuading them to not pick up the ball and run off with it mid-practise is an achievement.

The bears took control of the ball last night as markets followed the recent script whereby equities showed some stability only to take a turn late in the New York session. The S&P 500 was as much as +1% higher intraday, before selling off in the US afternoon, finishing the session down a steep -1.10% and is now -6.48% lower year-to-date. Consumer discretionary (-1.94%) and technology (-1.33%) were again among the biggest decliners, as big tech stocks underperformed. The NASDAQ fell -1.30%, and is down -9.53% YTD, -11.85% from all-time highs and closed below its 200 day average for the first time since the March 2020 Covid-induced volatility.

The S&P declines were broad-based though with 84% of the constituents lower after as much as 90% of the index was in the green intraday. The S&P 500 is on track for a 3rd consecutive weekly decline for the first time since September 2020. The story only got worse for tech stocks after the close, as Netflix posted poor earnings, missing subscriber estimates. The stock declined more than -20% in after hours trading.

Europe saw a stronger performance, but this was before the weak US close with the STOXX 600 ending the day up +0.51%.

Having experienced the highest levels in yields for many months earlier this week, sovereign bonds also rallied yesterday, with the 10yr Treasury yield down -6.1bps to 1.80%. True to form, most of the declines took place later in the New York session. About half of the declines came from real yields, down -3.4bps. These moves also occurred alongside a further flattening in the yield curve, with the 2s10s slope down -2.8bps to 77.5bps, which is its lowest closing level of the year so far, and not far off the recent low of 73.6bps we saw in late December. As a reminder, whether or not you’re in agreement as to its explanatory power, every US recession in recent times has been preceded by an inversion of the 2s10s curve, and our analysis shows that in the Fed hiking cycles since 1955 you generally see a flattening in the curve of around 80bps in the first year (see our rate hike primer here for more on this). So if the Fed hikes in March and things play out in line with that historic playbook, then that would imply a curve inversion in H1 next year. For the record 10yr yields are currently -3bps in the Asian session and the curve another couple of basis points flatter.

Central bankers will be hopeful they can avoid yield curve inversion, and ECB President Lagarde emphasised yesterday that the ECB had “every reason to not react as quickly and as abruptly as we could imagine the Fed might”. Nevertheless, the minutes from the ECB’s Governing Council meeting in December were released yesterday, which said “it was cautioned that a “higher for longer” inflation scenario could not be ruled out.” The minutes noted that the 2023 and 2024 inflation forecasts were “already relatively close to 2% and, considering the upside risk to the projection, could easily turn out above 2%.” It came as the final reading of December’s Euro Area inflation matched the initial estimate of +5.0%, the highest since the single currency’s formation, whilst sovereign bond yields in Europe followed the US lower, with those on 10yr bunds (-1.3bps), OATs (-1.8bps) and BTPs (-3.7bps) all declining.

Overnight in Asia, all major stock indexes are sharply lower. The Nikkei (-1.49%) is weak, giving up the gains in the previous session as Japan’s headline inflation (+0.8% y/y) in December failed to surpass market expectations of a +0.9% reading and may quell some of the recent policy normalisation stories. The core-CPI remained unchanged at +0.5% y/y in December below the market forecast of +0.6% rise. Elsewhere, the Kospi (-1.48%), Shanghai Composite (-0.82%), CSI (-0.85%) and the Hang Seng (-0.75%) are also down. Looking ahead, stock futures in the DM world continue to paint a weaker picture with S&P 500 (-0.5%), Nasdaq (-1%) and DAX (-1.25%) contracts trading lower again.

After remaining buoyant most of the session yesterday, Oil was also a victim of the late sell-off. Brent crude fell by -1.13% to $87.44/bbl, while WTI was only a smidge lower, declining -0.07% to $86.90/bbl. However the Asian session hasn’t been kind with WTI trading in the low $84s as we type. Other commodities kept the trend going before the late sell-off. Agricultural prices saw fresh gains, with Bloomberg’s agriculture spot index (+0.68%) advancing to a post-2012 high, and both industrial and precious metals generally moved higher on the day as well.

In terms of yesterday’s data, Germany’s PPI inflation accelerated to +24.2% year-on-year in December (vs. +19.3% expected), marking the fastest increase since that statistic was introduced in 1949. Over in the US meanwhile, the weekly initial jobless claims rose to a 3-month high of 286k in the week through January 15. That was some way above the 225k reading expected and potentially reflects the growing impact of the Omicron variant on the labour market. Furthermore, the 4-week rolling average of claims rose to 231k as a result, marking its 3rd consecutive move higher. When it comes to other US data, the Philadelphia Fed’s business outlook survey for January was more promising at 23.2 (vs. 19.0 expected), but the existing home sales for December fell for the first time in 4 months to an annualised rate of 6.18m (vs. 6.42m expected). There were some indications that this was a lack of supply rather than demand issue.

For what it’s worth, after the US close Treasury Chief Janet Yellen lent her support to the Biden administration by expressing confidence in its ability along with the Fed to bring back inflation closer to 2% by the end of 2022.

To the day ahead now, and data releases include UK retail sales for December, the Euro Area’s advance consumer confidence reading for January, and the US Conference Board’s leading index for December. Central bank speakers include ECB President Lagarde and the BoE’s Mann.


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