Crazy pirate

Nothing to see here

How a week that started in chaos turned into a big ol’ nothingburger

I think we can all agree that everyone remained completely calm and was their best selves this week.

8/9/24 5:12PM

Market historians poring over daily charts will (rightly) believe this week was one for the ages. Those who pore over weekly charts will confine this to the dustbin of history.

The week started with widespread panic about the unwind of leveraged trades, as US stocks tumbled on Monday morning, the US dollar plummeted versus the Japanese yen, and the US stock market’s volatility index hit its highest level outside of COVID or the financial crisis.

It ends with most of those “great unwinds” being almost – or completely – re-wound.

The S&P 500 opened down more than 4% on Monday; the tech-heavy Nasdaq 100 opened down more than 5%. And wouldn’t you know it, the tech-heavy gauge ended the week with a small gain while the S&P 500 was virtually unchanged. Amidst the huge intraday and day-to-day volatility, the benchmark US stock gauge has largely carved out a near-term trading range of 5200 to 5340 this week.

We were only halfway through the unwind of the so-called “yen carry trade” that was wreaking havoc on markets this Monday, according to JPMorgan. Since then the US dollar has ripped higher versus the yen to end the week just barely positive. So much for volatility: the cross moved 0.1% this week when all was said and done.

And, perhaps most astoundingly, the VIX Index – Wall Street’s “fear gauge” – spiked to nearly 66 on Monday morning in the pre-market. It ends this Friday lower than it was one week ago.

An environment where volatility can go haywire, then vanish almost as quickly as it appears, is not necessarily a very healthy market.

Just to be clear, the short-vol trade still has not capitulated. That flow is still active and very aggressive, as large footprints continue to show up as of yesterday and today.

To our knowledge, only two smaller desks have been carted off. The Vega rotated on the street over…
— Kris Sidial🇺🇸 (@Ksidiii) August 7, 2024

And implied correlations continue to creep higher despite the fall in volatility. It might not sound like much, but correlations rising by 2.5 percentage points while the VIX falls by 2.5 points is an odd outcome.

In totality, we’re left with another mixed message from a market that’s chock full of them: things are nowhere near as stressed as the daily charts would lead you to believe, but much more fragile than the weekly charts would imply.

Claire Yubin Oh4m

Jefferies rises after report of potential takeover from Japan’s SMFG

Jefferies jumped 10% in premarket trading on Tuesday after the Financial Times reported that Japan’s second-largest lender, Sumimoto Mitsui Financial Group, is working on plans for a possible takeover of the US investment bank.

Whilst any potential move is not imminent, SMFG has assembled a small team to prepare if a continued drop in Jefferies’ share price creates an opportunity, according to the Financial Times, citing people familiar with the matter. Jefferies’ stock has fallen roughly 40% since the start of the year before today’s move, bringing bringing its market cap to around $8 billion — a fraction of Tokyo-listed SMFG, which is worth ~$124 billion.

SMFG’s banking subsidiary already holds a minority stake in Jefferies, after taking a 5% position in 2021 which was then increased to ~20% last September with a $912 million investment. The two banks have also recently launched a joint venture in Japan, which the FT reported that SMFG is “treating as a test case for integration and a form of due diligence.”

Tasha Matsumoto

14h

Stocks jump as Trump postpones strikes on Iranian energy infrastructure

A heat map of the S&P 500 was bright green on news of a potential ceasefire on energy asset strikes.

Cowboy Riding a Bull - stock illustration

Matt Phillips20h

Palantir pops as its Maven AI targeting system made “official program” for DOD

Palantir jumped Monday following reports that the US military is making official its long-term commitment to buying and using Palantir’s AI-powered data analysis and targeting program.

Reuters’ David Jeans reported over the weekend:

“Palantir’s Maven artificial intelligence system will become an official program of record, Deputy Secretary of Defense Steve Feinberg said in a letter to Pentagon leaders, a move that locks in long-term use of Palantir’s weapons-targeting technology across ‌the U.S. military.

In the March 9 letter to senior Pentagon leaders and U.S. military commanders, Feinberg said embedding Palantir’s Maven Smart System would provide warfighters ‘with the latest tools necessary to detect, deter, and dominate our adversaries in all domains.’”

Key benefits of being named an “official program of record” include eligibility for permanent funding from the Department of Defense. The designation also implies a long-term commitment to a technology, which significantly decreases competitive threats from alternate military contractors and vendors.

In other words, being a “program of record” implies significant long-term cash flow in the future from the US Treasury to Palantir, and thus the market reaction.

Exclusive: Pentagon to adopt Palantir AI as core US military system, memo says

“Palantir’s Maven artificial intelligence system will become an official program of record, Deputy Secretary of Defense Steve Feinberg said in a letter to Pentagon leaders, a move that locks in long-term use of Palantir’s weapons-targeting technology across ‌the U.S. military.

In the March 9 letter to senior Pentagon leaders and U.S. military commanders, Feinberg said embedding Palantir’s Maven Smart System would provide warfighters ‘with the latest tools necessary to detect, deter, and dominate our adversaries in all domains.’”

In other words, being a “program of record” implies significant long-term cash flow in the future from the US Treasury to Palantir, and thus the market reaction.

J. Edward Moreno23h

Lawmakers to introduce bill banning sports contracts on prediction markets: WSJ

Sports-betting stocks rose after The Wall Street Journal reported that a bipartisan pair of lawmakers are seeking to ban Commodity Futures Trading Commission-regulated companies from offering sports-related contracts on prediction markets.

Reportedly sponsored by Sens. Adam Schiff, D-Calif., and John Curtis, R-Utah, the bill would prevent companies like Kalshi or Polymarket’s US arm from posting event contracts related to the outcome of sporting events, a market that accounts for a sizable chunk of their volumes.

Prediction markets have emerged as competitors to sports-betting platforms, which are primarily regulated at the state level, and companies like DraftKings and Flutter Entertainment have risen on the news in premarket trading.

Meanwhile, Robinhood Markets and Interactive Brokers, which both offer prediction markets covering sports and other contracts, ticked down on the news before President Trump’s latest Iran announcement sent much of the stock market jolting higher, with futures on the S&P 500 rising more than 3% in a matter of minutes.

(Robinhood Markets Inc. is the parent company of Sherwood Media, an independently operated media company subject to certain legal and regulatory restrictions. I own Robinhood stock as part of my compensation. Event contracts are offered through Robinhood Derivatives, LLC — probabilities referenced or sourced from KalshiEx LLC or ForecastEx LLC.)

Exclusive | Lawmakers to Introduce Bipartisan Bill Banning Sports Bets on Prediction Markets

Hyunsoo Rim

23h

Stocks jolt higher after Trump says US will postpone Iran energy strikes for a “five day period”

Global equity markets were sharply in the red once again until President Trump posted on Truth Social, detailing a five-day break from strikes on Iranian energy infrastructure after “productive” talks.