Equity longs exposed
The reaction in equity land has been pronounced, where noticeably funds have beefed up hedging activity, where we see the VIX index into 16%, having been as high as 17.9%, with S&P500 1-month put (options) volatility rising 2.19 vols to 14.5%. The sell-down was broad-based with 90% of stocks (within the S&P500) lower on the day.
Junk equity (high leverage, poor balance sheets) and US small caps have been smacked with the US2000 -4%, high short interest baskets -5.5% and US regional banks (KRE ETF) -4.2%. The S&P500 cash closed -1.4% at 4953, although a late session rally saw the index close 0.7% off the lows, which is a small silver lining for the risk bulls.
It’s worth pointing out that sell-offs like this have been incredibly frustrating for those short risk, as there has been limited follow-through – let's see if this gets legs.
Our calls for Asia equity are heavy, with the ASX200 called down 1.3% and JPN225 -0.6%. CBA has reported 1H24 earnings, with solid cash earnings, inline costs, a low impairment charge and an interim dividend that should please investors. After a strong move in the share price of late the numbers need to blow the lights out – well see, but the business looks in fine shape.
A cautious outlook from CEO Matt Comyn, who talked up the view that downside risks are building may get headlines – one for the radar, and the fortunes of CBA will resonate through the broad index pricing.
After a period of consolidation in the AUS200 today's breakdown won’t have gone unnoticed by the bears, but let's see if calmer heads prevail when the ASX200 cash market unwinds – it could tell us a lot about the psychology of the market, and whether traders will buy into this opening weakness or conversely liquidate positions.
Good luck to all.