Earlier today, we wrote that according to the Goldman flow desk, “most clients were hating this rally”, sentiment which Nomura’s Charlie McElligott picked up on later in the day when he wrote that the risk over the near term is a “further pile-on to the crowd who has expected another surge lower in stocks, instead squeezing their shorts and accelerating the enormous Systematic buying already going through as CTAs cover and flip long.”
Well, it appears that the most steadfast bears – who are recently capitulated bulls, and who according to the latest BofA Fund Manager Survey, are now the most pessimistic on record – are starting to capitulate yet again, this time calling a bottom to stocks, and are starting to buy. Indeed, as Goldman flow trader John Flood writes in his end of day wrap, “some noteworthy long-only clients have now started to passively buy on our desk throughout the day (velocity picked up this afternoon as mkt moved higher)” adding that “executed flow across US equities franchise had +338bp buy skew vs 30d avg of -30bp sell skew. L/Os buy skew +9.8% was highest here since since 6/30.”
Translation: it is possible that this bear market rally is about to transform into something more sustainable, and as more whales join the buying parade, the train may soon leave the station. That said, as Flood writes it will be interesting to see if this “long-only” momentum will sustain into Friday post “a slew of relatively disappointing earnings” post close, from companies such as SNAP, COF, CRSR, SAM, SIVB, STX.
We excerpt from his note below; the full pdf available to pro subscribers in the usual place.
Our desk was a 6 on 1 – 10 scale today. 3 More intraday blocks + CCL primary raise as institutions take advantage of surprise move higher in tape this week. Client demand for these blocks remains strong on our desk. Leading thematics today were China Exposure (GSCBCHSE) +196bps, Secular Growth (GSXUSGRO) +194bps, High Retail Sentiment (GSCBHRSB) +186bps.
Some noteworthy L/O clients have now started to passively buy on our desk throughout the day (velocity picked up this afternoon as mkt moved higher). Executed flow across US equities franchise had +338bp buy skew vs 30d avg of -30bp sell skew. L/Os buy skew +9.8% was highest here since since 6/30. Demand concentrated in cons disc and materials. Will be interesting to see if this L/O demand back tomorrow post a slew of relatively disappointing earnings post close: SNAP, COF, CRSR, SAM, SIVB, STX, etc.
SNAP (first take) -20% … Guiding Q3 revenue growth “thus far” this quarter to Flat YoY (Cons for full qtr Q3 growth was +18% y/y). Not giving full Q3 financial guidance.
Gas prices in the US have moved down to $4.44/gallon (national average), 58 cents below their all-time high in mid-June.
SLG (NYC’s largest commercial real estate landlord): “Tenant demand is shifting as some of the big technology tenants which expanded rapidly have pulled back as they adapt to new workforce patterns.”
The ECB went big for its first rate hike in over a decade. It defied consensus with a 50 bp increase that ended the era of negative rates to tackle inflation Christine Lagarde said will remain “undesirably high for some time.” It also unveiled a crisis tool called the Transmission Protection Instrument. All countries are eligible and the plan received unanimous backing, though Lagarde said nations need sound macro policies and to comply with EU debt rules. Traders are now betting on 60 bps of increases in September. The euro erased earlier gains as she spoke, and yields came off some earlier highs, with some traders criticizing Lagarde for a lack of details during the presser.
Finally, some humor from the Goldman trading desk:
Joe Biden contracted Covid-19, has mild symptoms, and will isolate in the White House while continuing to work. The 79-year-old president has a runny nose, fatigue and an occasional dry cough, and has begun taking Paxlovid to treat the disease, according to a letter from his physician. Biden’s illness comes after a five-day trip to the Middle East during which he made few efforts to avoid infection.