[Original Author, by Nigel Ng]
Initially, I had planned to write about a turn/bounce based on the data this week. ISM and NFP both showed a goldilocks kind of economy where risk assets should outperform. In my previous 2 write-ups I had been bearish on risk assets and bullish on USD, and was actually ready today to invert my call. Data aside, the market was pricing almost a 4% terminal rate in Fed Funds futures, which is in line with the most hawkish Fed member expectation. Also, it was reported that NordStream 1 would resume flows at 33mcm, which many had expected to become 0. I would have expected massive unhedging and a rally, actually managed to stay long post NFP (more on that later). However, slightly past NY lunch, Gazprom reported an oil leak as the reason they would be unable to continue providing gas flows… indefinitely. Which shifts my view back to an apocalyptic, Dax 10k scenario as we approach winter in Europe.
I analyzed a few expert takes on the topic, and it looks like more Russian games/excuses. The oil leak should (according to experts) not affect the scheduled, regular maintenance, and the excuse of ‘nowhere to repair’ does not make sense. The tone from Russia is terrible and I’m honestly not surprised. Risk faded immensely (and coincidentally with Dax at the 200hour MA) and market participants began buying the dip in dollar. I expect this trend to continue.
There were some weird shenanigans pre 10am NYT on NFP day. The data was inexplicably bullish, with an inline headline number, lower AHE, and a higher participation rate. Goldilocks, right? SPY was pushed below the 400 area and we only started ripping exactly at 10am NYT.. the NY option cut. I suspect a big bank was short calls or had a structure involving KOs/barriers around the 400 strike and hence needed the market to stay lower until those options expired. Given recent volatility and the distribution of expectations around NFP, I wouldn’t be surprised if their delta was huge compared to other expiries, making the theory even stronger. Round number bias is an amazing thing. Sell DAX, sell EURUSD, risk lower.