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Australian dollar booms and busts as credit crunches

Published 03/05/2023, 09:25 am
Updated 09/07/2023, 08:32 pm
AUD/USD
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US500
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DXY
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DXY is holding and maybe even firming:

DXY

AUD launched on the RBA shock but faded badly:

AUDUSD

Oil is telling us that global recession is coming:

BRENT

Dirt appears ready to break:

COPPER

Big miners (NYSE:RIO) did break:

RIO

EM stocks (NYSE:EEM) are not far behind:

EEM

Junk (NYSE:HYG) is leading the way:

HYG

The Treasury curve is still very inverted:

YIELDS

Stocks got spooked:

SPX

As the small bank (NYSE:KRE) credit crunch metastises:

KRE

Banks are back and not in a good way. The equity of US regionals is flowing out with deposits and profitability. Two new victims appeared overnight:

On the eve of the Federal Reserve decision, multiple volatility halts in PacWest Bancorp and Western Alliance Bancorp were seen as disturbing. Both shares were down at least 15%. The financial industry weighed heavily on the S&P 500, which sank almost 2% at one point before trimming losses.

More from Goldman:

Risk off session and banks again front and center of the angst. Executed fins specific flow across GS’s U.S.equites franchise is 3 to 1 beter for sale with banks driving a majority of the act on (today’s executed fins supply on our desk sits in the 95th percentile on a 1 year look back).

This morning’s activity began as HF centric (shorts) but starting to see L/O supply (passive) now too.Traders uncomfortable with today’s price action ahead of what is likely another 25bp hike from FOMC tomorrow (this morning mkt pricing was 95% probability of a 25bp hike tomorrow and 25% probability of another 25bp hike in June).

We think there was a lot of tactical $$ that went into this past weekend long bank exposure for an FRC related clearing event. JPM stepped in and the fact that the group did NOT rally yesterday sent a clear negative signal to the mkt.

Today’s sellers are now referencing that deposit betas are climbing, funding costs are rising, and the regulatory environment is only going to get more difficult from here (no, none of these 3 points are new today).

It is also worth noting that the global investor community was very fixated overnight on the capital drawdown at JPM from FRC transaction…hearing street estimates 40-50 bps of CET1 drawdown (in line with GSe) .. this is bringing to light the potential for no real buybacks in the bank space ahead ofB4/CCAR and what that means for fund of flows if there are just no buyers around. H/T Sarah ChaOn our prime book regional bank L/S ratio currently stands at 1.14. On a 5yr look back this is surprisingly still in the 37thpercentile. Point being there is still some wood to from chop here if the HF community decides it wants to bring exposures back down to 2019–2020 levels.

BANKS

The small bank credit crunch is intensifying, The Fed will hike anyway tonight.

The odds favour that it will be the last hike but only because a systemic event is underway in US banking and that is going to choke the economy in due course.

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