Rise and shine everyone.

Markets seem to be bouncing back but, it’s not one and done. Volatility continues to remain high with the Vix over 30. We know what tends to happen in these situations. After yesterday’s crazy sell off, many would’ve been forced liquidated or would’ve had to liquidate to meet margin calls. That and some of the relatively better ISM Services data yesterday, gave the market some respite.

But the scare is not over for many, and as the market begins to recover we will see people trying to reduce their positions. And the likelihood of another bout of selling is quite high. There is room to the downside in this market. The way the Vix is spiked yesterday, you would think that we were starting a global meltdown. But, it’s unlikely we have a crash. We will however, have a correction as positioning gets more evened out.

Buybacks have also started again and that’s helping some of the price action. Although GS says: “SPX liquidity made new YTD lows today, averaging ~$2.5m on the touch”. That could very well add to the volatility.

Europe is not seeing the same kind of recovery in price as Asia saw in early trading. There doesn’t seem to be any specific reason. Some earnings out this morning with a mixed picture.

Reserve Bank of Australia held rates this morning with a slightly less hawkish note. We still don’t expect rate cuts this year though.

Japan

Caution is still warranted here, even if we’re seeing a reflexive bounce back. We need to see where the JPY settles. A stronger JPY will likely see some downward EPS revisions, and lower liquidity will mean a period of pullback in equities. US growth fears also continue to be a factor for these moves, as the markets start to price a global slowdown.

China Bond Yields

We’re watching CGB yields. Yields fell to the lowest levels in decades on lower growth expectations, exacerbated by the LPR cuts last month on the shorter end.

We think the Government may take measures to stabilize yields, selling bonds in the open market. We’re seeing traders price in this scenario as well, as banks offload some of their bond holdings this week. Bond sales could lead to lower liquidity.

It’s likely that the PBOC will wait and watch the Fed for the next rate cut, as they wait for the differential to narrow. We’re still not bullish here on the market.

Calendars

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)