Goldman Trading Desk: “Most Clients Are Hating This Rally”

From Goldman flow trader Rich Privorotsky

Hated Rally. Italy. ECB.

BOJ nothing done, jpy barely moved. China remains weak, no bid to copper/Commds and Shprop down nearly 2%.

US equites broader rally this time with expensive software, non-profitable tech, most short and liquid ipo baskets driving the move higher. Still feels very much positioning driven, most clients hating this rally.

Micro news is mixed, NFLX managed to hold its rally while talk of job cuts/freeze at GOOG and MSFT’s azure might knock confidence. TSLA will be watched in US trading (beat but once you strip out it’s monetization of digital assets cash flow looks negative).

Surprised Europe is hanging in as well as it is. NS1 nominations were out yday, mkt knew it would be coming back between 30-40%…gas moved small lower. Still seems to be debate about this amongst the client base, think partial resumption was always my/most clients  base case and think the energy concerns are far from over.

Overnight “Vladimir Putin said Russian engineers will need to assess the condition of repaired components of the Nord Stream 1 pipeline as they determine whether to keep natural gas flowing to Europe. “Maybe at some point they will decide to turn it all off,” he said. Let’s see how gas trades imagine there could be some last relief on final confirmation of the flows but the market should have known all this yday.

Turning to Italy it would appear things have taken a turn for the worse. Despite having won the confidence vote key parties abstained. This whole situation was about quieting the political wrangling so that Draghi could carry on and finish his technocratic agenda.

“The prime minister is likely to tell the lower house of parliament on Thursday that he intends to quit, a political source said. He will then hand in his resignation to President Sergio Mattarella, who is widely expected to announce elections” (rtrs) never say never could always be some last minute solution but I think Draghi leaving at this juncture is pretty impactful for Europe.

In Italy, the right is polling far ahead and if elections were to be brought forward it could leave questions on the reform agenda and raises the risk of fragmentation across Europe during a period where the lingering energy crisis requires cohesion.

Enter the ECB today. Given recent leaks in the press clearly expectations for a 50bp hike have risen (implied 35bps now). Think from here delivering 25 could drive euro downside. More importantly for market is the structure of the anti-fragmentation  tool. One could argue that just having delivered a credible structure with unlimited commitments and hoping that they would not be tested might have been good enough if the political satiation in Italy were stable, but now the market might demand a more organized, sizeable and structured mechanism.  

Still feels like a very positioning driven rally. China lagging behind substantially, still lots of issues in Europe. Earnings season mixed. Squeeze could continue given cta/systematic demand and a bearish consensus but think it’s meant to be sold.