Another week, another rally. Not even the chatter of another regional bank hitting credit troubles of a reputable economist declaring that the Fed will not cut rates in 2024 could do anything to stop the risk-on freight-train. The SPX rose for the 16th week out of the last 18th, a streak that hasn’t happened since 1971, based on data compiled by DB.

As we near the anniversary of last year’s SVB collapse, shares of New York Community Bancorp plunged on Friday as management reported that it identified material weakness in their internal loan review process, leading to a 100% goodwill write-off ($2.4bln) and an overhaul of the management team. However, unlike the widespread panic we observed in the past year, Wall Street appears confident that this is an isolated case, with the stock’s anemic price-to-book multiple (~0.5x) largely ‘pricing-in’ these concerns already. The KBW regional bank index barely budged (~0.3%) despite the 20% drop in NYCB on Friday.

With the US recession nowhere in sight (Atlanta Fed estimates that Q1 GDP will be ~3%), a robust US consumer (BoA mentioned consumer spending added >3% in February), stable employment/wages/inflation growth, Apollo’s Chief Economist stated that the Fed will not be cutting rates in 2024, as the central bank will be spending most of 2024 fighting inflation and keeping yields high. Mr. Slok pointed to a big jump in US growth expectations, still tight labour markets, stubborn core inflation, and the overly-easy financial conditions to keep lid on easing expectations. Furthermore, the Fed’s verbal pivot from 4Q23 has already given markets more than enough tailwind on asset prices.

Chairman Powell will be giving its biannual monetary policy update to the Senate banking committee on March 7th, where he would be given the chance to discuss the recent resurgence in US inflation data, and to be pressured for his rationale behind the dovish pivot in December. Furthermore, earnings season has come and gone with companies recording solid profits that are now reflected in the price, with the SPX on track to beat pre-season earnings estimates by the widest margin since 4Q21, according to Bloomberg. The rising earnings have certainly caught Wall Street off guard, with strategists rushing to raise their SPX year-end targets in a hurry, with media outlets noting over six separate forecast upgrades in the past 2 weeks alone.

Similar to the move in crypto, retail has been surging back with rising option flows into single-name stocks, with levels well in excess of the peak seen even in 2021, and accelerating after the positive NVDA and META earnings.

Even in China, we are finally witnessing an encouraging correlation change in their local equity vs bond markets, where prices for the two asset classes are finally moving in tandem (rates lower = bond price higher). Are we finally at a turning point in China assets where investors are rewarding PBOC’s easing efforts with higher equity prices? Hope springs eternal…

In crypto, more of the same with the space continuing to see record inflows via the ETFs, with the positive sentiment also appearing to spill into altcoins with SOL (+17%), XPR (+16%), Cardano (+21%), Polkadot (+19%) and memecoins (Doge +7%, Shiba +131%) all enjoying accelerating rallies over the past 7 days.

In option space, we are also seeing a huge jump in short-dated options, with a large clustering of open interest around the $65k — $75k levels. Deribit reported record trading volumes last week as the largest crypto options exchange, with over $12.4bln in 24-hour trading volumes and over $27bln in open interest. The significant interest in short-dated calls is driving up IV and leading to a mini-gamma squeeze for option sellers, with the majority of the risk expiring on March 29, so expect to see repeated bouts of choppy price volatility (both up and down) for the majority of this month. Stay safe out there and enjoy the rally!

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