Update (1315ET): Shortly after the Bessent headlines moved stocks higher, Politco reports, while The White House is closing in on general agreements with Japan and India to stave off massive U.S. tariffs, it “may take months to hammer out the final deals,” said one of the people, conceding, “these things are complicated.”
Worse still, the optimism on the initial Bessent headlines has been erased as his actual comments were far less hopeful:
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BESSENT: REBALANCING OF CHINA ECONOMY TOWARDS CONSUMPTION AND U.S. ECONOMY TOWARDS MANUFACTURING IN TWO TO THREE YEARS WOULD BE A ‘HUGE WIN’ – RTRS
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BESSENT SAYS CHINA NEGOTIATIONS WILL BE A ‘SLOG’, DESCRIBES CURRENT BILATERAL TRADE SITUATION AS AN EMBARGO -PERSON WHO HEARD JP MORGAN SESSION
And just like that all the gains are gone…
* * *
US equity markets were already ramping higher, as yesterday’s massive short pile up reversed and transformed into a squeeze (and force out of underexposed systematic funds), when an 11:58am ET headlines from Bloomberg, suggesting… well… the obvious, namely that the trade war with China is unsustainable in the long run according to Bessent…
- *BESSENT SEES DE-ESCALATION WITH CHINA, SITUATION UNSUSTAINABLE
… sent the US equities to session highs, up 3%…
…and reversing all of yesterday losses…
Started with a major short-squeeze…
The broad risk on move has sent the dollar higher, hitting the yen and euro, and pushing the USDJPY well above 141 (after sliding below 140 overnight) and the EURUSD has pushed to session lows, down 0.5%, while the US 10y yield is near its richest levels of the day, down 3bp. Gold is also sliding and was below $3400 after hitting a record high $3500 just a few hours earlier.
While gold is sliding, bitcoin topped $91,000…
Today’s rally is already shaping up as the biggest since Trump’s tariff pivot on April 9. According to UBS S&T, money is flowing back into High Momentum {UBQQHMTM}, up 3.5%, with groups like M&A Banks {UBXXMABK}, up 2.8%, and AI Power {UBXXVOLT}, up 3.4%, benefitting. Some more notable flows:
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A risk-on rotation is visible in Volatility {UBPTVOL}, up +2.5%, versus Quality {UBPTQLTY}, down 1.4%. Lower quality pockets are bouncing back most forcefully with De-SPACs {UBXXDSPC} up 3.5%, and Low Quality Credit {UBXXCRED} up 3%.
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Tariff Losers {UBXXTTL}, up 2.8% stabilise, note the basket outperformed meaningfully during Monday’s selloff in a sign of washed out positioning.
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Defence Primes {UBXXPRME} are down 3%, though note about two-thirds of the move is driven by Northrop after disappointing earnings.
Another reason for today’s meltup is the reversal of yesterday’s meltdown, as panicked systematic funds scramble to buy. According to Goldman’s Cullen Morgan, the systematic macro rebalance has effectively been completed, with global equity length going from approximately an 8 out of 10 during the YTD/February highs to a 1 out of 10 currently, of $53bn and representing a short position from CTA/trend followers and 1-yr low lengths from risk parity style + VA vol-control products.
As a result, Goldman now has CTAs as modeled buyers in every scenario over the next week and month.
Tyler Durden
Tue, 04/22/2025 – 14:45
