James Brodie
Head of Learning & Development, Flux
Equity Rally Was a Short Squeeze, US Yields, Upcoming Data
Equity rally was a short squeeze; soft data beat but rate cuts look mispriced. Yields likely higher; global stimulus, mixed jobs
Fridays equity rally (S&P500 +1.9%, DJIA above 50k for the first time ever) was a simple short squeeze as US hedge funds shorted single stocks last week at the fastest pace since the 2020 crisis.
Shorting exceeded the April 2025 market crash and any week of the 2022 bear market. While Bank of America’s Hartnett said: "Our BofA Bull & Bear Indicator is at 9.6 signal, which is Sell." "It is actually the most extreme sell signal in many years for this indicator." (Chart 1, Bank of America). Meanwhile, Goldman traders warn stock selling isn’t over as CTA sell levels are triggered.
Friday the UMich US Consumer Sentiment measures for February delivered an across-the-board beat relative to consensus forecasts. US soft data is now moving aggressively higher (Chart 2, The Daily Shot). Rate cuts for 1H 2026 are too aggressive.
US 2-year yields have been in a tight range and with data suggesting the 55bp of rate cuts priced by the OIS over the next 12 months is far too aggressive, yields are likely to break higher in the weeks ahead. (Chart 3, US 2-year yield, Bloomberg)
Chinese government officials have urged banks to limit purchases of US government bonds and instructed those with high exposure to pare down their positions, sources say, amid concerns that "US debt may expose banks to sharp swings."
Japanese PM Takaichi wins a landslide victory, ensuring more stimulus. Nikkei higher +3.9%, 10-year yields higher +6bp.
Korean exports suggest much stronger US ISM in the months ahead (Chart 4, Steno Research, Bloomberg, Macrobond)
US rents fall 1.4% yoy for 32nd straight month, renting cheaper than mortgages across all top 50 metros. While UMich consumer confidence shows 1-year inflation expectations cooled, dropping from 4.0% to 3.5%.
Canadian payrolls see weaker headline with 24.8k job losses, but the unemployment rate falls from 6.8% to 6.5%.
Auto giant Stellantis on track for worst trading day ever as shares plunge 29%
More automation. Goldman Sachs taps Anthropic's Claude to automate accounting, compliance roles – CNBC
Data this week:
Monday – US consumer inflation expectations
Tuesday – Australian consumer confidence, UK & US retail sales, US employment cost index
Wednesday – Chinese inflation and payrolls
Thursday – UK GDP (Q4 Preliminary)
Friday – China house prices, EZ employment, US consumer inflation
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