New York open: Worst case scenario positions getting pared

Markets

It was reported that US officials at the Treasury Department and FDIC were studying ways to temporarily expand their deposit coverages in case the current situation expands into a full-blown crisis of confidence.

And while this announcement has seen the odds of a Fed hike increase, with the DXY turning weaker and stocks and oil moving higher, if a tree falls in a forest, and no one is around to hear it, does it make a sound?

And while there is some pitter-patter in the bullpens, what is possibly happening is a fair amount of repositioning as money managers start buying back downside hedges placed during volatile swings in stocks, bonds, credit, and commodities.

It is conducive, however, that the MOVE Index (a measure of the bond market volatility) is easing, but the Index can only settle when the Fed debate truly settles.

Oil

Following the sharp drop in oil prices amid the omnipresent inflation risk, traders no longer expect OPEC to announce a reversal of its production cut in June or, for that matter, any time this year. And when taken together with the China demand boom in Q2, it could, in theory, tilt the scales bank into an oil deficit in early Q2.

And looking at how quick the official response was to the US banking crisis and with discussion now centring on full deposit guarantees, one could argue that broader volatility measures could subside and help cross-asset sentiment rebound, suggesting the bottom might be in for 2023. If we reach that much-discussed deficit, oil traders could look at this week's Brent $71.44 print with nostalgic yearning come June.

Of course, trading oil takes a great deal of emotional mastery. Still, markets likely turned excessively pessimistic about the near-term growth outlook driven by the latest VAR-driven liquidity shock.

Goldman and Trafigura painted the benchmarks green in media circles today, which likely helped the recovery.

Gold

"Panic in CoCo Park" drove feverish demand for gold yesterday, but perhaps some Fed uncertainty, with US 2-year yields up, has tempered the fever. Compounding issues China and India premia/discounts have fallen, which was likely an additional drag in Asia. Still, with the magnitude of global banking backstops settling in, some of the heat has undoubtedly come off the bullion "safe-haven" rally. So now fundamentals, primarily a weaker dollar and recession fears, may need to start doing the heavy lifting, especially after ETF paper buyers backed the truck the past 7 days.