HSBC’s Kettner says markets have triggered a buy signal after a sharp positioning reset, but warns a hot CPI could push yields toward 4.5%, a “danger zone” that risks broad pressure across equities, credit and EM assets.
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Summary:
- HSBC sees first proper buy signal since prior market shock
- Positioning reset, especially heavy hedging, supports rebound case
- Sentiment, options metrics and momentum indicators turning bullish
- View extends across equities and credit markets
- Core CPI seen as key near-term risk event
- 4.5% US 10Y yield flagged as “danger zone” for risk assets
- Limited margin for error with yields already near threshold
- Hot inflation could trigger broad risk-off across asset classes
HSBC’s chief multi-asset strategist Max Kettner says equity markets may have just carved out a near-term bottom, pointing to a broad-based improvement in positioning, sentiment, and technical indicators across risk assets.
Kettner argues that the recent pullback has now generated the first “proper” buy signal since the earlier “Liberation Day” shock, with recent lows likely to hold in the near term. The shift, he says, reflects a sharp reset in investor positioning, particularly among discretionary accounts that had been heavily hedged amid rising geopolitical and macro uncertainty.
That positioning unwind has been accompanied by improving signals across multiple market gauges. Momentum indicators, options market metrics such as put-call ratios and skew, and investor sentiment surveys all point to an environment where investors are now significantly over-hedged. Historically, such conditions have tended to coincide with market bottoms, as excessive caution leaves room for a rebound once selling pressure abates.
The constructive view extends beyond equities to the broader risk complex, including credit markets, where spreads have stabilised after recent widening. Kettner’s stance aligns with a growing number of strategists who see the recent correction as a reset rather than the start of a deeper downturn, even as volatility remains elevated.
However, the outlook is not without risks. Kettner highlights the upcoming U.S. inflation data as a key near-term catalyst, warning that a stronger-than-expected core CPI reading could disrupt the nascent recovery. A print in the 0.4–0.5% monthly range would likely challenge the market’s recent momentum by reigniting concerns around persistent inflation.
Central to HSBC’s framework is a “danger zone” for yields, with the U.S. 10-year Treasury approaching a critical 4.5% threshold. At that level, tighter financial conditions historically begin to weigh more heavily on risk assets. With yields already close to that mark, Kettner warns the margin for error is thin.
Should inflation surprise to the upside and push yields into that zone, he cautions that correlations could turn adverse across asset classes, leaving few effective hedges beyond the U.S. dollar. In that scenario, equities, credit and emerging markets could all come under renewed pressure.
This article was written by Eamonn Sheridan at investinglive.com.
