Oil continues collapsing. The 7% move today is probably magnified due to lack of liquidity post-Thanksgiving, but nevertheless, the move is huge. Oil is down 34% from recent highs. Fundamentals and real economy do not change this quick, so expect to hear about more “hedge(ed) funds” blowing up. After all, this is a 3 sigma move.

What´s next for oil nobody knows, but 50 USD is a rather big level to watch. For believers in Fibonacci, 50 is the 50% retracement from the 2016 lows.

Oil volatility, OIV index, is now in full explosion mode. This is pure panic and these levels won’t be sustainable long-term, but the rise in oil volatility is simply amazing.

As we outlined earlier, oil stress started spreading to credit several weeks ago. We have been pointing out, no bounce in equities until we possibly see some stabilization in credit. For the equity bulls, unfortunately, credit continues imploding. European iTraxx main continues the move violently higher.

A similar chart is to be found for the US CDX IG index.

Below chart shows the CDX IG index (white) versus oil (inverted, orange). The relationship is rather clear. Add to this crowded positions and low liquidity and the moves continue feeding off each other, causing enormous p/l pain and further risk reduction among funds.

European iTraxx main (inverted white) is now “aggressively” underperforming the Eurostoxx 50 index (orange). The moves in credit are starting to feel rather “panicky”, helping VIX and other related volatilities higher.

Given the continuation in oil prices, we ask ourselves when will the market start to realize Fed can´t be tightening as aggressively as (still) priced in. Maybe time for the Powell put to revive?

Source: charts by Bloomberg