Market volatility has returned with a vengeance, as evidenced by the VIX index staying above 20 for the past few sessions. Equity markets started the day higher but are now in the red after a Bessent headline urged the World Bank to end support for China and Miran’s comment that China’s rare-earths move reintroduces trade uncertainty. Waller’s remarks about expectations of layoffs and lower hiring due to AI have also contributed to the market’s instability.

In terms of liquidity, there has been a significant improvement in Top of book liquidity, with volumes tracking slightly higher this morning up 3% versus the 5-day moving average. ETFs are still inline with year-to-date averages at 31%, indicating that investors are maintaining their exposure to riskier assets.

Systematic positioning analysis reveals that CTAs are sellers in all scenarios in the US over the short term, with plans to offload $1.77B in a flat tape, $2.75B in an up tape, and $10.62B in a down tape. The short-term pivot level for CTAs is currently set at 6,586 on SPX futures.

Our desk’s activity levels are a modest 5 out of 10, with franchise buying slightly better than selling. LOs (Liquidity Providers) are more optimistic, with demand in macro products and info tech versus supply in consumer discretionary and communication services driving their interest. HFs (Hedge Funds) are equally weighted on the buy and sell sides, with demand in healthcare versus supply in info tech also influencing their actions.

Overall, the market’s recent volatility highlights the importance of diversification and a well-thought-out investment strategy to navigate these uncertain times. As always, it’s crucial to stay informed and adapt to changing market conditions to maximize returns while minimizing risk.