FAST FIVE: Morgan Stanley: "We Are Underwhelmed By This Low Participation Rally"
Furthermore, the bank reminds its clients that last week flagged “that very bearish SX5E futures positioning would allow for sharp bursts higher and that has largely played out ($20bn of a total $50bn of net shorts were covered).” But, beyond that, Morgan Stanley remains rather “underwhelmed by the lack of 'new' positive positioning in futures/options/cash.” Looking at European stocks, the MS quants write that “after a strong week of covering (with almost no long additions), we estimate clients are now short $30bn of SX5E futures – longs of $12bn and shorts of $43bn (left chart).” Meanwhile, hedge funds have once again failed to take advantage of this record short squeeze in equities, and in the cash market, there is ZERO evidence of HF re-grossing last week with the move higher.
In fact, the bank writes, “gross exposure fell further (from 180% last week to 167% now.
In contrast, “the rally in the last week has taken place on very low volumes comparison” (green vs.
purple diamonds in right chart).
This takes 1 month total redemptions for EU Actively Managed Funds to $15bn, surpassing the 2 previous largest months – Jan 08 (GFC) and Jun 16 (Brexit) both of which saw a monthly outflow of $14.5bn.