HSBC's Max Kettner on the market's strong 'buy' signals

Summary

• Sentiment and positioning indicators have triggered a buy signal for the broader risk asset spectrum, including equities and credit spreads.
• This is the first proper buy signal since the "liberation day episode," driven by changes in both systematic and discretionary positioning, particularly hedging.
• The near-term low from Monday (implied market low) is likely in, with limited downside for risk assets due to supportive positioning data.
• Multiple signals confirm the buy signal: momentum indicators, surveys (e.g., Investor Intelligence), put-call ratios, and hedging activities.
• Core CPI is the critical inflation metric; a reading of 0.4% or 0.5% would be negative as it could push Treasury yields higher.
• A "danger zone" exists when 10-year Treasury yields approach 4.5%, where only cash and long dollar positions protect against losses across all risk assets (equities, credit, rates).
• Current yields are only about 15 basis points away from this danger zone, indicating a thin margin of safety despite recent Treasury rallies.
• Overall stance is bullish on risk assets based on positioning, but cautious on inflation data and yield levels as key risks.