In the first three weeks of August global equities have fallen by 5% and bond yields have gained by 5-8%. This is a reversal of the rising trend that started in March 2023. Is the higher commodity prices or the chaos in the Baltic Sea to blame? The main reason for now can be in the technical area.
Before the month had started CTA( Commodity Trading Advisor) Funds that are algorithm-driven had almost $72Bn to sell in S&P 500. And given that it is a period when most US institutional traders are on summer break, the algorithm dominates the flow.
In addition to this, retail traders have come back post-AI rally. The percentage of 0DTE ( Zero Days to Expiry) options has increased to 48% compared to 41% since the start of the year.
Both these factors can be the major contributors to the current fall. But the main question is whether this continues or changes.
Given that the Jackson Hole event is on 25th August and the majority of traders would return only after Labour Day weekend on 4th September. The algorithms and 0DTE will continue to dominate the volumes resulting in a volatile session for at least the next two weeks.