21.09.2026 - Short Squeeze!?
Stock markets started the week on a strong note, with technology stocks clearly outperforming.
The main driver behind today’s risk-on move is the sharp decline in oil prices, combined with slightly less pressure from bond yields. Oil fell around 5%, with WTI dropping below USD 100 per barrel, providing some relief to inflation concerns and supporting equity markets.
The decline in oil comes as markets price in renewed hopes for diplomacy in the Middle East and improved oil flows through the Strait of Hormuz. However, geopolitical risks remain elevated and the underlying situation remains fragile.
Investors are also increasingly turning their attention to the Trump–Xi meeting on Thursday, September 24, where trade, technology, AI and geopolitical issues are expected to feature prominently.
Markets:
Equities: strong performance,particularly in technology stocks, with characteristics of a short squeeze
Bonds: yields little changed - US 2y yield above 4.76%, US 10y yield above 4.96%, Japan 10y yield 2.99%
Commodities: Oil prices fell sharply by almost 5%, WTI at USD 96/barrel and Brent around USD 100/barrel;
Precious metals prices fell as well, gold USD 4’345/oz, silver above USD 66/ozCurrencies: US dollar moving higher - Japanese Yen fallsUSDJPY 158
Cryptos: Strong rally - Bitcoin above USD 86k
Volatility: The VIX index remains below 15 ( good level for hedging!)
My View: I am rather surprised by the strength of today’s move.
I have repeatedly highlighted that the direction of equity markets increasingly depends on the oil price, and today is a clear example. The sharp decline in oil provides temporary relief for inflation expectations, bond yields and therefore equity valuations.
However, I see little fundamental justification for such a strong move higher in equities.
Today’s rally has many characteristics of a short squeeze. Since the Fed’s rate hike last week, market participants positioned for a weaker equity market have repeatedly been caught on the wrong foot, forcing some investors to cover short positions and adding further momentum to the rally.
At the same time, the broader macro picture has not materially improved. Bond yields remain extremely elevated, monetary policy is becoming more restrictive, energy prices remain high despite today’s decline, and geopolitical risks have not disappeared.
Oil prices are falling primarily because the market is currently pricing in improving supply flows and renewed hopes for diplomacy rather than another deterioration in the Middle East.
In other words, no bad news is already good news for investors.
With volatility below 15 and risk appetite returning quickly, investors once again appear remarkably comfortable despite the number of unresolved risks.
I therefore remain cautious. Today’s relief could prove temporary, and I expect market dynamics to change quickly again.
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