Market Weakness Intensifies Amid AI Unwind and Liquidity Strain

Market Overview - The S&P 500 experienced a decline of approximately 1.7%, indicating a negative market sentiment, particularly affecting AI-related stocks like Oracle and CoreWeave, which have seen significant losses recently [1][4] - The widening of credit default swaps for these companies suggests increasing market skepticism regarding the AI trade [1] AI-Related Stocks - SoftBank, previously rising alongside implied volatility, has also seen a notable pullback, although it remains substantially up compared to earlier levels [3] - The trend indicates a potential unwinding of the AI-related trade, possibly reverting to pre-earnings conditions focused on equity and volatility dispersion trades [4] Liquidity Conditions - The average repo rate was around 4%, indicating tight liquidity conditions, which are not expected to ease significantly in the near term [6] - Upcoming Treasury settlements amounting to approximately $60 billion next week will likely maintain tight liquidity, regardless of any reductions in the Treasury General Account (TGA) [8][21] Treasury Settlements - Specific settlement amounts include $26.7 billion on the 17th, $14 billion on the 18th, and $18 billion on the 20th, contributing to ongoing liquidity constraints [8] - Reserve balances remain low at around $2.88 trillion, limiting the potential for significant liquidity increases even if the TGA is reduced [21]