In past months, the US/Japan 10Y Treasury rate differentials have been useful tools to guess at market reversals. However, we can see below that the two latest upside reversals in the rate differentials have not pushed US equities higher. This is a sign that NIRP money and/or the Yen carry trade have stopped being a source of liquidity.
We can see below that a strong reversal of the VNQ ETF occurred at the end of September.
VNQ and XLU have retraced almost 50% of their February-August uptrend. This does not look good for Japanese NIRP refugees.
Both the Mammoth sector and the Non-S&P500 sector are displaying negative money flow. This is strange, because it looks like Hillary will win the election, which should be equities positive.
We can see that Hillary's evil biotechs are under heavy pressure, another sign that the election outcome is fairly certain.
This may be why the US 10Y Yields are higher: the market does not care about the Presidential elections, but is already discounting the Fed's rate increase of December.
Note that a similar mechanism took place late last year, before the December hike. (As a reminder, the January drop in equities was mostly due to the reversal of excess reserves.)
We can see below that the drop in Excess Reserves that occurred the week ending October 5 barely compensated for the reversal of the reverse repo operations.
It seems that last week, the reverse repo operations still put pressure on the markets, but we are only $B40 from the yellow average line, indicating that the liquidity pull might be over soon.
Conclusions:
I believe that equities markets should be less negative this week as the reverse repo operations will stop draining money out.
However, a "less negative" situation does not mean "positive." What we would need for equities to bounce is probably a reversal in the Euro/USD - a sign that fear is easing in Europe - as well as a pull back in US rates. This is what large players seem to be expecting for the coming week.