Citi warns: Positioning so one-sided that CPI surprise may 'break the rally'

investing.com:

Citigroup strategists noted a one-sidedly bullish and extended sentiment in the equities market, but a surprise in Tuesday’s CPI print could break the ongoing rally.

“Sentiment is overwhelmingly skewed net bullish almost everywhere as the extended rally has driven long positioning to build to extended levels in many markets. However, the rate of flows has been slowing even as the rally continues and for Nasdaq ETFs, it has turned to outflows,” the strategists said.

“This may reflect investor caution ahead of the key US CPI print this Tuesday and with positioning so one-sided and extended, a surprise might just break the rally,” they wrote.

In the US, although the investor sentiment towards equities has cooled, it hasn't shifted towards outright bearishness, the strategists observed.

They said that there are still very few short positions on the S&P 500 and none on the Nasdaq, indicating a lack of bearish sentiment. However, the strategists point out that the pace of establishing new long positions and ETF inflows has decelerated since the end of 2023.

Elsewhere, the strategists highlighted a moderation in Eurostoxx bullish positioning recently, interrupted by significant new long positions, notably in European Banks, hinting at a halt in the decline of net positioning. This marks the sole major bullish sentiment shift in the past week.

In Asia, sentiment for China A50 turned bullish, though momentum waned over the last two weeks, with exposure reduction noted. Meanwhile, Hang Seng saw unwinding of short positions, slightly improving sentiment, “but not necessarily bullish,” the strategists wrote.