Goldman's Henry Bowe summarizes today's cross market action.
Equities manage to post small gains despite a midday slide. A quick 5 handle drop in SPX had everyone waiting for the ‘fat-finger’ notification. Turns out there was just a large seller. Perhaps an equity / bond reallocation? USTs did suddenly go bid as stocks went offered. But hard to understand the rationale for that type of trade on 11 Jan. Mixed performance under the hood– oil & gas up 1.5% but telecomm down about the same. SPX closes up 5 at 1275. The DOW closes up 34 at 11672. The NASDAQ closes up 9 at 2717.
The VIX ended the day down -.65 at 16.89, closing sub-17 for the first time in twelve days.
EURUSD posts sharp intraday moves – I count 4 different 30 minute periods where the pair covers 50+ pips – but ultimately is contained to a 1.29 handle. Chalk this up to 1) headline whiplash 2) positioning: a large number of modest EURUSD shorts lacking conviction after 2 days of consolidation. Though its worrisome that the EURO couldn’t post a more significant rally on a day where sovereign credit spreads tightened so significantly, there were also a fair number of EUROs sold at bad levels. The upshot = more chop and consolidation unless this week’s auctions from Portugal or Spain bring an extreme result. Elsewhere inFX, the sell-off in US rates helps lift USDJPY and USDCHF. USDMXN makes new lows as the end of the NY session brings in aggressive selling interest. Models selling on IMM close perhaps? Below 12.03 and the chart is wide open.
The US rates market sold off over the course of the morning, finally building in a concession ahead of 3y supply. As expected, the $32b auction went well, coming 0.5bp through the 1pm level and the market traded well post-1pm. We saw light flows with only modestly better buying in belly from FM and treasuries closed the day 1.6- 4.1bps weaker across the curve, with the exception of bonds which outperformed. In swaps the 5y5y point led the move lower and we saw real money and fast money accounts fading the move either by receiving outright or selling payers. Tomorrow brings the 10y auction as well as supply in Portugal.
Commodities finished higher across the board today with palladium up over +4%, while oil closed up +2.2% after a presidential panel investigating the BP Gulf spill called for “urgent reform” and producers suspended output from Alaska’s pipeline following the leak. EIA also predicted today that 2011 oil demand would pick up, forecasting crude to average $93 this year. Flow-wise, we saw quite a bit of long-rolling of energy, along with some profit-taking in Brent as spreads widened substantially. Also interesting to note that cotton traded limit up today.
Credit tightened on thin volume, mostly following European sovereign indices, with spreads closing at 86.25 in IG (-2.75bps) and 103 1/8 (+1/2) in HY.
Tomorrow brings the Portuguese bond auctions, Euroland and Indian IP, UK trade balance, and Brazilian retail sales. The Bank of Thailand also meets tomorrow (25bp hike expected, in line with consensus) and Geithner will speak on China