Market Recap: 11.23.2010
A summary of the day's key events in equities, vol, FX, rates, commodities, credit, insider trading, corruption, monetary manipulation, racketeering, prostitution, and a forecast of tomorrow's market travesty.
- Equities opened lower this morning in NY and traded in the red all day. When the dust settled the S+P was down 1.4% to just under 1181. Today the catalysts were the geopolitical tensions in Korea as well as continued concerns over European debt. Overall flows were light with most of the selling in the higher beta sectors. All 10 S+P subsectors were down on the day with energy stocks doing the worst. Not surprisingly EM stocks did worse than DM stocks as the QE2 trades continue to be unwound (more on this in the FX section). For the technicians amongst you, the next key level is in the low 1170’s which is both last week’s intra-day low as well as the 50 day moving average.
- The VIX gapped higher on the Korea news overnight, though pared some gains into the close to end up +2.22 at 20.59.
- In FX the theme today was EURO pain. Lots of it. EURUSD drops nearly 2% today. That’s 3% since yesterday’s high, a new cycle low, and the second largest daily decline for the year. What’s most interesting: we actually found good buying interest in EURUSD and EURJPY. On a 2% down day, buyers are usually few and far between. Elsewhere in the world of FX, USDKRW unwinds continue, though a few found the modest courage needed to fade the move via 1x2 put spreads and RKOs. USDJPY briefly traded below 83.00 but bounced off its 55d following a weak 5y auction. Bottom line is that there was nowhere to hide today as we got another reminder that complacent QE2 trades remain at risk.
- The rates market began the day on a firm tone on the back of the risk asset sell-off overnight. Worries out of Europe and Korea helped the market rally about 8.5bps from yesterday’s closing levels before we began to see some outright concession going into the $35bn 5yr auction. The auction came weaker than expected clearing at 1.411% (2.3bp tail), sapping the market out of its positive momentum. The FOMC minutes didn’t do much either way and we saw fast money taking profits on longs in intermediates. Tomorrow brings the 7yr auction which should be particularly tricky given the weakness in 5yr supply today and the fact that we still have a week to go before the end of the month making it harder to match off any flows against potential month end extension flows.
- In commodities, gold rallied the most it has in 2 weeks, ending up 1.5% on the day. Silver was up a more modest 0.4%. Interestingly, precious metals held their ground even as the dollar gained. We long-rolled gold for clients in good size. Energy was down today except for gasoil, up .3%, as concerns over Eurozone debt troubles outweighed stronger refinery demand, and the stronger dollar weighed down the complex. All eyes are on inventories tomorrow, which look like they are set for a third weekly draw. Cotton was limit down for the 3rdday in a row today, the decline exacerbated by news that India may boost exports due to a 27% rise in output. Grains held their ground despite dollar strength – soybeans were up 1.4% and corn up 2.6%. We bought some wheat and also long-rolled into next year for numerous clients
- Credit opened wider following the news out of Korea and continued to selloff on continued concerns over credit in Europe, poor performance in equities, and FOMC comments that were more negative than expected. We saw continued decompression between HY and IG with some outflows leading to a 0.5 pt move lower in the HY index in the last hour of trading, though the move occurred on low volume. HY closed down 1.25 points to 99.25 and IG closed 4.5 points higher at 95.5.
- Pretty much every single hedge fund ever was found to be a fraud and an insider trading abetted scheme. 3 and 50 is dead. 2 and 20 is on its death bed. Soon everyone will be forced back into mutual funds to make up for the over 6 months of outflows from mutual funds.
- The Fed minutes came out today. Here is the bottom line from GS ECS: Text of minutes to the Nov 2-3 meeting, at which the FOMC decided to purchase $600bn in Treasury securities, contains few surprises around a general theme that progress in reducing unemployment has been disappointing and that inflation is too low. FOMC forecast changes reflect this judgment on unemployment with substantial upward revisions in the level of the jobless rate and downgrades to near-term (2010 and 2011) growth; however, inflation forecasts are actually slightly higher. However, in a conference call meeting three weeks earlier, the committee apparently discussed a variety of different strategies, ranging from changes in modes of communication to alternative frameworks such as targeting price levels, inflation, or longer-term interest rates, though with no decisions taken at that session.
- Tomorrow brings US durable goods, core PCE, Michigan consumer sentiment, new home sales; German IFO Business Survey; UK GDP; and Euroland manufacturing orders.
From GS and ZH (not, per se, in collaboration)