Market Recap: Low Volume Christmas Rally As Dollar And Yields Surge; US Risk Hits 6 Month Highs
After an initial bounce early in the am courtesy of a variety of undeserved and circly jerkular upgrades by the big banks, equities zombied out as the liquidity providers scalped their penny quota for the day. In the meantime the DXY hit another multimonth high, passing and closing above 78, creating massive losses for a whole range of FX trading and correlation desks which have yet to unwind underwater positions. If the dollar continues rallying into the New Year a few banks will start 2010 from a 6 feet under (the water surface) position. Another observation, as Nic Lenoir discussed earlier, Treasurys are getting spooked. The name of the game is, once again, starting the be supply, supply, supply, made ever more dreary courtesy of some "we don't get this whole M.A.D. thing" statement in China. The whole posturing about the trade deficit means that Obama will now do everything to make consumer stay true to their noun. If this means Cash for Chinese Crap, or even Cash for Cash, so be it. Summers is already on it, and Bernanke just ordered another 100 tons of ink.
The single most troubling (and lucrative) piece of news: US CDS hit a 6 month wide of 42 bps. At 22 bps from when we noted this was a screaming, brain death buy at 20 bps, the associated P&L on $500 mm notional is roughly $5 million net of the point lost in roll. The risk averse may consider book half the P. Then again, the risk tolerant shall inherit the earth. Those who take on the Fed and win, shall inherit everything.