Something Breaks: ES, Carry Crosses Tumble

Tyler Durden's picture

Out of the blue, ES just dropped a good 5 points. Yes, in the good old PCP (Pre-Central Planning) days, this was perfectly normal, but since now we have a whole army of millisecond, algorithmic robots and a whole floor at 33 Liberty dedicated exclusively to making sure things like this never happen, it is rather disturbing. And in tried and true (anti) correlation fashion, the USD/JPY are jumping against all carry crosses. As far as we know this was not predicated by any news: granted, export news out of Japan were horrendous (12.5% Y/Y drop), but those should have been mostly priced in. Having observed the overnight futures every day for the past two years, this kind of thing "just doesn't happen" any more, which is why we are eagerly searching for what may have been the catalyst. If we find one, we will promptly update. In the meantime remember: he who defects first, defects best.

ES upward channel now solidly broken:

One potential explanation is in the form of the following report from the WSJ that banks face potential liabilities of over $17 billion on fraudclosure, but we doubt it.

State attorneys general told the nation's five largest banks on Tuesday they face a potential liability of at least $17 billion in civil lawsuits if a settlement isn't reached to address improper foreclosure practices, according to people familiar with the matter. The figure doesn't cover additional billions of dollars in potential claims from federal agencies such as the Department of Housing and Urban Development and the Justice Department. State and federal officials haven't proposed a specific comprehensive settlement figure, but Tuesday's discussions represented the first effort to formally quantify potential liability.

This is precisely as we predicted when we reported on the $5 billion counteroffer from the banks to the first suggested $20 billion AG settlement: "this is merely a counteroffer to the $20 billion
preliminary bid. Which means that the final number to put the entire
robosigning affair behind us will be about $10 billion give or take. And
banks can go back to doing what they do best: post 0 trading losses per
quarter, and other such infinite sigma events. " in other words, following the initial $20 billion bid, and the banks' $5 billion counteroffer, a settlement will be found in the middle. $17 billion sounds like a nice, solid 2nd round bid.

Another possible explanation is that the market is reacting to the tumble of Glencore shares in their HK debut:

Glencore shares were trading at HK$64.65 compared with the offer price of HK$66.53 each. Last week, Glencore raised $10 billion through a London and Hong Kong initial public offering, giving the Swiss commodities trader the firepower for acquisitions.

Glencore's London-listed shares were stuck under water on their first day on Tuesday, dashing hopes of a strong start after it set a mid-range flotation price for London's largest-ever offering.

We doubt this too: GETCO deals with such a puny distrubance in the farce with a few million channel stuffing ES bids (and offers) each and every morning.