Copper

Overnight excitement from the RBA (no rate cut) and concerns at China's GDP growth given a European recession did nothing to initially slow risk markets early on as they reached up to yesterday's highs as ES (the e-mini S&P 500 futures contract) and BE500 (the broad Bloomberg equity index for Europe) pushed higher out of the gate (as AUD strength sustained carry trades - which appear now to be leaking back off). EUR managed to get back to yesterday's highs and found resistance and once it began to leak lower (and USD lower implicitly) then equities (and commodities on China un-easing concerns) started to stumble pretty hard. Following China's Shanghai Composite, European stocks are now down around 1% and credit is slowly gathering pace to the downside (though not as weak as stocks for now). Portugal showed some strength early on but has given that back as most sovereigns are trading 0-3bps wider in 10Y cash spreads for now (likely the trigger for non-sovereign credit). Some comments from Juncker on special Greek accounts and Klass Knot on the Euro's success top off a quiet morning with some risk off starting to gather pace.

While the EURUSD's recovery post Europe's close seemed to modestly support stocks, the USD is still up from Friday's close as ES (the e-mini S&P 500 futures contract) closes marginally in the green against the direction of FX carry, Treasuries, commodities broadly, and credit. The volumeless (and gravitationally unchallenged) push from post-Europe dip lows this afternoon were generally ignored by VIX, investment grade, and high-yield credit markets, after the morning was a relatively significant amount of selling pressure in HYG (the increasingly significant high-yield bond ETF) to pre-NFP levels only be bough all the way back and some more into the close. Average trade size and deltas had a decidedly negative feel on every algo-driven push higher from VWAP to unchanged but the divergence between Brent and WTI dragged the Energy sector over 1% higher (as every other sector lost ground with Financials and Materials underperforming. Treasuries rallied well from the Europe close and closed just off low yields of the day as commodities all ended lower from Friday's close with Copper and WTI underperforming and Silver just edging Gold as they hovered around USD's beta for the day. VIX dropped modestly after the cash close but ended higher on the day with a notably low volatility of vol from mid-morning onwards (and the late-day vol compression seemed index-driven as implied correlation also fell commensurately). A quiet day in European sovereign and financials along with the disastrously low volume day in ES and on the NYSE really don't feel like signs of broad participation as Greek events slowly but surely unfold along the path of known resistance.

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Daily news.

Equity and credit markets eked out small gains on the day as Treasuries limped a few bps lower in yield (with 30Y the notable underperformer) and the EUR lost some ground to the USD. ES (the e-mini S&P futures contract) saw its lowest volume of the year today at 1.35mm contracts (30% below its 50DMA) as NYSE volumes -10% from yesterday but average for the month. Another small range day in almost every market aside from commodities which saw significant divergence with Silver (best today) and Gold surging (up around 1.15% on the week) while Oil and Copper dived (down 2.6-3% or so on the week) with the former managing to scramble back above $96 into the close. ES and the broad risk proxy CONTEXT maintained their very high correlation as Oil and 2s10s30s compression dragged on ES but AUDJPY and TSYs post-Europe inching higher in yields helped ES. HYG underperformed all day (often a canary but we have killed so many canaries recently). Energy names outperformed on the day (as Brent and WTI diverged notably) but financials did well with the majors now back up to the late October (Greek PSI deal) highs. All-in-all, eerily quiet ahead of NFP but it feels like something is stirring under the covers as European exuberance didn't carry through over here (except in ZNGA and FFN!).

Whether it was FX majors, the Treasury complex, or the economically-sensitive commodity markets, the 'negative' shift from yesterday's open (USD up, TSY yields down, Commodities down) plateaued overnight and retraced throughout the day today. Equities and credit however managed to make new highs (while all these other risk-related assets did not) as they stayed in sync for the afternoon (double-topping on lower volume) as financials outperformed (MS +5% for example) on what we can only imagine was Greek rumors (which later proved as usual to be completely false). Oil dropped markedly into the close, heading for $97 as Gold remains the week's winner (though Silver and Copper won on the day). The USD is flat (leaking higher in the late day) to yesterday's pre-market after trying and failing at 1.32 against the EUR (which is the underperformer vs USD on the week for now -0.48%). Treasuries sold off, adding 3-7bps across the curve (though still lower yields on the week) and while 30Y underperformed, 2s10s30s did not move much as the rest of the curve pivoted. The last 30 mins of the day saw ES pull back from its lonely highs to test VWAP (and IG and HY credit also fell with it) as open to close, credit underperformed, and cheap hedge IG was moving more negatively than beta would suggest. By the close, ES had pulled back (lower) to converge with CONTEXT (proxy for broad risk assets) and fell below VWAP as once again average trade size picked up significantly to the downside.

Gold outperformed (+0.5%) today (as the rest of its commodity peers lost ground on USD strength today) and Copper and Silver underperformed. But for January, Silver is the clear winner in the global asset return race (at almost a 20% gain) with Gold in 2nd place at around +11.2%. JGBs and the DXY (USD) along with UK Gilts and Oil lost the most ground among the major assets we track. The outperformance of the precious metals as the dollar ebbed along with the general 'last year's losers were January's winners' and vice-versa was evident as Asia Ex-Japan and EM equities surged along with Nasdaq (and Copper). Long-dated Treasuries have just limped into the money for the year as they rallied dramatically today - ending the day at their low yields (new record 5Y lows) with 30Y now -12bps on the week. FX markets gave a little of the USD strength back in the afternoon but the rally in stocks was almost entirely unsupported by risk assets in general (as it seemed like a desperate low-volume try to push ES back to VWAP into the close to hold the 50/200DMA golden cross in SPX) after this morning's dismal macro data. Financials rallied to fill some Friday close gaps but gave some back into the close as CDS inched wider and Energy underperformed as Oil came almost 3% off its early morning highs (managing to crawl back above $98 by the close). IG credit outperformed as HY and stocks were largely in sync but open to close, credit outperformed stocks on a beta basis (after overnight exuberance in stock futures faded).

US equity markets went sideways to higher after the European close on low volumes and minimal support from broad risk drivers in general (with SPX bouncing off 1300). HYG tracked ES (the e-mini S&P 500 futures contract) higher as it tried to get back to unchanged (during an afternoon of notably smaller average trade size until the close which suggests covering by bigger players). HY and IG credit markets were not as ebullient as stocks and into the close HYG sold off relatively well to catch back down with HY's weakness on the day. Treasuries, credit, FX, and commodities all closed near the middle of the day's range while ES managed to get back near its highs (with volumes down 15% from Friday and near the lowest of the year so far). Financials underperformed once again (as Tech was the only sector in the green by the close). Treasury yields helped support some of the rally in the afternoon in US equities as 30Y shifted from -11bps to -5bps by the close but overall Treasuries outperformed (stocks should be down more on a beta basis given bonds move). JPY was the outlier today, stronger vs USD by 0.46% from Friday while elsewhere in FX, the USD (+0.4% from Friday) lost some of its gains against the majors after the European close with EURUSD back above 1.31 by the close. Gold (with its pending death cross to match SPX's golden cross) just outperformed its commodity peers (with oil close behind) though they all lost ground as USD strengthened with Copper and Silver underperforming. VIX gained about 1 vol from Friday but leaked lower by around 1 vol from its opening peak above 20.

The divergence between credit and equity marksts that we noted into the European close on Friday closed and markets sold off significantly. European sovereigns especially were weak with our GDP-weighted Eurozone credit risk index rising the most in six weeks. High beta assets underperformed (as one would expect obviously) as what goes up, comes down quicker. Stocks, Crossover (high-yield) credit, and subordinated financials were dramatically wider. Senior financials and investment grade credit modestly outperformed their peers but also saw one of the largest decompressions in over a month (+5.5bps today alone in the latter) as indices widen back towards their fair-values. The 'small moderation' of the last few weeks has given way once again to the reality of the Knightian uncertainty Europeans face as obviously Portugal heads squarely into the cross-hairs of real-money accounts looking to derisk (10Y Portugal bond spreads +224bps) and differentiate local vs non-local law bonds. While EURUSD hovered either side of 1.31, it was JPY strength that drove derisking pressure (implicitly carry unwinds) as JPYUSD rose 0.5% on the day (back to 10/31 intervention levels). EURCHF also hit a four-month low. Treasuries and Bunds moved in sync largely with Treasuries rallying hard (30Y <3% once again) and curves flattening rapidly. Commodities bounced off early Europe lows, rallied into the European close and are now giving back some of those gains (as the USD starts to rally post Europe). Oil and Gold are in sync with USD strength as Silver and Copper underperform - though all are down from Friday's close.

A brief and comprehensive summary of the main events in the past week, both good and bad.

We noted last night that heavy and large average trade size was going through after the cash market close in S&P futures and it seemed overnight we needed one more push to flush out some more chasers before today's less than euphoric macro prints (aside from CFNAI's market-centric index) stalled the Fed-induced excitement. Financials had their worst day of the year (worst performing sector 2 days in a row), down just under 1% as did the Tech and Energy sectors as Utilities were best once again. Volumes were up with ES at its 50-day average and NYSE volume second highest of the year as ES (the e-mini S&P 500 futures contract) slid 20 points or so from opening highs up near 1330. Equity and credit markets tracked on another closely all day (as did broad risk drivers) with a last-30-minutes ramp (once again on high average trade size) just for good measure taking ES back to Tuesday after-hours swing highs. The late swing up looked like a recovery from being modestly oversold relative to risk assets as TSYs, FX, and commodities all trod water as stocks pulled up 5-6 S&P pts into the close. TSYs all rallied on the day with 2s-10s all at week low yields and 30Y starting to catch up to the excitement at the end of the day (though 2s10s30s remains notably 'low' relative to ES currently). Gold and Silver continued to outperform (up around 3.5% on the week) and Copper held onto its gains while Oil dropped back below $100 after getting above $101 early in the day. The correlation of EURUSD and risk has re-emerged recently and post-Europe's close today, USD strengthened though EUR remained just above 1.31 as we closed.

Riskier assets advanced today, as market participants reacted to yesterday’s FOMC statement, as well as reports that Greece is making progress in talks for a debt-swap deal. However despite a solid performance by EU stocks, German Bunds remain in positive territory on the back of reports that the ECB has ruled out taking voluntary losses on its Greek bond holdings but is now debating how it would handle any forced losses and whether to explore legal options to avoid such a hit according to sources. As such, should talks between private creditors and other governing bodies stall again, there is a risk that Greece may not be able to meet its looming financial obligations. Of note, Portuguese/German government bond yield spreads continued to widen today, especially in the shorter end of the curve.

UPDATE: Stocks leaking back now, Financials lagging, Utes leading

TSYs are 5-10bps lower in yield (aside from 30Y), ES (and credit) rallying but underperforming on a beta basis to TSY/EUR, EUR stronger at 1.3050 now (USD weaker), and precious metals jumping (Gold back up to $1685).

With quarter-to-date volumes at the NYSE 20% below Q4's average, we wonder just how much bank's earnings will be impacted as today saw the credit derivative index market 'disappear' this afternoon also. IG and HY traded (or at least were quoted) in an extremely narrow range post the European close (as ES also traded in a 2pt range for two hours post Europe before making a slightly bigger move). Stocks (and HYG) outperformed IG/HY today but ES has not been levitating as much as credit post OPEX. EURUSD rallied post the Europe close (as for the 4th day in a row, European equity and credit markets reversed direction pre- and post-US day session and then EUR reversed direction on Europe's close). The EUR-implied USD weakness did nothing to drive risk assets too much though HYG (the high-yield ETF) was active and positive on the day as we see HY credit and stocks as close in 'value' as they have been in almost 8 months. It seems obvious that between AAPL earnings (down today), the SOTU, and a Greek fiasco any moment that most 'traders' are either fully positioned and biting their nails or simply in wait-and-see mode. Copper outperformed on the day as Oil, Gold, and Silver all fell on the day (with Silver in a frenzy last evening). Gold and Silver are lower from Friday now and while TSY yields did drop into the close, they remain3-4bps higher on the week. The modest rally to almost unch in ES into the close was not supported by broad risk assets which were stable to modestly lower after holding high correlations all day.

Amid the lowest NYSE volume of the year (-24% from Friday - OPEX) and pretty much the lowest non-holiday-period volume in 9 years based on Bloomberg's NYSEVOL data, ES (the e-mini S&P 500 futures contract) ended the day almost perfectly unchanged underperforming 5Y investment grade and high-yield credit indices on the day as both moved to contract tights (their best levels since early August last year) even as their curves flattened. There has been lots of chatter about how the steepening of the short-end of the European sovereign bond markets (Italian 2s10s for instance) is a sign that all-is-well in the world again, well unfortunately the flattening of the short-end of US IG and HY credit markets sends a rather less positive signal than headlines might care to admit (as jump risk in the short-term remains 'high' relative to bullish momentum in the medium-term). At the same time, vol markets are showing extreme levels of short-term complacency as 1m VIX is almost at record low levels relative to 3m VIX (and diverging today from implied correlation). Broadly speaking , risk assets rallied into the US day session open only to sell off into the European close (with Sovereigns leaking back the most). The afternoon saw risk rallying as the path of least resistance appears to be up all the time there is no news. Stocks ended well off their highs of the day, in line with broad risk assets, as TSY yields rose 3-4bps higher, Oil and Copper 1.5-1.75% higher (outperformed) while Silver and Gold hugged USD weakness at around a 0.5% gain from Friday's close.