In what appears to be the first real action post-Flash Boys, NY AG Eric Schneiderman will announce at 4pm ET that Barclays will be sued over fraud allegations related to its Dark Pool's preferential treatment of high-frequency traders. As Bloomberg notes, Barclays runs one of the market's largest dark pools. This comes 2 months after the NY AG sent requests for information to various major HFT shops. It seems, just as we noted here, that a potential scapegoat is being primed 'just in case' this 'market' can't withstand the Fed's pullback.
Overnight exuberance on China PMI (which was entirely opposite China's Beige Book results) sent stocks to record-er highs but Europe's dismal PMIs corrected that into the US open. Better-than-expected US data (which under the surface looked anything but) did absolutely nothing to spur exuberance in stocks and aside from a little weakness early, it appeared stocks and bonds forgot the weekend was over as they traded in extremely narrow ranges all day. Trannies were weak (biggest drop in 10 days). The USD ended down 0.15% (with modest JPY strength and AUD gains). Treasury yields closed +1-2bps (in a 3bps range). VIX rose for the 2nd day (back to 11). Gold and silver flatlined as copper popped and oil slipped. Of course, why waste a perfectly good Tuesday by closing green today...
US equity markets were unable to maintain any of the kneejerk, VIX-smashing jerk higher post-FOMC momentum from yesterday and closed unch to slightly red (after some US open exuberance ran all-time-high stops once again). Equities did catch some bid late on as rumors of AAPL iWatch spread. VIX hung very stable at around 10.6 providing some support for stocks. Away from stocks flatness, Treasuries had a violent day. Early strength following Yellen yesterday began to fade as US equity markets opened and yields pushed higher, then when the 30Y TIPS auction tailed, longer-dated bonds slammed higher in yield. There was a mild pullback rally into the close but 10Y ended +4.5bps (30Y +7bps, 3Y unch). The big news of the day - given how flat USD was - is the huge spike higher in gold (+3%) and silver (+4.4%) - the biggest jump in 9 months. Gold and Silver are back at 3-month highs (breaking back above $1300 and $20 respectively). Once again JPY carry entirely decoupled from stocks but a late-day modest melt-up dragged all the major indices (except Nasdaq) just into green for the day) but leaves the S&P lagging gold and silver year-to-date again. S&P 500 closes at another all-time high.
Larry Fink told the world this morning that central banks are holding a floor under stock prices (but wouldn't expect to see large price increases) - and judging by the gamma imbalances in volatility-land, they are using options markets to unriggedly manage that implicit put. However, given the utter dominance of the machines in the market and any reaction when real volume hits stocks (always down), we thought, courtesy of Nanex, a gentle reminder of just how quickly the Fed put disappears would be useful in this new "we can never get hurt, valuations are within norms, there is no complacency" normal.
Best week for WTI crude in 6 months (to 9 month highs). Worst week for the Dow Transports in 2 months (3rd worst in 10 months)... and while 5s30s flattened to its equal lowest since January 2009, 10Y Treasury yields ended the week just 1bp higher in yield. Late day VIX smashing was trumped by rumors of the death of Iraq's PM Maliki (which was later denied and sent VIX reeling lower again). The USD ended the week modestly higher (+0.2%) with GBP strength and EUR weakness the main theme. Silver and gold were bid (safety and CCFD unwinds) with the best week in 3 months. Copper and iron ore were down for the 3rd week in a row. "Most shorted" stocks rose for the 5th week in a row (notably decoupling from the broad markets's weakness in the last few days). So it seems that the market does not trade on bad news; it trades on fake rumors.
It seems blood on Iraq streets and infringements near oil reserves is enough to pop crude oil price, break the airlines bubble, stall the Trannies unstoppable surge, and spark volume selling through the US equity markets. We will be reassured that this is a buying opportunity and that 'nothing fundamental has changed' and the US is 'the cleanest dirty shirt' but when the Chinese are tamping down carry with flip-flopping CNY fixes, the ECB has shot his mini-bazooka, and we know the Fed ain't un-tapering anytime soon (as they are fearsome of complacency and financial fragility), it makes one wonder if the corporate buyback machine can overwhelm the geopolitical-risk selling pressure of the rest of the world. Trannies dropped to their worst day in 4 months as all major US equities reversed any Draghi gains. Treasuries were well bid (-6bps and lower in yield on the week) as gold also benefited from safe haven status rising up to $1275. Copper slipped further south. Oil was the big news, spiking up to $106.70 (9 month highs). It's not Tuesday - what did you expect? (and remember there are no Friday POMOs in June).
Just how badly is Generation X doing? Bad enough to turn around the entire concept of middle-class prosperity in America - one where every next generation should do better than the preceding one - on its head. "Only one-third of Generation X households had more wealth than their parents held at the same age, even though most earn more, The Pew Charitable Trusts found." And there, in a nutshell, is your so-called recovery: two thirds of an entire generation - one which is in its prime working years - doing worse than the one before them!
Looking across retailers with at least $1B in market cap, the top 20 of those with the highest concentration of activist investors has under-performed a leading retailing index.
"Treasury-selling" Tuesday came and went and for the 2nd week in a row, bond yields rose (+2-3bps) following the 7th losing Monday in a row. Equity markets languished amid dismal volumes but were rangebound all day apart form AUDJPY and VIX-driven pumps to try and close green and keep the Tuesday dream alive (and the running count of new all-time highs). The USD jumped once again as EUR tested lower (near Draghi spike lows). Gold and silver saw a squeeze higher at the open this morning and maintained gains (as fears of CCFD unwinds spread) but copper rose as WTI crude touched 9-month highs then reversed sharply lower. As we forecast this morning, a mid-day VIX plunge and late-day JPY tumble (and another VIX plunge) sparked just enough exuberant buying panic among the machines to manipulate stocks to a green close and save the Tuesday plan. Stocks have fallen only 2 days in the last 3 weeks...
The initial exuberance over Draghi's actions (and promises) faded quickly with Treasury yields falling and the EUR surging back higher (to close at 10-day highs)... but thanks to sterling work by AUDJPY and some well chosen 'I'm not scared anymore' comments from David Tepper, US equities soared in a world of their own (as VIX dropped). Volume was also heavy (but the siz came on the downswing after the initial jerk higher from the ECB). The Russell 2000 soared ~2% (best day in 3 months), Treasury yields closed lower, the USD closed lower (as EUR surged) and unchanged on the week, and gold and silver jumped. VIX also helped to support stocks at it dropped modestly (but remains notably disconnected from the equity exuberance). NFP tomorrow... time to sell vol for sure!!
It was interesting this week to watch the media explode in a frenzy of reporting over the "stronger than expected" auto sales. The increase in auto sales to 16.9 million units was certainly a welcome number. However, was it really the "long awaited" sign of economic recovery that it was portrayed to be?
- U.S. sets new import duties on Chinese solar products (Reuters)
- U.S.-China Solar-Products Dispute Heats Up (WSJ)
- China Mulls Offshore Yuan Gold Trade in Free Trade Zone (BBG)
- Insider-Trading Probe Could Snarl a Deal for Icahn (WSJ)
- KCG Holdings Suspects Its Trading Code Was Stolen (WSJ)
- ‘Period. Full Stop’ Is the New ‘At the End of the Day’ (BBG)
- Draghi not so goof for bonds: Investors Flag Risk of ECB Disappointing After Europe Bond Rally (BBG)
- But great for stocks: Equity Traders See Draghi Turning Throttle Up on Rally (BBG)
PMI beat, ISM missed (after all fabrications), and construction spending missed big... so sell bonds and buy stocks!! Today saw Treasury yields spike 5-7bps (10Y's biggest 1-day move in over 6 weeks). Stocks were mixed with Trannies surging once again to record-er highs (+0.5%) and Russell (-0.5%) along with Nasdaq modestly red (S&P and Dow also record highs). Of course all the excitement of the day was the post-ISM reaction and re-reaction (which saw the Russell lose 1.2% at its worst). The USD rose 0.3% (best day in a month) to 4-month highs. Gold, silver, and oil all fell 0.4% or so (reflecting USD strength) as Copper surged 1.4% (presumably after China's PMI over the weekend). VIX was higher and notably divergent from stocks once again...
AAPL stock began to tumble quickly but was saved miraculously... as that buying ramp began, the Bloomberg data feed exploded with SEC Short Sale Rule 201 headlines and has been puking them since 1429ET... the NASDAQ has just admitted it has a problem...
From 1235ET to 1255ET today, the SIP (the data feed that the general public relies on for its trade reporting) went dark for a number of symbols (including SPY - the massively liquid S&P 500 ETF). Luckily - for the High Frequency Traders - the Direct Feed kept on getting data and as the detailed charts from Nanex below show, the machines and their keepers continued to trade with asymmetric information... un-rigged?