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Commodities And Rates Lead Derisking Afternoon

Tyler Durden's picture




 

High yield credit spreads were the first to show signs of disappointment this morning but this seemed more due to technical relationships in the CDS index market as HYG stormed ahead with stocks. Commodities had notably cracked early on this morning and were trending lower already as we broke the FT rumor of broad S&P downgrades in euro sovereigns. All markets reacted instantly, no questions asked, and while IG, HY, and the S&P dropped together, it was the drops in commodities as the USD strengthened that were optically of the highest magnitude. TSYs also instantly reacted and were another major outperformer - drastically beating Bunds on the day. ES (the e-mini S&P 500 futures contract) was much less volatile than broad risk assets overnight but as Europe opened markets started to move closely together in a positive risk mode. CONTEXT (the broad risk basket) was less positive that ES in the US morning session but as we sold off and closed they were closely in sync once again as every member of the basket was contributing to risk aversion. Financials outperformed but were well off their intraday highs as a sector with the majors closing mixed (e.g. BAC near lows and MS near highs) but we note that financials were the most net sold (especially the majors) in corporate bond land.

Some late day covering lifted 30Y TSY yields and EUR strengthened against the USD (European banks repatriating ahead of their open?) helping CONTEXT and elevating ES into the close. ES was on its own relative to credit though as it tore back up to try and regain VWAP.

ES and broad risk assets (CONTEXT) generally stayed in sync and the late day surge in ES was accompanied most clearly by 30Y weakness and EUR strength (did Europeans get a late night call?).

It was certainly notable that 30Y stood out in the sell-off relative to the rest of the curve in that last few minutes. In corporate bonds, HY bonds were net bought (which means buy-side clients bought more FROM dealers than they sold TO dealers) and IG bonds net sold. This HY buying perhaps fits with the HYG moves also (as dealer inventory deleveraging is increasingly dwarfed by ETF and mutual fund flows). Most notably, Financials (which were the clear winners in stocks) saw major net selling in bonds - dominated by the majors - and this was not TLGP paper - this was further out the curve.

Credit (IG and HY) did not participate in the last minute surge up in ES as it tried to get back to 1258 (VWAP).It almost exactly hit it (see chart below - solid red line) and then retraced back down right as we closed.

Once again HYG outperformed both stocks and HY spreads and HY spread weakness (due potentially to index arbitrage) was not enough to explain the weakness and we grow increasingly concerned at HYG's richness to NAV and momentum-like characteristics as what looks like retail chases it up here.

If we didn't know better we would expect a margin hike in Silver tonight but it was clear that commodities were not bid even before the S&P rumor/news. Silver is now down almost 2% from Friday's close as Oil stays much closer to the USD moves.

Chart: Bloomberg and Capital Context

 

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Mon, 12/05/2011 - 17:11 | 1948226 hugovanderbubble
hugovanderbubble's picture

thx for daily analysis.

Its impossible to modelize a Broken market activity...(At least i cant)

Mon, 12/05/2011 - 17:25 | 1948275 HedgeAccordingly
HedgeAccordingly's picture

i second that.. nice technical analysis combined with commentary - http://hedge.ly/twn7Lr

Mon, 12/05/2011 - 17:11 | 1948228 Ahmeexnal
Ahmeexnal's picture

sounds like war drums

Mon, 12/05/2011 - 17:17 | 1948242 Stack Trace
Stack Trace's picture

Scratching head....

ISM Misses

Factory Orders Miss

S&P Announces downgrade watch for 17 EZ countries

Euro down

...but...but.... EQUITIES ROCKET lead by Financials because.... because Merkel and Sarkozy have agreed to not agree completely. WTF

 

This market is beyond retarded...or...there is information some folks have the rest of us don't...yet and the VIG is in.

Mon, 12/05/2011 - 17:25 | 1948277 Cult_of_Reason
Cult_of_Reason's picture

I am as perplexed as you are. In particular about a huge Italian and Spanish bonds rally today (short covering?).

I am afraid there is information PDs know (from Bernanke/Geithner/White House) that the rest of us don't.

Mon, 12/05/2011 - 17:34 | 1948320 Scalaris
Scalaris's picture

I know how you feel.

So I suggest you start drinking.

Mon, 12/05/2011 - 17:41 | 1948361 Stack Trace
Stack Trace's picture

Going rock climbing instead. Hopefully that keeps my mind off this mountain of utter BS.

I long for the good old days when the liars kept their lies a secret.

Mon, 12/05/2011 - 18:56 | 1948690 Scalaris
Scalaris's picture

Fckng Twitter's fault.

Also, as the bullshit avalance progresses, I recommend a switch to a more projecting sport such as kickboxing. 

Mon, 12/05/2011 - 17:17 | 1948247 BlueStreet
BlueStreet's picture

This market blows chunks. 

Mon, 12/05/2011 - 17:25 | 1948274 Logiclee03
Logiclee03's picture

Naaaah....just buy more gold, water, generator, mre's, whale oil for lamps....rinse and repeat for next subject....oh for got...short S&P then post a link to youtube calling 9/11 an inside job>>>>

Mon, 12/05/2011 - 17:33 | 1948311 Carlyle Groupie
Carlyle Groupie's picture

Now now. Do I detect /sarc?

It will not harm anyone to be prepared:
http://www.cheaperthandirt.com/Default.aspx
http://www.gunbroker.com

Mon, 12/05/2011 - 19:42 | 1948832 WhiteNight123129
WhiteNight123129's picture

The whale oil is to rub your chest you idiot! And Bin Laden was a gold bug, damn moslem pinko gay gold bug !

Mon, 12/05/2011 - 17:19 | 1948248 Caviar Emptor
Caviar Emptor's picture

Wanna know what "The Solution To The Euro-Crisis" is gonna be? 

It will be a political solution more than an economic one. That's what Merkozy was saying this morning. The die is cast, and it'll be coming to a country near you. 

If you can't stimulate the economy, if you can't create real growth and enough employment, you must suppress the infighting and clamor for truth and justice. 

Pentagon project lets police forces – even in small towns – arm themselves with military gear

http://www.thedaily.com/page/2011/12/05/120511-news-militarized-police-1...

Mon, 12/05/2011 - 17:27 | 1948282 centerline
centerline's picture

Yup. Just a matter of time. And folks think freedoms are getting thin now. Just wait.

Mon, 12/05/2011 - 17:35 | 1948333 Caviar Emptor
Caviar Emptor's picture

Sadly I agree. But it looks like people aren't putting up much resistance either. Reminder of 1930s

Mon, 12/05/2011 - 17:19 | 1948251 aleph0
aleph0's picture

 

Surprise piece from Spiegel Online.

From Spiegel-Online : Thorsten Polleit, chief economist at Barclays Capital

Title : Should we abandon the euro?

Thorsten Polleit : “The euro needs to assert itself against gold and silver”

 

Google translation:
http://tinyurl.com/c4roya2

 

http://www.spiegel.de/wirtschaft/soziales/0,1518,800926-3,00.html

Mon, 12/05/2011 - 17:21 | 1948257 W T Effington
W T Effington's picture

WTF indeed.

Mon, 12/05/2011 - 17:23 | 1948261 SheepDog-One
SheepDog-One's picture

MUST....hold....magical DOW 12,000.....must close.....higher... 

Mon, 12/05/2011 - 17:24 | 1948270 chump666
chump666's picture

Asia sells

Mon, 12/05/2011 - 17:28 | 1948289 Logiclee03
Logiclee03's picture

Big time sell off in Asia.....OMG!!!

while they're getting their eyes narrowed over there.....don't forget....just buy more gold, water, generator, mre's, whale oil for lamps.......oh forgot...short S&P then post a link to youtube calling 9/11 an inside job>>>>

 

Mon, 12/05/2011 - 17:46 | 1948367 magpie
magpie's picture

Or Asia prints ?

 

http://blogs.wsj.com/deals/2011/12/05/cme-to-accept-offshore-yuan-as-col...

 

Wonder if MF would have accepted that kind of collateral...to steal later.

Mon, 12/05/2011 - 21:40 | 1949224 Mike2756
Mike2756's picture

Time for the boj to slap the yen down again.

Mon, 12/05/2011 - 19:36 | 1948817 chump666
chump666's picture

huh?  Look Asia has being selling for mths, Wall Street has lost the plot on Obama taxpayer fleecing and the FED (Bernanke looks phycically ill) already starting QE3 with OP Twist and the MASSIVE swaps to Europe and the IMF.  Ok, Asia goes via China, boom, Wall Street gets taken out hard this time.  Europe is dead.  Merkel and Sarkozy can solve nothing.  Point is, the end game is very, very close.  Markets will start to sell hard into 2012.  The Fed/ECB will start to official announce their new QE measures.  Too late.  China blows up.

Yeah there is money to be made.  No one will go long on a China economic meltdown, so the market will short.

 

Mon, 12/05/2011 - 17:26 | 1948278 Peter K
Peter K's picture

And now for something completely different, Jon Corzine

http://www.humanevents.com/article.php?id=47938

Just thought I would share

Mon, 12/05/2011 - 17:28 | 1948281 Hmm...
Hmm...'s picture

it was the drops in commodities as the USD strengthened that were optically of the highest magnitude.

Recently, there was a ZH post about how gold was clearly the safe haven because of some short term market action.  At the time, I stated that the USD (in the form of US Treasuries) is clearly the safe haven (or at least the acting world safe haven), despite how ridiculous that sounds if one examines the assets/liabilities of the USG.

That trend continues.  Risk off days see money flowing like crazy into UST and towards the USD in the Forex markets... while the commodities markets go down with stocks.

Commodities have followed too closely along with equities since September IMO.  makes me wonder if the same yahoos that blew up the stock market are major players in the commodities markets (obvsiously they are more involved in paper markets than physical, but the paper markets do affect physical pricing).

Mon, 12/05/2011 - 18:21 | 1948531 Whalley World
Whalley World's picture

Gold = $ not to be confused with a commodity.  As long as gold (real $) is on sale, it's a buying opportunity.  Unless you see the future full of optimism in which case, i want what you are taking.

Mon, 12/05/2011 - 17:30 | 1948296 topcallingtroll
topcallingtroll's picture

The fact that every single one of us vilified treasury bonds and missed participating in the best returning asset class over the last thirty years has got me to thinking.

What will be the best returning asset class over the next thirty years? What is most vilified by us now?

Cash?
European stocks?
USA stocks?
Commodities?
Emerging market bonds?

Mon, 12/05/2011 - 17:43 | 1948373 Stack Trace
Stack Trace's picture

Gold

Mon, 12/05/2011 - 17:43 | 1948374 Stack Trace
Stack Trace's picture

Gold

Mon, 12/05/2011 - 17:33 | 1948319 Caviar Emptor
Caviar Emptor's picture

Almost 19 percent of the country’s 50 million or so 401(k) participants have loans outstanding on their accounts, up from 15 percent five years ago

http://www.shrm.org/hrdisciplines/benefits/Articles/Pages/401kBalances.a...

Mon, 12/05/2011 - 17:57 | 1948450 slewie the pi-rat
slewie the pi-rat's picture

a-tisket
a-tasket
a green and mellow basket
i gave my money to The Man
and he ran off and stole it
he stole it
he stole it
the weasel bastard stole it

the moral of the story is that if it hurts to sit down, don't ask

today's report sez that as we neared the close (paste),  "every member of the basket was contributing to risk aversion"
still, as long as the FED will swap dollars for euros AT A CERTAIN PRICE, things may not come totally unglued until timmah arrives in the EU and, as surely as the seasons solstice, fuks things up so badly that TEOTWAWKI arrives before jolly old st. nick

zombies + kicking cans = doom, BiCheZ!

Mon, 12/05/2011 - 23:29 | 1949589 chump666
chump666's picture

 Risk off.  The mind boggles how on dumb smart money is, metals were selling all session.  Asia is selling now.  Major sell overall, then the beloved print job.  By then too late, it will be the end

Mon, 12/05/2011 - 23:36 | 1949618 chump666
chump666's picture

rate cut Aust markets.  Boom, commodity pain ahead.

Mon, 12/05/2011 - 23:38 | 1949625 Mike2756
Mike2756's picture

Race to the bottom, we're winning!

Tue, 12/06/2011 - 02:54 | 1950041 Grand Supercycle
Grand Supercycle's picture

SP500 monthly chart remains bearish and USDX weekly remains bullish, so it’s only a matter of time until the market makes its move.

http://stockmarket618.wordpress.com

Do NOT follow this link or you will be banned from the site!