Commodities Trounced As Stocks Dead-Cat-Bounce

Tyler Durden's picture

For the third day in a row, the USD was bid from the Europe open to its close and drifted lower in the US afternoon. Today's limp lower in the USD this afternoon (with AUD and CAD strength while JPY was flat) provided, along with some leaking higher in Treasury yields, support for a modest risk-on levitation in stocks as the S&P 500 tried and failed to get back to unch after falling below yesterday's lows (well below the pre-ISM levels) early in the day. Credit, equity, and Treasury markets were remarkably in sync today - which is unusual given recent dislocations and correlation across asset classes in general picked up. Gold (and the rest of the commodity complex) traded pretty much in sync with the USD all day, leaving Silver down 2% on the week and WTI back under $106 but still +0.4% on the week - but Gold -0.5% (in sync with USD's 0.5% gain this week) was the best performer of a bad bunch today. VIX generally traded in sync with stocks aside from an odd gap lower right at the close. Treasuries ended the day 2-3bps lower in yield (a few bps off their best levels though) leaving the entire complex modestly lower in yield for week (aside from 2Y which is +0.4bps). Broad risk assets ebbed a little into the close even as stocks bounced off VWAP for one last push but volume leaked away as we rallied (as normal).

The USD has been bid throughout the European sessions this week and then drifted lower after the EU close...

Stocks and Treasuries (blue and red) were in almost perfect sync today as were commodities (gold below) and the USD (green) - though the latter appear to be lagging the hope in stocks still. Gold held in better than Silver, Copper, and Oil though today...

HYG remains cheap (stocks remain rich) but after stocks (blue) caught back up with credit's disappointment (red arrow) they all traded very much in sync today...

The high correlation (lower right quadrant below) is most evident in our cross-asset class models...

Upper left shows the SPY-Arb model (which tracks the behavior of an ETF basket of credit/rates/vol - HYG/TLT/VXX - relative to Stocks - SPY) was extremely highly correlated today (only small deviations between them - middle left). Upper right shows the CONTEXT model (our cross-asset class proxy for risk sentiment) which was extremely highly correlated (unlike in recent days) but came apart a little into the close as risk assets in general slid lower relative to stocks (right middle orange oval).

VIX rose to almost our credit/equity model's fair-value early on and then slid lower all day (lower left) with an odd gap down and refill at the close.

Today was a better volume day (as Europe was back) but the volume ebbed as we rose in the afternoon. After yesterday's one-month high in average trade size, and today's re-correlating action across asset classes we suspect hope for QE has faded a little and this was a dead-cat-bounce in stocks but with ECB tomorrow and NFP on Friday, anything goes.

Charts: Bloomberg and Capital Context

Bonus Chart: Gold outperformed (though fell - matching USD's gains) as Copper dropped hardest in the day...

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junkyardjack's picture

Hendry said its 1982, there's no dead cat bounce markets are preparing to soar

SheepDog-One's picture

LOL yea just takin a little breather here, before the sprint to 15,000....yea sure.

ReactionToClosedMinds's picture

just scanned your 2 articles posts ....


elephant in the room:   leading central banks managing coordinated currency debasement via forex cross pairings.  That is the only feasible way for them to accomplish their dicey mission.  Even though your food bill likely double or triple as with fuel, etc ........  they yet might accomplish 'buy-time' scenarios so that other economic factors start to gain traction (e.g., technology changes, economic growth, whatever)  and overtake debt (and so currency) debasement dynamic.  And some day, who knows when, that massively underwater house will explode in 'value'.

meimei's picture

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q99x2's picture

Hendry had a hangover and still has to get through TSA. He felt compelled to praise the hosting country and doesn't want any hassles getting home. Would you tell the truth in public about the state of the economy? He was quite concerned about countries actually stealing his investments. He does not trust governments. He meant 1984.

PhilB's picture

Hugh Hendry said the US will be on a comparative basis is like 1982 AFTER the other shoe drops, which is Asia. What he is saying is the he is long USD against the world and long US Treasuries (see his latest letter). He is not saying that US equities are a buy outright, but that they are on a comparative basis they will fair better (classic relative value trade).

He feels THE BIG wASHOUT is coming,  but its not us that will ger hurt the most or lead the way, but rather China/Japan. Obviously the US will go down with the rest but as in previous flight to quality moments, US long bonds and USD will do well. At that point, it will be a huge buying opportunity a la 1982. Not before then.



CvlDobd's picture

Boilermaker day again!

If the market is up tomorrow it will be on the back of sheer corporate dominance by he likes of GMCR, VLCK, WTW, and PRU.

Yen Cross's picture

 Shop sectors:  Might I imply? XLF

fonzannoon's picture

Yes preparing to soar. Soar like  K cups.

ReactionToClosedMinds's picture

was trying to explain to a 'youngun' the risks of a Green Mtn trade .... too involved, need to know too much about accounting (once upon a time "GAAP" did mean 'principles' but accounting has gotten so 'definition' oriented it gives cover when broad principles forced debate ... definitions offer a cover for clever word-smithing .. hence the need for more and more attorneys.  Yes, Rosie, 'regulation' does not always work as intended (... just as the ones calling for Special Prosecutors are often the one getting lampooned by same).  The large firms will just add to their overhead and outcrush smaller firms ... this will be a clear result of Dodd-Frank which is unitelligible to begin with ... start with Chris Dodd's name on the bill the corrupt fake.. that should give one pause immediately

Ask yourself .... why did Enron go bust, it's shareholders. bond holders. creditors, employees and the venerable entire national/international Arthur Anderson accounting firm when at worst the issue was a particular city AAnderson office  .... all wiped out. no savings, no benefits, ... zero.

But the two major law firms (who I will not name here) who wrote the empowering legal memos Anderson relied upon .... barely anything.

Why is this picture troubling ?

And I like Greem Mtn

SheepDog-One's picture

Pretty pathetic when a top economic force is 'expectations for QE'....that should be traded and charted daily like VIX. The 'QE Hopium Index'

Motorhead's picture

Charts, bitchez!

jomama's picture

tomorrow get my bi-monthly FRN promise to pay from my credit union (paycheck).

guess who's getting another 100 oz. Ag tomorrow at a discount?  :D

viahj's picture

you can thank me, i bought yesterday and drove the price down for ya. 

matt_chart's picture

This is how you read charts!!! ;)

Training Video: Support And Resistance

Training Video: Understanding Trends

Training Video: Stock Volume As Reverse Indicator

Training Video: Using The MACD Indicator

Training Video: Using The RSI Indicator

adr's picture

When volme dries up the market goes up, when volume soars the market collapses.

Yep, sure that makes sense???

Let's unplug the HTF machines for one day and see what happens. Probably nothing. The market will just flatline all day long.

rocker's picture

Goldman, JP Morgan, Shitty Bank and Wells Fago know when to screw the little guy.

It was time to sell in May two weeks ago it seems. I know I'm done. Not worth my time. 

Yen Cross's picture

 Nice catch on that /commodity currency-long $usd divergence. Looks like movement into commodities/and quality bonds, for real money players.

fuu's picture

5088, wrong again.

orangegeek's picture

WTIC oil shows a bearish elliott wave count.  Very deflationary if this holds.


HungrySeagull's picture

Stack em.


chump666's picture

Commodity producing nations being taken out one by one:

New Zealand

Unemployment at 6.7% agst 6.3% forecast, participation up to 68.8% from 68.3%
Expect implied to blow out.  Was 30% chance of 25bp cut by RBNZ just prior

Inflation job cuts (operations costs blowing out).  Watching Asia,  Europe sh*tstorm coming around for the final SHTF.  Europe = done + Asia biflation hellstorm = The End


Yen Cross's picture

 i denied the fact 3 weeks ago! When you divide aud/usd ( BY)-eur/usd/& eur/aud.

  I was wishfull thinking! I'm selling rallies!