This page has been archived and commenting is disabled.
Commodity Convergence And Debt-Equity Divergence
Equities traded at their lowest volume of the week (-19% from yesterday alone) as S&P futures volumes remain 35% below medium-term averages. The NFP print this morning provided ammunition for some vol early on but as we drifted into the European close, risk assets in general were pushing lower. Unlike the last few days the circa-Europe-close dip-and-rip only occurred in the equity market today as the USD stayed near its highs and TSYs near their low yields of the day (and high yield credit near its wides of the day) as stocks took off back into the green and meandered either side of VWAP for the afternoon. It seems odd that the afternoon's divergence between TSYs and stocks was not accompanied by Gold or USD weakness (QE hopes) and in fact as we got into the last few minutes, stocks started to push back lower on much larger average trade size but was trapped between VWAP and unchanged on the day. Gold outperformed on the week (+3.4%) just inching out Silver and Oil as they appeared to converge on a 3x beta of the USD 'appreciation' of around 1.2% this week. Treasuries rallied 4-6bps and the curve flattened overall as we saw duration reduction in corporate bonds (with highest quality names (Aaa-Aa3) being net sold). DXY stayed above 81 as the EURUSD scrambled back above 1.27 (down an impressive 1.85% on the week). AUD was the only major to gain relative to the USD on the week (and very marginally). Finally, we saw VIX dropping and stabilize and implied correlation diverged and rose this afternoon which combined with the divergence in risk assets suggests some stocks are short-term overdone at best.
The USD (DXY) remained at its highs (green inverted) and Treasuries (red near their low yields of the day) as stocks (blue) pushed up post Europe and clung to VWAP and practically unchanged.
Overall ES (the S&P 500 e-mini futures contract) outperformed/diverged from broad risk assets as correlations (above) broke down to very low levels in the afternoon.
High yield credit (red) and HYG (the high yield bond ETF in green) underperformed with a late day dive in the latter actually pulling overall stock-vol-rate-credit risk into better correspondence (as seen below in the SPY Arb framework) on a strangely quiet day. Once again it looks like HYG was used to try to spark a risk-on rally (the outperformance of 'Model' below) but this failed as major volume and selling pressure hit HYG into the close.
Gold and Silver drifted lower this afternoon after modest rallies early on as Oil pulled higher to a somewhat coincidental convergence of these three economic/QE sensitive commodities for the week. Copper came and went with the USD revaluation on the week ending just down YTD.
The dollar strength was impressive this week and should be very worrisome for corporate earnings in our humble opinion if it is maintained (especially with Oil not dropping on USD strength). The shape of moves this week suggests where the EUR selling pressure is coming from - Europe - as we suspect global investors try and creep through those narrow doors as they reduce exposure to the haircut-facing nations across the pond.
Evidently that real money exiting Europe seems to be coming from both financials and sovereign bonds as we saw Belgium, Austria, and Spain all see very significant decompression this week, let alone France.
Finally we note that implied correlation (a measure of the relative demand for macro risk protection versus micro name protection) elevated all afternoon as VIX (3rd month futures) drifted lower and stabilized. We have shown this divergence a number of times and it has often presaged short-term weakness in stocks.
For now, it is enough to note that macro protection is much more bid than talking heads discussions of VIX falling would have you believe and the divergences between stocks and risk assets in general add to the concern on getting too excited at this week's performance - especially in financials (remember the CDS arb technicals and short squeeze potential).
Charts: Bloomberg and Capital Context
- 7651 reads
- Printer-friendly version
- Send to friend
- advertisements -










But the Euro is Bailed Out?!?!
http://www.youtube.com/watch?v=TG09ef6n3nY&feature=g-vrec&context=G217cee9RVAAAAAAAADQ
Even H & K is down????!!!!! Damn!
Silver in backwardation, Gold at extreme oversold levels. Looks like 2012 is starting off on a good foot. Higher highs for the metals are in the future.
http://ericsprott.blogspot.com/
Silver might just have gotten some serious air under its wings; check out the new ad from Ron Paul where he rips Rick Santorum into pieces:
http://www.youtube.com/watch?v=RJGpFjAi3kg
Awwwwww...........no aliens.....not yet anyway.
http://blogs.discovermagazine.com/badastronomy/2012/01/06/no-seti-has-not-detected-an-alien-signal-from-a-kepler-planet/
The Bernank must have have some ugly 'sheet' on the balance sheet at the moment...
Who knows what the Bernank has on his balance sheet...but BlackRock...now that is a balance sheet that must look pretty perilous at this point in time. Bad euor bonds...and perpetual equity put backs.
I think selling BLK next week is going to be quite fun.
HYG was sold heavily all week...and it now rests upon its 200 day sma. That will be Monday's first break.
Perhaps, after some gamesmanship early Monday, the EUR/USD will be the second break. It will lose 127.08...signaling to all that 1.20 is the target.
And by the close, crude oil will fall below $101.12...and then lose $100 quickly after that.
And of course volume will suddenly appear again after three weeks of vapor lock. Nice zero participation market. I'm sure Average Joes all over the world are confident in capital markets.
Now I am not usually in the game of predicting things in such an explicit manner, but everything today was so transparent. The only thing that would improve the "topped out"picture would be a downgrade of Euro debt tonight after 8:00 pm. The timing is so perfect for it, I rather think that downgrade is quite possible prior to trading Monday.
OT:
Prominent South Florida broker Cliff Popper Takes his Life
The death of the flashy broker who symbolized the nation's mortgage craze is the latest chapter in the government's case against him and others accused of wiping out the finances of people in investments that defined the country's economic crisis: speculative mortgage-backed securities.
Lawyers for the U.S. Securities and Exchange Commission argued Popper was the architect of a program that misled people into pouring their life savings in investments that collapsed with the home market. In all, 1,000 people lost more than $100 million.
http://www.sun-sentinel.com/news/palm-beach/mh-cliff-popper-suicide-2012...
Will these pussies at SP downgrade Europe already? Last I heard they are downgrading them on Monday.
The EU has them by the balls. It has been made very clear that Europe will develop it's own ratings agencies...should they find "cause" to.
http://www.guardian.co.uk/business/2011/nov/11/eu-prepares-to-regulate-c...
Shoot the messenger.
OT but very important:
My local news just reported Underemployment at 15.2% and then tried to explain what the 8.5% they been screaming is.
It was quite entertaining.
The only folks who would be surprised by this fact...work at the BlowHorn [CNBC]...and maybe FOX News, too.
Nice piece on the Aud yesterday Tylers! I did the " Big Mac" PPP ( purchasing power parity) on the currency. I like the Aud/Usd @ .85- .87. The reason I mention this, is because it just reiterates your thesis on this article. Excellent charts! Thank you.
Listen. Until youse-guy'es start bringing up corporate debt markets and what they're doing no one's gonna listen.
Gold is indeed off to a good start. Destructionism has replaced inflationism as the dynamo of world economic and political events. Insolvent sovereigns and insolvent banks are destroying fiat money. The death of fiat money began in July 2011 when fears arose that a debt union had formed in the Eurozone. In the Age of Deleveraging, the only forms of sovereign wealth are diktat and gold. Diktat is rising as a form of money. Regional global governance will provide security and stability as a Global Eurasia war emerges in Syria and Iran. The bottom line is that diktat and a global war are the two best factors possible for sending the price of gold significantly higher.