Fed Doves Send Risk Soaring, Apples Dropping

Tyler Durden's picture

More jaw-boning helped squeeze shorts as equity indices, credit, and precious metals all closed their highest since the NFP dive as QE3 hope is back on the table. The best day in four months for Materials (now the only sector green from before the NFP print) and Industrials, and the best two-day gain in financials and energy in four months but the S&P 500 remains around 1% off pre-NFP levels (but managed to fill the gap to the lows of last Thursday in S&P futures). Credit (both investment grade and high-yield spreads) managed - just as in Europe - to rip up to pre-NFP levels also (outperforming stocks). Notable divergence between AAPL and SPY started at 1045ET today - as GOOG volume picked up and accelerated which was also when ES (S&P e-mini futures) broke Tuesday's opening level and ran stops. Volume was average with higher average trade size coming in as we reached post-NFP highs (suggesting again professionals selling into strength as weak shorts are squeezed out in a hurry). The dovish comments sent Gold and Silver surging (and China rumors pushed Copper up - and WTI to around $104). VIX crumbled into the close - with its largest drop in over 5 months in percentage terms - though still higher than last Thursday's close. FX markets were noisy once again through Europe but USD ebbed higher in the afternoon - still very modestly lower on the week and day (with JPY leaking weaker today helping carry support risk a little). Treasuries also leaked higher in yield but remain at the immediate spike low yields post-NFP (pretty much in line with stocks generally) but between FX and TSYs, broad risk assets were not as excited as credit and equity markets specifically as we suspect this was weak recent shorts being shaken out suddenly.

 

Broad risk assets (black line) did not (in general) follow through in the last few hours of today as ES (orange line) ran stops above the week's highs...

As VIX dropped its most since October, back under its 50DMA (as ES crossed back above its 50DMA) but note that the last time we saw such intraday swings and close to close swings positive and negative was early August last year (and to a lesser extent October as Europe flip-flopped)!

But credit (even more than stocks) has surged up from its wides (lows) on Tuesday - handily outperforming the S&P 500 (though on a longer-term basis this is creduit playing catch up to equity strength and we saw notes from a few dealers noting the Buy HY, Short Stocks compression arb trade which may have helped technicals a little). Note that today's absolute compression in IG and HY spreads were the largest in 4 months!

AAPL diverged from the S&P 500 and GOOG benefitted in the rotation...

But the standard high-beta QE sectors were the big performers with Materials (QE-on and China-on?) are now positive from the close last Thursday - the only sector up from pre-NFP...

But it was commodities that surged on the printfest hopes and while Silver outperformed on the day, Gold remains the best performer from pre-NFP. Once again Oil prices reflect their QE-sensitivity and surge to near $104 and copper managed decent gains on the day though remains underwater on the week...

and while TSYs leaked off today, it looks like stocks have got a little ahead of themselves again...

especially relative to TSY (2s10s30s) curve carry...

and finally for some perspective, While the S&P futures remain 0.36% from pre-NFP close, adjusted for the nominal shift in gold, the S&P in gold is down over 3% from April 5th's close...

Charts: Bloomberg