Financials Have Worst Day Of Year As Fed Is Faded
We noted last night that heavy and large average trade size was going through after the cash market close in S&P futures and it seemed overnight we needed one more push to flush out some more chasers before today's less than euphoric macro prints (aside from CFNAI's market-centric index) stalled the Fed-induced excitement. Financials had their worst day of the year (worst performing sector 2 days in a row), down just under 1% as did the Tech and Energy sectors as Utilities were best once again. Volumes were up with ES at its 50-day average and NYSE volume second highest of the year as ES (the e-mini S&P 500 futures contract) slid 20 points or so from opening highs up near 1330. Equity and credit markets tracked on another closely all day (as did broad risk drivers) with a last-30-minutes ramp (once again on high average trade size) just for good measure taking ES back to Tuesday after-hours swing highs. The late swing up looked like a recovery from being modestly oversold relative to risk assets as TSYs, FX, and commodities all trod water as stocks pulled up 5-6 S&P pts into the close. TSYs all rallied on the day with 2s-10s all at week low yields and 30Y starting to catch up to the excitement at the end of the day (though 2s10s30s remains notably 'low' relative to ES currently). Gold and Silver continued to outperform (up around 3.5% on the week) and Copper held onto its gains while Oil dropped back below $100 after getting above $101 early in the day. The correlation of EURUSD and risk has re-emerged recently and post-Europe's close today, USD strengthened though EUR remained just above 1.31 as we closed.
With only their 6th down day of the year, financials dropped almost 1% (and Energy more). Interestingly Wells Fargo is -4.3% from the start of Bernanke's press conference yesterday (the worst performer of the majors). Morgan Stanley, Bank of America and Wells Fargo all sold off 3-3.5% from the early peak this morning and we note that CDS have widened also in the last two days. Volumes today were not dismal with ES at its 50 day average volume and NYSE volume its second highest (second only to OPEX).
Broadly speaking risk assets have remained highly correlated with ES the last day or two with ES a slight drag on them as today wore on. The small end of day rally in ES seemed to be a pullback to CONTEXT (green oval) as most risk assets were calm as we went out.
Commodities took their fiat-money lead from yesterday and pushed higher with Silver the biggest winner on the week so far (and from its lows yesterday obviously). Oil fell back close to its USD-equivalent shift before lifting a little into the close but failing to reach $100.
In FX, EURUSD closed just over 1.31 as JPY strengthened relative to a broadly stronger USD - especially post Europe.
Record low 5Y Treasury yields and 7Y outperforming (auction) on the week (-12bps) saw the curve steepen but even 30Y started to crack lower in yield into the close, pushing it to being down in yield now for the week (by only 1bps).
In secondary corporate bonds, financials were net sold (something we haven't seen absent decent issuance) for a while (and CDS were also wider) as it appeared a focus on buying in the belly and away from short-dated and long-dated corporate paper was evident from the buy-side (reflective of the moves in TSYs). IG and HY traded quite tightly together in CDS land but the decompression trade appeared to show its head a little as IG closed very modestly tighter while HY was down in price (only the second time in the last nine trading days!).
Charts: Bloomberg and Capital Context