Credit markets closed at their best levels of yesterday and traded in a very narrow (much less risk hungry mode) range as stocks zoomed 1% higher than yesterday's best levels on volumes considerably less than the year's average so far. With tonight's PSI 'news' unlikely to be a surprise (and certainly not unexpectedly bullish as CACs are enacted and likely to trigger CDS), overnight China inflation, and tomorrow's NFP print seemingly priced into the market for perfection, it is apparent the marginal equity trader is far more comfortable with uncertainty (remember participation does not mean agreement still) than the marginal credit trader. The usual suspects did well with Materials, Industrials, and Financials all outperforming (and the majors bouncing back) but we do note that the average contract size in ES (the e-mini S&P 500 futures contract) was its highest in five weeks (even if it was roll week). Treasuries melted slowly higher in yield all day continuing yesterday's trend to complete the largest two-day rise in 30Y yields in six weeks. This de-risking along with JPY weakness and AUD/EUR strength supported risk but we do note that CONTEXT (our broad risk asset proxy) lagged Equity's excitement all day even as it leaked higher. Commodities benefited from USD weakness with WTI managing to get back over $107 briefly and back to positive for the week, Gold getting above $1700 and a wild ride in Silver leaving it in line with Copper -2.5% on the week so far.
Credit markets were much less sanguine that stocks today...again...
S&P 500 futures have retraced around 76.4% of the recent sell-off after finding some support at the 50% line earlier...
But commodities rally on the day with Silver and Copper resyncing as well as Oil and the USD as Gold pushes back above $1700. We suspect teh resync in Silver and Copper is looking forward to tonight's China inflation data.
Treasuries are generally higher in yield on the week now with 30Y leading the way +7bps with the rest of the curve huddled around 3-4bps higher on the week. 30Y is over 11bps off Tuesday's low yield print.
In FX, the USD leaked lower all day led by EUR and CHF strength. EURUSD back around 1.3275 is its best of the week as the USD moves to its worst of the week -0.4% or so. JPY weakness also helped drive the carry FX side of things. AUD hiccupped into the US open but regained its strength as the day wore on.