Low Volume Equity Decoupling Becoming Farcical

Tyler Durden's picture

UPDATE: AXP (down AH) and IBM (up AH) miss top-line; QCOM misses everything and guides down (up AH - AAPL staggered a little but unch now), EBAY beat (small up AH); KMI miss (down AH)

Far be it from us to say but once again equity markets spurted far and away beyond credit, interest rates, FX carry, commodities, and reality would have expected with only good-old VIX crashing to breathe that levered life into them. Ending the day with a 15 handle, VIX closed at its lowest in over three-and-a-half months and notably beyond where equity and credit relationships would expect as the front-end of the curve remains under huge pressure. Gold, the USD, and Treasury yields all played along on the day - trading with a decent correlation in a relatively narrow range but the open of the US day-session saw the appearance of the infamous equity rally-monkey who lifted us 1% in 30 mins then extended 10 more points into the European close. A late day check with reality nipped ES back down to VWAP but not to be outdone, VIX was pressed again back below 16% and sure enough S&P 500 e-mini futures pushed up to near the highs again. Credit markets were quiet (cash busier than synthetic) as IG, HY, and HYG all underperformed for the second day. Gold and Silver limped lower on the day as WTI surged back above $90 to two month highs. Treasuries traded in a very narrow range ending the day -2bps across the curve. EUR roundtripped on the day leaving USD practically unch but -0.35% on the week. Financials underperformed as Tech and Industrials reached for the skies with a 1.75% boost today (makes perfect sense after the earnings?). Decent average trade size on the day which was more prevalent up above 1365 suggests more unwinds of blocks into strength but something has to give with VIX for this train to stop running.

Equities in a world of their own once again...

equities continue to dance in their high beta way around credit markets...

equities looked tempted to test reality but stalled at VWAP...

and VIX remains notably cheap to equities...

Just to focus briefly on the day - there are always different correlated drivers of risk markets, and today appeared to have 5 notable periods: 1) first 30 mins - everything ramping led by HYG's exuberance - being less liquid and easier to drive up; 2) VXX started to fall back (rally) and so focus was more on TLT and HYG to keep SPY moving on up; 3) TLT started to leak higher (bearish for SPY) and so focus shifted almost entirely to HYG - which as is clear became synced with SPY and lifted all the way into the last hour; when 4) everything got a kick with VXX ripping back down, TLT plunging and HYG soaring, then as 5) VXX couldn't hold its gains, HYG once again took over and maintained its bid to hold everything in line...(se chart upper left below for how this played out on a model basis)...

 

 

In FX markets, we are seeing its not different this time...notice anything odd about the performance of the EURUSD aroun dthe open of the US day session into the close of the Europe session...EUR gets sold into the US open and then rapidly bought back into the European close (almost as if the algos use retail to soak up the pressure that they know will come as Europe closes and EURs get repatriated in a hurry...?)

And with WTI now back at $90 - rising in a straight line the last week - up over 12% from pre-EU Summit, while Gold is unch and Silver modestly higher...

 

and aggregated across asset-classes, risk was very much in wait-and-see mode (upper right - green line = CONTEXT) when compared to the exuberance of equities (red). Within the ETF capital structure HYG was dragged up to SPY's heights in the afternoon while VXX and TLT were relatively quiet (upper left). Correlation crumbled between reality and stocks (lower right) and VIX remains off with the nickel-picking fairies relative to any short-term fair-value...

Charts: Bloomberg

 

Bonus Chart: Financials underperformed overall and were very weak in the majors. BofA was the big loser -4.8% today and Citi was apparently down due to Ackman - but doesnt seem so bad compared to the rest...