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Market Realizes It Has Already Priced In QE

Tyler Durden's picture




 

Casting a broad eye across all asset classes today, the theme of QE-Off was quite apparent. USD strength, Gold/Silver leaking lower, Stocks gathering downward momentum (as high-beta hotels underperform - AAPL 2nd biggest drop in over 3 months), Treasuries underperforming, and VIX rising rapidly with notable term structure flattening (to its lowest of the year). Volume was on the light side - which suggests this was more longs covering than shorts being laid out (as positioning into recent strength was light and looks to have capitulated Thurs/Fri. Dow Transports outperformed - which appeared more a value rotation as NASDAQ fell back to practically unch (along with the Dow) from the 8/21 swing highs. Equities definitely led the weakness today as cross-asset-class correlation broke down, and futures kept falling after-hours with S&P 500 e-mini futures closing down 12pts - right at the up-trendline of the recent move.

 

S&P 500 e-mini futures saw weakness into the close and after-hours to taper down to the up-trendline... worst day in almost 3 weeks.

 

The Russell 2000 remains the glorious impregnable leader high momo index while today's Trannies outperformance appears more rotation than reversion. NASDAQ stumbled as its AAPL core fell out of bed...

 

Of course - AAPL (with its weight back up to 20% of the Nasdaq-100) came under pressure on no news (ahead of Wednesday's big announcement) but this looks more like standard momo-beta players losing faith - but of course this is how those cracks always begin...[AAPL -2.88% - falling after-hours)

 

Shorter-term, AAPL fell back to the 8/31 closing VWAP low today (so while all the indices are green for the month still - AAPL is red, which must be leaving uiqte a hole in some momentum chasing books)...

 

VIX jumped notably - back above 16% - but more importantly the term structure of vol has reached its flattest of the year (lower pane)...

 

The VIX term structre inversion is notable (i.e. near-dated vol > far-dated vol) as all the event-risk priced into the next week or so is pressuring short-term risk

 

ETFs remained largely in sync (across SPY/HYG/TLT/VXX) though stocks did lead the sell-off. The same was seen in risk-assets in general - where equities were underperforming (perhaps rightly so as having been the instrument of choice for pricing in the QE expectations)...

 

Credit tended to underperform today - we suspect still a little shell-shocked from the capitulation snap tighter on Friday morning. The divergence between equities and risk-assets was generally driven by Treasuries not being sure whether to sell-off on lower QE-hope or rally on weakness in stocks as they closed practically unchanged but only thanks to a late day pop lower in yields at the long-end. Modest weakness in FX carry pairs (EURJPY and AUDJPY) was more a driver of CONTEXTual weakness today but we need to see follow thorugh in thes JPY crosses to carry stocks lower in the next day or two - and we suspect positioning will stay light given the binary events.

 

Charts: Bloomberg and Capital Context

Bonus Chart: US Economic Surprise Index is showing a peak in momentum - suggesting that the recent 'surprise' run up is about as good as we could have hoped for (and empirically has signaled the market's perception of change being priced in)... lower pane is 2 month change - which as is clear - is near its historical peak in terms of 'improvement'

 

Bonus Bonus Chart: The last few FOMCs have seen equity sell-offs around them (and TSY rallies) but the last one was short-lived as Draghi came to the rescue...

 

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Mon, 09/10/2012 - 16:26 | 2779712 Lohn Jocke
Lohn Jocke's picture

What goes up must go up. Bullish!

Mon, 09/10/2012 - 16:39 | 2779758 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Just like the US Empire.

Given the keys to the reserve currency, the US has done nothing but make quadrillions of dollars.  If it is from looting 3rd world nations of their oil supply or taking over their drug trade the US has used the dollar to finance itself ad infinum.

Luckily for the US the dollar is backed by the might of the MIC, which runs on oil pumped out of the ME.  All the MIC needs to do is overthrow the KSA and we are in the clear.  I am sure the KSA will gladly roll over.

Mon, 09/10/2012 - 16:41 | 2779764 Silver Bug
Silver Bug's picture

QE to infinity continues.

 

http://davidmorganblog.blogspot.ca/

Mon, 09/10/2012 - 18:09 | 2779992 LMAOLORI
LMAOLORI's picture

 

 

Fed Watch: Did the Republicans Force Bernanke's Hand?

snip

In essence, the time for more monetary accommodation may be growing short. Bernanke must assess the nontrivial possibility of a Romney Administration, the candidate who has already promised to fire the Fed chair. Obviously, Bernanke then has no reason to forestall additional easing in hopes of retaining his job in a Romney Administration. Bernanke must also assess the nontrivial possibility that the odds of political pressure on the Fed only increases, and that pressure will continue to come from the right. If such events do unfold, the odds are that policy will turn tighter earlier than it should, with what he likely believes would be disastrous consequences to the economy.

In other words, if the Federal Reserve is to deliver more easing, it needs to be sooner than later. It will only become harder in the days ahead.

Bottom Line: Based on the current mode in Washington, it is difficult to believe that political pressure from the right on the Federal Reserve does anything but intensify. Interestingly, to the extent that the Fed is not immune to political pressure, one could argue we are at a point where such pressure induces the Fed to do more, not less. 

Mon, 09/10/2012 - 17:20 | 2779881 Assetman
Assetman's picture

The market hasn't priced in a $9 trillion asset purchase (QE) program.

Who cares if the Fed has the capacity (or the targeted assets) to actually pull it off?

All they have to do is say it.

See how scary it all is?

Mon, 09/10/2012 - 16:28 | 2779717 Vincent Vega
Vincent Vega's picture

Market Realizes It Has Already Priced In QE 10X's Over.  Fixed it for ya.

Mon, 09/10/2012 - 16:28 | 2779719 Haager
Haager's picture

The only thing missing is: Someone should raid central banks to stop that stupid short-covering. And, please tell me 8hrs before the raid takes place where it starts...

Mon, 09/10/2012 - 16:35 | 2779731 LawsofPhysics
LawsofPhysics's picture

Well then, might be a disappointing week for equities then.  What's the VIX up to?  16%, pssshst, no volume and it might not matter anyway.

Mon, 09/10/2012 - 16:32 | 2779732 HaroldWang
HaroldWang's picture

There is no way QE is priced in here. You know better than that. It never, ever is. Once again, if it is announced (I believe it won't) the market will act like it just got the biggest present ever and it will fly. It always does. Period.

Mon, 09/10/2012 - 16:40 | 2779761 Meesohaawnee
Meesohaawnee's picture

well if that aint a contrarian indicator.

Mon, 09/10/2012 - 17:00 | 2779815 Bob
Bob's picture

The power of "confidence," baby.  It moves me deeply that humanity's collective energies are now properly harnessed to feeding investor confidence. 

It feels like . . . victory. 

Mon, 09/10/2012 - 16:32 | 2779734 Lost Wages
Lost Wages's picture

We can do it if we just all buy together!

Mon, 09/10/2012 - 16:33 | 2779739 BandGap
BandGap's picture

Was the Titanic "leaking" before it sank? Just a wonderin'.

Mon, 09/10/2012 - 19:17 | 2780184 RSloane
RSloane's picture

Who is left to tell the story?

Mon, 09/10/2012 - 16:33 | 2779740 Atlantis Consigliore
Atlantis Consigliore's picture

arent there any bankruptcy courts? foodstamps,  have we fed all the realtors and fanny fraudy macs to them?   no more banksters?  crooked chicago pols? LOL

no one left, all in bonds....

Mon, 09/10/2012 - 16:36 | 2779744 CrawdadMan
CrawdadMan's picture

As the old market adage goes, "be looking to buy when the media reports that the markets have hit a top, and get ready to closeout when the media reports that the markets have hit a bottom."

Apply that to QE sentiment and you get; "Buy when the market (participants) realizes it has already priced qe".

Nothing is true, everything is contrarian

Mon, 09/10/2012 - 16:35 | 2779747 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Deflation is coming....

....any day now....

....why?

Because the dollar is king.

King rahrah!

Mon, 09/10/2012 - 16:36 | 2779748 Squid Vicious
Squid Vicious's picture

i'm sure the Shalom doesn't appreciate this lack of faith, even insolence from "mr. market" ...just for kicks he will announce $1.5 trillion MBS purchases and zero interest rates until the next passing of Halley's Comet...

Mon, 09/10/2012 - 16:38 | 2779750 GaryNeville
GaryNeville's picture

Trader looks at fellow trader and says 

"Anyone know why the DJ is at 13,300?"

Trader, with blank expression on his face, shruggs his shoulders and replies

"I don't know! (shrug), QE3 !!!?"  

 

 

Mon, 09/10/2012 - 16:47 | 2779788 saturn
saturn's picture

Once the apple is ripe, it falls to the ground. Can't beat Newton.

Mon, 09/10/2012 - 16:59 | 2779819 jplains04
jplains04's picture

I always believed Kudlow would be a great Chairman. He's smart, doesn't fool around and is an Adult.

Mon, 09/10/2012 - 17:22 | 2779875 tickhound
tickhound's picture

LOL good one.

Mon, 09/10/2012 - 17:00 | 2779820 Money By Trading
Money By Trading's picture

If the dollar keeps showing strength, it just might roll over again on Thursday after FOMC.

http://wp.me/p2CT0a-5u

Mon, 09/10/2012 - 17:33 | 2779904 yogibear
yogibear's picture

At the US dollar index over 80, Benny Bernanke can trash the tollar big time and ramp the stock market higher.

Ramp oil, food and other commodities much higher. The US dollar eventually goes to new lows after Europe and Obama win.

Mon, 09/10/2012 - 17:15 | 2779859 Bob
Bob's picture

Too few posts like this.  I've always loved this Tyler.  More on CDS market issues (exchanges, etc.), please!  It's worth as much as the energy you expend on HFT, imo.  Nobody breaks it down like you. 

That being the case, I see a market opportunity here.  

Mon, 09/10/2012 - 17:42 | 2779915 Son of Loki
Son of Loki's picture

AAPL plunges 2.6% ?? ...and still sinking after hours......

Do my YES deceive me ?

AAPL, like house prices before it, can only go up. Right ?

Mon, 09/10/2012 - 17:49 | 2779936 Tombstone
Tombstone's picture

This is about the most widely anticipated event in years that won't happen any time soon.  Another QE will not make much difference to anything.  The whole world is only attempting to keep the financial system from imploding with the weight of outlandish debt.  Yet, governments are clueless as they keep the pile growing. 

Mon, 09/10/2012 - 17:54 | 2779949 TWSceptic
TWSceptic's picture

Open-ended bond buying seems likely: http://www.bloomberg.com/news/2012-09-10/bernanke-options-to-stimulate-g...

 

The market may be adjusting to that forecast. 

Mon, 09/10/2012 - 18:03 | 2779976 zippy-day
zippy-day's picture

so Uncle Benny comes to the rescue again,,  what can he do,,,, he can promise to print,,,, , mrkts are looking for reason to tumble,,,   hope works better at the bottom of a tradfing range, not so good at top of trading range,,, just sayin

Mon, 09/10/2012 - 18:21 | 2780030 RSloane
RSloane's picture

The last VIX chart looks like an EKG read-out of a person who just had a interior cardiac clotting episode. Coincidence? I think not.

Mon, 09/10/2012 - 18:34 | 2780064 Snakeeyes
Snakeeyes's picture

Jobs report was terrible. Credit report showed consumers backing off credit cards. Even student loans and auto loans slowed. M2 Velocity stinks.

Maybe the market is realizing that Qe3 won't do anything.

http://confoundedinterest.wordpress.com/2012/09/10/bernankes-conundrum-lots-of-liquidity-but-only-auto-and-student-loans-growing/

Mon, 09/10/2012 - 19:11 | 2780160 chump666
chump666's picture

The market looks overdosed.  The CVIX (FX) and VIX still look collapsed, volumes look depressed across the board.  There will need to be a pick up in volatility to justify profits, haven't seen that yet.  Which means.  Yes, QE3 is priced in.  I hope Mario is priced out into oblivion by the Germans, but the German crt may play the middle ground, all and all we are due for a massive sell off. May happen before or after the 12th

1340 looks juicy on the S&P

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