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...