Another day, another roller-coaster ride in US equities as every other asset class was relatively well-behaved. We lurched from headline to headline all day long - up on some hope of a 'deal', down on news that nothing was achieved, up on 'progress', down on a revisit in October - but the lurches were much more evident in US equities than in FX, credit, TSYs, PMs, and commodities.
These other markets were not dull by any means but did not exhibit the absolute schizophrenic paranoia that equities did and this was critical in getting a handle on trading today as with 30 minutes to go, equities tore back down from Friday's highs to reconnect with several fair-value models across broad risk assets and the credit markets (highlighted in our earlier European close snapshot).
Chart: Capital Context
Drilling into sectors, all but Healthcare, Utilities, and Staples closed at or near their lows of the day with financials dipping red and staying there into the close. The major banks closed quite ugly with high volume dives in the last few minutes (which are leaking modestly back higher after hours).
TSYs ended the day at their lowest yields of the day with 10s and 30s tracking each other tick for tick almost, outperforming 5Y with 2Y stuck in its tight range. 2s10s30s was unable to sustain any rally, opening at 52bps, managing to get up to a measly 56bps around midday, only to fall back to 51.5bps by the close - definitely not signaling clear 'Twist' potential yet (which we tend to believ will see 2s10s steepen to benefit banks carry and 10s30s flatten to extend duration and reduce rates for mortgages).
10Y and 30Y are -11.5bps or so from Friday's close and 5Y -7.5bps.
Copper continued to slide all day - now sending some notably divergent signals on global growth from the empirical correlation with US equities would suggest. Down over 5.5% from Friday's close, Copper is a notable underperformer as Gold is the clear winner since then. Oil and Silver seem tied together.
The dollar (measured by DXY) is still up 0.6% from Friday's close and meanderfed in small range today as CHF and SEK were full of volatility and JPY crept slowly but surely higher vs the USD.
Finally credit markets were mostly focused on the roll today and all its technicals but most notably in corporate bond land we saw significant volume and net-selling in financials while Consumer Non-Cyclicals were the largest net-bought on the day. It seemed very clear from the distribution of net buying and selling that investors are using corporate bonds to action a more levered 'Twist'-based trade - i.e. assuming a hump in the TSY curve will mean an inverse hump in corporate bond curves as we saw net buying in the belly of the curve and net selling in the short- and long-ends of the curve.
In CDS land, spreads were mixed thanks to the roll but the new indices closed wide of fair-value - once again reflecting that preference for hedging/shorts over buying into apparent strength but both IG16 and HY16 were tighter close-to-close (helped by rolling of shorts).