Old And No News Is Good News Apparently?

Tyler Durden's picture

While S&P futures managed to make higher highs in the last hour, the EUR did not as only TSYs managed to follow stocks to those extreme levels. It was an odd day, as we have noted many times today, as the total lack of news combined with rallies on the back of old news seemed enough to juice stocks higher. It does make one think a little and we suspect that ES was dragged there thanks to correlation-dependencies with TSYs being sold and EUR being repatriated back home. Oil certainly never participated in the excitement (following its higher than expected inventory build) - which ironically was what spurred buying in ES early on (and inventory build in durable goods) as metals trod water relative to USD/FX's volatile moves today. Very high average trade size in ES, the fact that IG credit notably outperformed HY and equities, and no primary issuance suggests risk appetite is really not there - despite equity exuberance. Clinging to earnings hopes when firms are beating lower guidance and cutting outlooks seems like more of the same hope that caused pain for many before.

The tight correlation between various risk factors and the S&P futures market are well-known and often discussed here. These factors include FX carry, commodities, Treasuries (absolute and curve/butterfly), and swap/credit markets. The reason we reiterate this is that today was one of those mildly odd days when ES was playing catch up to a risk-basket that was driven significantly by three main factors, EURJPY, TSY, and 2s10s30s butterfly.

It seemed that right as the European Summit started (around 11ET) that we started to see TSY selling off and EUR strength out of nowhere - while ES kept leaking lower as a lack of news was implicitly bearish (or at best was less than markets had anticipated). Of course, it is nigh on impossible to prove whether equity buying was initiative dreamers or just algos following correlations but volumes did dry up as we accelerated off those initial lows (even though volume came back in as we ripped up to VWAP, only to lag again as we took out the day's highs. The main point we wanted to make here is to try to explain the buying pressure in stocks with no news and how it is potentially being driven by something far more worrisome - European bank asset repatriation.


A look at the chart above should not be too surprising but it is very notable just how high the correlation was today (higher than normal). The post 1100ET sell-off in TSYs and commensurate selling of the USD into EUR was initially stalled as dealers prepped for the auction at 1300ET. EUR sold back as TSY went sideways (no repat flows?), only to accelerate notably post the TSY auction with TSYs stalling at that stable pre-auction level only to sell-off even more into a late day for European banks. The news was already out by then and we trod water in both EUR and TSYs - even as ES kept gliding higher - in its attempt to reach that correlation-dependent level that we pointed to above. The bottom-line from this little forensics effort is we suspect the equity market strength is far less about buying some recovery or earnings-driven expectation and far more about flows and asset sales and their impact, via crazy correlations, on stock index futures.

TSYs in general closed near their high yields of the day with 2s10s30s jumping very significantly from 83 to 91bps but TSYs were still well off yesterday's highest yields (as stocks obviously didn't make it back above those 1250 levels either). Given where 2s through 7s are trading (relative to yesterday) we would expect 30s to be higher in yield and 10s to be lower in yield - suggesting 10Y was most relatively sold from early yesterday (which fits with the spike in 2s10s30s also and we suspiciously reflect the use of 10Y as a hedging tool for mortgages and our repatriation thesis). IG and HY credit saw net buying once again but we note that IG significantly outperformed HY and stocks - certainly not the usual behavior we expect in a bullish market - and given how cheap HY remains to IG and stocks, it should have been the major winner. IG was pretty much back to it tights of the week at the close - well ahead of HY and equities.

Scratching below the surface of the credit markets, we see that IG rallied around 4bps today to 126bps while intrinsics (the fair-value of the index based on its individual components) limped around 0.5bps tighter at 126.5bps. In other words, we saw skew compression as the index pulled back from being cheap (this looks like more of the same we saw in HY and HYG on Monday as hedgers capitulated). Both IG and HY saw the front-end under-perform (3Y index and intrinsics notably underperforming 5Y) with HY 3Y actually 8bps wider on the day as 5Y compressed 18bps or so. This kind of bear-flattening is hardly positive and agrees with the evidence that there remains very little issuance (especially without high concessions) in HY markets reflective of any real risk appetite. Back of the envelope, IG outperformed equities by the equivalent of around 2bps and HY underperformed modestly - not what a well-thought-out risk-reward allocation would be doing if they were bullish here given extremes of relative pricing.

ES also saw a very big jump in average trade size at the end of the day - well above recent averages - and we note in the chart below, on a daily basis we have seen a swing high in the average trade size. These big shifts tend to occur at trend changes (and even more so at the end of bull runs) and we wonder if the notably higher level from Monday is a signal that professionals were indeed selling the news (whatever news there was) and we are running on the fumes of retail late chasers and correlation machines. Just one more piece in the puzzle.

On the week, Gold is now outperforming Oil (following today's disappointing build) and while copper came well off its spike highs this morning, it remains the best performer from Friday's close. Even as the USD is a fraction weaker (-0.13%) on the week, it seems commodities have a mind of their own and it is clear as movements in the chart show how they reconnect and disconnect on various drivers. The lack of USD movement should also be noted given Gold's 5% jump this week as between the various major fiat currencies we circle the drain of mutual devaluation.

All-in-all, its been another odd week with market movements a little tough to discern as correlations seem much more critical than actual fundamentals. Risk appetite is simply not there but risk assets keep bubbling up held in sync by their mutual empirical relationships. The clear reduction in HY and now IG hedges can certainly be seen as a positive but given the lack of follow-through in single-names (even financials) and primary issuance, we think this is more exposure reduction than lifting hedges to leave unhedged longs. Did professionals sell into this strength up here? Well short-interest has certainly dropped so that driver has reduced and so we are left with momentum chasers and just ask NFLX traders how that works out at the first sign of trouble.

Charts: Bloomberg and Capital Context

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wombats's picture

The gov't loves your money too...and given enough time they will get most of it.

longjohnshorts's picture

This is bullish, right:



Banks: No EU Deal Yet on Greece

There has been no agreement on any Greek deal or a specific “haircut,” Managing Director Charles Dallara of the Institute of International Finance said in an e- mailed statement today.

The IIF, which represents more than 450 financial companies, said it remains open to a dialogue in search of a voluntary agreement, adding that there is no agreement on any element of a deal.


SheepDog-One's picture

Bankrupt EU zone just decided 'do nothing' is the best policy....musical hand granades game from here on out.

GenX Investor's picture

Great post TD.  Most of the traders out there are missing this entirely by hook or crook.

LawsofPhysics's picture

Gold outperorming oil, so copper crushed oil then.  Warning, warning, warning.  I have got to get that button fixed.

Fourth Horseman of the Apocalypse's picture

Do not undestimate the importance of the end of the month....which is next Monday.  Ramps for month-end usually happen two or three days before the actual date so that trades settle.  You also may have asset allocations, from Treasuries to riskier assets, for month end.  Again that would happen today or tomorrow.  

Mae Kadoodie's picture

It just doesn't matter, I tell you...it just doesn't matter.... because all the really hot women end up with the banksters anyway..

Withdrawn Sanction's picture

Then the banksters get old and fat (as men do), and the hot women leave them, taking 1/2 their ill-gotten loot in a divorce settlement. The fat, old banker then spends his days scrounging for a poker game in the men's grill of some seedy country club, pickling his liver and trying to forget. Sad.

jcaz's picture

Hey, my CC isn't "seedy"- it's "restricted"....  And she only got 33% after I wrote it off.....

caerus's picture

attention...here's an update on tonight's dinner...it was veal...i repeat, veal...the winner of tonight's mystery meat contest is jeffrey corbin who guessed "some kind of beef." 

Mikey Big-D Ickscott's picture

This trading range has been very predictable.  Can do a simple retracement analysis -- reverse cowgirl spinning dojo butterly fake turkey.  

ZeroPower's picture

IG was the story of the day. Which, quite ironically, shouldnt be the case seeing as the equities behaved the way they did, but what can we do.

Definitely interesting (if short, read: nice) to see oil not confirming the rally, unlike the prior 2+ weeks of the runup.

earleflorida's picture

the superpowers, especially america are, and, is quietly weening themselves off jacked-up 'me' oil - the u.s. is less than 5 years away from any imported deficit threats, never mind 21st century idle 'me' embargo threats - with canada tar-sands coming on line, ak, tx, mt, nd, mexico's gulf and the 2nd/ 3rd largest 'blue-gold' reserves in world, not to forget our coal we've got a bright future as far as energy concerns are

russia is sitting pretty,... but europe's got problems, and needs 'me' energy - and china,... well it's just a damn shame  

note: japan will have our support from ak, thus our true allies stay fast and steady

Hohum's picture


Your first paragraph has me thinking you are smoking the crack pipe.  In looking at oil, make sure you can subtract as well as add.

earleflorida's picture

seriously,... really,... are you for real

learn to read between the fine lines of reality - don't be soooo myopic 

great nations plan 10-20 years in advance implementing  strategic initiatives 

btw jmo 

oil = non factor and that goes for a rigged nyse

PicassoInActions's picture

Can we have a vote every morning.. will DOW be up or down so as ES

That would be fun.

AndrewJackson's picture

This market is such a complete joke. Italy's idea of austerity is moving the retirement age back one month. Greece hasn't made a debt payment on its own in over a year. When is this going to end? I feel like I am on crazy pills. The world has so much debt and leverage, but yet are greatful leaders think the answer is more leverage and debt? Whats worse, is the gamblers/algos left in the market actually buy this crock of shit. Eventually, the can kicking ability of tptb will come to a stand still and we will have an epic crash...again. Given their track record and the absurd levels of investor stupidity, they just might be able to hold this sucker off until the election for all I know. As for myself, I will load up on physical pms and cash reading for the inevitable crash. Until then, I am out of this circus.

Christoph830's picture

Keep rolling the dice on the longest dated, out-of-the-money SPY puts available. You will lose incrementally in the short run but the inevitable big payoff will be ABSURD.

Just look at it as insurance premiums paid out for the preservation of REALITY.

caerus's picture

looks like gmcr is postponing earnings till the 9th...bummer

disabledvet's picture

first off we had a huge run-up so yesterday was a good "distribution day." second there's no reason having taken a quick profit you can then start buying the day after the distribution. i'm not a trader but i fail to see anything empirical in "not losing money by taking a profit" not being bullish going forward. i also think we've beaten this dead horse called Europe for so long even Wall Street is starting to find a way to discount the news. I listened with great interest to Kathleen Hayes' discussion to one our what i think is a very good poster here Peter Tchir (sp?) talk about how "the mistake in 2008 was not letting Bear Stearns fail and then bailing everybody out." I thought that was a great after action "crisis review" and one that agreed with...should it have been possible to think that way at the time. I think this view is very important vis a via Europe since by refusing to let Greece fail the EU is patently putting the entire currency union at risk. In other words Greece is Europe's "Bear Stearns" which if they simply let fail would allow the EU to focus on the mortal danger of either Spain individually or a combination of Italy/Spain causing an immediate collapse. In other words the game is now pretty easy to see: either Europe let's NATO move aggressively to create some form of authority upon Greece getting cut loose from the Union thus allowing the Union itself to focus its entire efforts on going all in on a Spanish rescue (2 trillion sounds about right) or the entire project is lost. It's what Germany "intuited" all the way back in December of 2009 when they announced their intent to be Greece's backstop but just didn't follow through on. Indeed even if Europe goes "all in on Spain" as i think they must it's still a role of the dice.

Scalaris's picture



(updated 10 minutes ago)


It says that news have been leaked by Greek sources of an agreement for a 48% haircut. It also mentions that Merkel and Sarkozy will go directly into negotiations with the bankers regarding the haircut, and if unsuccessful, they will proceed unilaterally to restructure its debt.

Doesn't make sense, not really convinced.

CrashisOptimistic's picture

What does unilateral restructuring mean vs cooperative?

The banks lose 50% of their money in both cases.  

If they cooperate, they don't get to recoup any of it on their swaps.  If they don't cooperate, they get to recoup some of the 50% by declaring default and collecting swap money, at the expense of BAC and JPM.

Looks like an easy call.

howswave5workingforyou's picture

Christoph830. Buying out of the money puts has probably the lowest success ratio of any trade in the market. If you are bearish sell out of the money calls. Receive risk preium. It looks like correlations are breaking down. Oh oh for the sensationalists. Back in the 90s a weak euro was good for European equities. You may have to change your intraday fembot based algos.

J 457's picture

But note, buying the PUTS carries much less risk than selling the CALLS, especially with such weekly volatility swings. I'd hate to be the one on that end of the trade if QE3 or some other unexpected plan was announced.

Let them eat iPads's picture

Just testing the 200 day MA.

Nothing to see here.

ivars's picture

Here I have overlaid Nikkei post 1987 and Nasdaq post 1999 charts to see what Nasdaq could look like in 2022. Interestingly, time scales are almost 99% the same almost EXACTLY. ..first time I see it - that could help to explain the reason for time scale stretching when overlaying patterns.

In general, the same deflation->default-> inflation story in a poorly performing economy is visible, but there is a new thing- sudden appreciation of USD after September 2018, which is visible as sharp drop in stock prices.


As for current short term stock values , if QE3 does not come and it most likely will not as suggested by Silver, Gold, USDx, EUR/USD charts, posted here  earlier, NASDAQ can find itself near 500 in April 2013, anyway crashing down from latest July 2012.  Enjoy - I will add also Gold prediction chart which most clearly shows QE3 is not coming before Obama is reelected.



By the way, I would be happy if my predictions won't be true- they accumulate into a very nasty ending, and nasty way to the ending- but we can not change human nature- no one has been able to. Greed, envy, fear, fighting, decooperation  determines human behavior under stress.

GOLD 2012-2017:


SheepDog-One's picture

2022....LMAO youre far more likely to be dodging oil tanker hijacking biker fags in assless chaps than doing T/A on stock indexes.

pauhana's picture


There is no deal with banks regardless of whatever else you may have read.

MiningJunkie's picture

Tyler I have a question: Have you made any dough in gold/silver/oil/ or the E/S during this MASSIVE move since October 4th? Every article I read on ZH is black-bearish (except the PM's) so I assume you got BBQ'd on the short-equities trade?

The WORST trade of the New Millenium is LONG CASH. Inflation is eating your savings alive.

Hard Assets rock.

J 457's picture

Spoken by someone with no cash? Inflation has not yet fully raised its head. Maybe in another 6 months it will cut loose, but not today.

slewie the pi-rat's picture

the first sign of trouble?


rhinotrader's picture

Miningjunkie- ZH never makes a right call. They have made about 90% wrong calls on everything. I agree with most of their logic but you can't fight the tape. People come here for good in-depth analysis or if they are heavily short equities/futures. I started up reading in March of 2009 and as far as I can tell they were short to the gills even back then.....I am flat every day BTW, but ZH and the doomsayers will have you living underground eating baby food.

SheepDog-One's picture

Another rear-view trader. After market close, theyre all fukin top experts.

Oh BTW one more thing, funny how these guys are never around when the markets are tanking. 

chump666's picture

Go long then.  Like dumb ass wall street that got slaughtered when Aug markets collapsed.  What you are witnessing now is European/US 'leaders' using their saliva and paper to hold the biggest hole forming in markets ever seen

And it won't hold, trust those manics and you'll be fleeced and thrown to the f*cking wolfs.

Schmuck Raker's picture

Hey! I happen to LIKE baby food.

And, it's nutritious too!

acabrer's picture

stop what are you doing!...no zh is always right..wink wink.

hackettlad's picture

A really good, incisive post - kudos to Capital Context for this analysis.

chump666's picture

Weak markets.  These rallies may last into early Nov, but the market is dying to roll over.  Europe?  They have officially gone insane EU French/Germany/Italian etc etc etc.  A chaos/black-swan event is growing, my guess, it's Italy revolting against the EU and kicking it's self out. This should set the whole thing in motion with Spain/Portugal following.  But I am looking at China now, they cut the RRR rate that will be a bearish signal, if the Wenzhou (subprime crisis) regions becomes a contagion, China will crash on a broader panic.

As for infinity (money printing) boosting equities.  There is always a beginning and an end.  I think the end is very close.

J 457's picture

China RE rolling over. Subprime type meltdown in China coming soon, just like what US is still struggling through. EU is in recession with massive debt. USA at or near recession with debt ceiling debate approaching in 2 weeks, 6mm homes still in distress, and 16% unemployment. This market will quickly find its bottom once all the "bulls" are again overly optomistic (almost about now) and they have bought back into some of these "real cheap" stocks.

chancee's picture

Isn't Oil bumping up against a huge trendline that's been in place since 2009?  I don't see it breaking through that so easily.

rhinotrader's picture

Sheepdog, your a dumbfuck! Lol, I am here everyday. If you are not straight short here they don't listen. I will tell you my call. We go up until they (Europe) actually make a deal and then tank. Free of charge douchedog.

chump666's picture

Those butnut Europeans still chatting away, or somthing. Still no news!