As Reality Recedes, Rumor Rampage Returns

Tyler Durden's picture

Equities and broad risk-assets were generally in sync today until around 1430ET when between rumors of a Euro-wide deposit-guarantee 'scheme' - which we had already dismissed as impossible short-term, very unlikely medium-term, and not a long-term solution to redenomination/insolvency risk - and Kocherlakota's hints as NEW QE if the fiscal cliff arrives - US equity markets took off (as did Gold). S&P 500 e-mini futures (ES) pushed to more than 12pts rich to CONTEXT (our proxy for risk-assets based on TSYs, FX carry, credit, and commodities) on all that hope - stalling at yesterday's late-day heavy volume swing highs. Of course the high-beta momo monkeys were pounced on and AAPL as well as the major financials all popped notably - breaking above yesterday's closing VWAP. Today was a low average trade size day - the lowest in a week (but a relatively high volume day) - after a large average trade size day yesterday which smells like algos pushing to enable larger selling (especially as we expect a denial any moment from Europe). VIX plunged off its highs but closed only marginally down with ES closing very marginally higher on the day - so some context is required to avoid anchoring bias intraday and while TSY yields did pop and EUR rallied after equities got going, they remain notably divergent from that sur-reality. Gold and Silver surged on the QE/EU hopes as well but remain down 2% and 3% on the week.

Trying to gauge equity's performance relative to the rest of risk assets is tough so we use the CONTEXT model below - which stayed nicely in sync until the full-retard hope trade came back in the last 90 minutes or so of the day...

 

And digging into some of the detail - equities started the silliness along with Gold (green arrows) and USD and TSYs followed (red arrow) after 30 mins or so - dragged by correlations but clearly a lot less impressed by the 'chatter'...

Credit markets were not as enthused as stocks into the close (though did get retacked tighter/higher as stocks rallied)...

 

S&P 500 e-mini futures saw average trade size drop notably today (lower pane)...

and medium-term it appears ES managed to rollover at yesterday's heavy volume swing (blue region and green arrow)...

In the majaor financials, JPM and Citi managed to scramble back into the green YTD, but BofA outperformed on the day - even if Morgan Stanley was the best off the pre-rumor lows (+4.3%!)...

but while Facebook managed to gain over 3% - it clung to yesterday's VWAP like lint to a hoodie...

Broadly speaking cross asset-class correlations were rising through the European day into early afternoon in the US but as the right chart below shows - cracked as stocks soared on the full-retard afternoon exuberance...

VIX also seemed a little rich early on (above chart left), fell towards crediot/equity fair into the afternoon then ended notably below fair (cheap) into the close.

Charts: Bloomberg and Capital Context

 

Bonus Chart: Gold vs Gold Lease Rates

Based on an idea (h/t @SoberLook), we looked at the rolling correlation between gold and gold lease rates and found that during periods of non-intervention the 'rational' positive correlation between the two holds but once central bank interveners begin (QE1, QE2, Twist, LTRO) then correlations flip and the irrational becomes the new normal...

 

Bonus Bonus Chart: European sovereigns did not explode as much as FX, equity, and corporate credit markets might have expected today... perhaps the reason is seen below - as we have talked about recently - there is a growing trade-arb to get short LTRO-facing financials credit against a long credit position in their domestic sovereign - 3 major pushes for that trade here...