As Reality Recedes, Rumor Rampage Returns... Redux

Tyler Durden's picture

Having hit its highs in the pre-open, equity markets drip-drip-dripped lower all day, retracing their late-day exuberance relative to credit markets and broad risk-assets by the middle of the afternoon. Even financials had given back almost all of their post 230ET ramp yesterday but then - IT happened again. Italy's Monti made the same technocrat-fed comments as yesterday and financials take off again leading stocks higher (only to come back 10 minutes later and back-pedal on his hard facts). This time though - was different. Yesterday's rumor-ramp added 2.5% to XLF (the financials ETF) but this time it only managed to spur a 0.5% gain before the effects faded. Coincidentally - the ramp pushed ES (the S&P 500 e-mini futures) up to VWAP where sure enough we saw heavy volume with large average trade size step in to briefly stall the rally - which then managed to push on to near the day-session's highs (but notably all on its own again). ES very much repeated the same pattern as yesterday but with lower average trade size still - ending the day exuberant but on its own. The USD kept pushing higher though - with the divergence with stocks now very large - (as EUR leaked lower - even as AUD rallied on the rumor-ramp) but this USD strength did not weigh as angrily overall on commodities today. Late Europe rumors of another LTRO pushed stocks up and dragged gold and silver up rapidly but they all gave it back by the close. With the USD up 1.5% on the week, Oil, Copper, Gold, and Silver are in the same currency-driven range between down 1.25 and 2% on the week - perhaps suggesting yesterday's plunge in PMs has seen a short-term end to the liquidation factors (though for how long). Into a long weekend, it seemed volume remained decent enough but once again average trade size was very low (suggesting little conviction here and/or algos giving pro-size exits). Treasury yields rose all day (ending higher by 3bps or so) pulling back to near Tuesday's closing levels. VIX tracked down to 21.5% (losing less than 1 vol on the day) and is once again cheap relative to credit/equity's view.

Stocks (blue) rally away from reality then pull back again and close rich to risk-assets, credit, and gold - while the USD (green) just keeps on rising and diverging from its typical pro-QE pro-ease, lower-is-better correlation...

and in a similar vein, equities (blue) surged away from credit last night only to retraced for the rest of the day and then at today's close the same...

Today's closing level was not totally unexpected - up to the highs of the early session and the last few week trendline - and we note the plethora of large/professional trades (blue bars) up here again - fading the rally?

 

It has been a tempestuous week or two in the EURUSD vs US Equity relationship...

 

Financials ended the day practically unch if one looks at the XLF but the swings were exciting. Note though today's rumor-ramp was massively less impressive than yesterday's...

and with regard to the very narrow closing range of ES that we have seen this week - combined with a fading average trade size - it suggests consolidation before a new leg down. Unlike the mid-December consolidation which was accompanied by rising average trade size. Also note (click on chart for larger version) today was pretty much the lowest average trade size day of the year...

so overall today looked a lot like yesterday with equities going full retard once again into the close and we await the sad realization of a Europe that will open with nothing fixed tonight...

and apologies for using similar charts to yesterday - the VIX and correlation moved in very similar ways too... with VIX making a dash early on and swinging to relatively too high levels (compared to equity/credit models - left hand chart below) and correlation - which swung from low (into yesterday's close and beyond) to high as reality set in throughout the European day and most of US to low again as equities did their magical unicorn dance into the close...

and commodities appear to have compressed around the USD-implied weakness on the week, with gold and silver outperforming the last 24-36 hours...

Charts: Bloomberg and Capital Context