Red Knight Plunges And Financials Flounder As Fed Is Flummoxed

Tyler Durden's picture

A slow leak higher in risk assets (assisted by Knight Capital's exposing the 'tickle-algo') into the FOMC in general was abruptly extinguished by a lack of anything new to report at all. The knee-jerk derisking was then caught as BTFD'ers could not resist and while FX markets in general were not buying the rebound, Treasuries sold off as stocks reverted back up into the green, above VWAP and above pre-FOMC levels. But as the real trading of the last 90 seconds of the day began, stocks smashed back down towards their lows with JPY crosses also dragging lower. Financials appeared to be the signal that 'all bets were off' as they went all humpty-dumpty and couldn't get back to pre-FOMC levels. Treasuries ended up 4-5bps with the belly underperforming (though off their worst levels), Gold and stocks recoupled lower, the USD closed at its highs of the day, VIX staged a come-back and closed unch at 18.9% (as stocks caught down to it too and it ended at its flattest in 10 weeks), and while HYG staged what appeared to be a miraculous effort to save the day to close unchanged (but was HYG-SPY arb), equities ended at their lows - underperforming credit notably. Of course KCG was the talk of the day, dumping over 32% of its market cap to end with a $6 handle as all those market-making algos start to look each other in the eye and fight over that last 100-lot 'real' transaction.

Equities are at a crtical trendline and there has ben a lot of heavy action selling up here...

 

Financials were ugly after the FOMC with WFC (thanks Knight) and BofA worst...

but overall  financials and utilities were hurt the most?

 

but S&P 500 e-mini futures knee-jerked down and then trickled back up to VWAP to allow the money out slowly - until the real exits came at the close...

VIX pushed up toward 19% after some early losses - but ended the day with the vol term structure at its flattest in 10 weeks...

 

and across asset classes, Treasuries underperformed and stocks and gold recoupled (interestingly) as the USD pushed to new highs...

 

and in an attempt to explain why HYG was so ebullient while stocks weren't...

 

Bear in mind what Louis Bacon said today - about credit liquidity - HYG now diminated the market for cash corporate credit (as dealer inventories are dwindling) and if HYG is ever let go even a modest amount then the knock-on impact into cash bonds will be devastating (but don't worry - you'll be out before everyone else, right?)

Charts: Bloomberg

Bonus Chart: Good Knight...