Risk Focus Reverts From FX To Stocks/Credit With Weak Ending

Tyler Durden's picture

A roller-coaster week ended on a negative note as equities and credit ended the day only modestly lower but having sold off relatively decently from the highs just after the open. Equities spurted out of the gate in the day session, not followed by credit (or HYG) or broad risk assets (CONTEXT), only to revert quite quickly and then push notably lower as the Fitch news broke. Equities overshot to the downside relative to broad risk assets - though we note that TSYs were bid all day long, ending the day at their lowest yield and flattest curve levels. The afternoon then saw HYG (the high yield bond ETF) pull higher and higher as equities and credit spreads stagnated, with a weak close in stocks and strong high volume close in HYG (well above VWAP) as credit flat-lined. Gold and Silver managed solid gains on the day, extending the recovery but closing under the psychologically important $1600 and $30 respectively. FX 'wiggled' around today but ended with a small bearish USD bias by the close as the pre-European close action dominated once again ( as we note the $20bn in custodial bonds sold this week in more repatriation flows). It seems attention has shifted back from FX to bonds and stocks (with intraday stock vol picking up quite notably today) as the week rolled on and that sentiment is less than positive despite some technicals (from the forthcoming CDS roll) - even as HYG remains in a world of its own.

There was relatively decent agreement between ES (the e-mini S&P futures contract) and IG (investment grade) and HY (high yield) credit derivatives today. Equities overshot to the upside on each of the upswings - which maybe suggests a little what the path of least resistance is but we note that we ended the day on a sour note (and obviously Belgium's downgrade won't help). HYG (the high-yield bond ETF) performed its typical flow-driven magic, ignoring any sense of underlying value (which we suspect it pushed back to recent NAV premium highs today) and ending at the highs of the day after pulling to VWAP on volume and then with significant end of day volume (on what was a relatively weak volume day overall). We suspect the technical flows from the CDS roll next week (and arbs), as we discussed earlier this morning, are impacting but the sync with stocks suggests a similar risk attitude - which is clearly not in sync with HYG.

Treasuries also were in a significant risk off mode for the latter part of the week - despite the repatriation flows - and ended at the low yields of the week. We also note that 2s10s30s suggested a lower ES close today - even as FX carry and commodities suggested more positive close. CONTEXT was generally a lot less volatile than ES today - especially this afternoon.

Metals have staged quite a bounce off the Gartman bottom-calling exit liquidation flush mid-week. Silver is up 5% off midweek lows and Gold 2% (as copper outperformed gold off the lows). Oil continued to slide lower - tracking a similar path to stocks on the week. All of this as the USD basically flatlined from mid Thursday onwards.

There was a mild drift lower in the USD from midweek, as GBP rallied and JPY stabilized - bucking the more sideways EUR movement. There was plenty of vol but it was very much in bursts with significant reversion.

One final note of caution, implied correlation is once again bearishly diverging from index vol (VIX) the last two days suggesting dealers happy to buy systemic protection - in a similar vein to credit.

All-in-all, not a very inspiring end to a poor week. European sovereign spreads leaked off into the close, credit and equity closed the week much closer to the week's lows, and the pull back in Gold/Silver and the strength in Treasuries suggests some more safe-haven flows was beating out risk seekers. IG credit outperformed HY (as we point out that both closed wider today than their wide prints from Wednesday while ES remained above those lows) as up-in-quality dominated credit and correlations dominated equities for the latter half of the week.

Chart: Bloomberg

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Gromit's picture

Good 'cos I bought some OTM Spy puts at the close. Couldn't resist it.

HedgeAccordingly's picture

Hanging by a thread over 1210.. seems like if we were gonna rally.. we would have already.. though sunday's the past 4 weeks we have seen a gap up.. only to fade 


chart - http://hedge.ly/uS0nxq

slaughterer's picture

Santa rally next week?  (crickets)

LowProfile's picture

IMO we'll be lucky to get one NEXT year....

xglider's picture

Tom Demark called for a rally to 1330's by 12/21 - that would require one heck of a hellacious rampup in just a few days. 

heremynkitty's picture

Tanks, CC and TD!

AUD and NZD strength scared me off TVIX today, darn.

Jendrzejczyk's picture

I'm gonna beg for a weekend open thread here.

heremynkitty's picture

Heck, pick the nearest RP thread.  Which is all but this one.

Raisuli's picture

Please pardon my ignorance, but what is an open thread?

Jendrzejczyk's picture

Free for all, no holds barred, all topics open for discussion thread. Great for entire weekend reading entertainment.


It's like watching a horse run with no rider.

heremynkitty's picture

Got really tired of winding up with a bet on those...

slewie the pi-rat's picture

hey, raisuli, welcome to zH!

you idiot!

heremynkitty's picture

Slewie, you slime, not an idiot.  A friend of mine got bounced for going wild on a thread, not open, a while ago.

You might recognize him :  mynhair

Raisuli's picture

Uh, it wasn't me. Seriously, OK, my denials betray me, but I have no idea to what heremynkitty is refering.

slewie the pi-rat's picture


ifUweren't such_a_ noobie you'd know how endearing an idiot canB to a pi-rat...

mynhair's last act was a dead cat bounce, at least...


Raisuli's picture

Thanks slewie. I've heard that it takes one to know one, but I don't believe everything I hear. BTW, what is the deal with tHe sEemiNgly RAnDom choice of upper and lower case here abouts?

slewie the pi-rat's picture

code:  yer caps, backward, spell DARN E

this song explains it: Idiot wind YouTube and also provides Shelter From The Storm

and...we just had a nice little earthquake...

heremynkitty's picture

I admit, here and now, that this HYG crappola leaves me timid.  As much as I try, I don't get this inventing shares CIT.

Must mean I should short it.  Any 3X's out there?

Strut's picture

OT - Can anyone explain to a greenhorn why the regular spike in volume at the days close doesn’t seem to affect price?

heremynkitty's picture

Institutions selling into short covering, or vice versa.

Strut's picture

Exactly what I suspected. Thanks!

heremynkitty's picture

If we could get rid of the shorts, maybe a down day would close at LOD.

Bunch of wussies.

I've seen, what, 5 LOD closes in the last year?

Christ, now you have to sell TZA by 1:30pm EST to get the best price.

If not 10:30.  Frigging wuss shorts.  Bunch of pissants with no conviction.

caerus's picture

bidu will be the short of 2012

onebir's picture

Bullionvault gold mid prices are above $1600 in London & Zurich right now (NY hasn't woken up, and is only quoting 1g amounts...)

This is what they say about out of hours trading:

 "You will notice that although we stay open the depth of the market diminishes when the gold markets are shut.  This is because with markets closed the robots lack the external references to be reasonably confident they are not making silly prices to you, and to prevent losing too much to you they quote gold prices in smaller sizes.

In fact this is one of the best times of the day or week for you to trade a little gold.  We make a thin market and let our customers activity define the price.  The bots change our prices in response to greater demand or supply from you."

I don't know if this means much for next week - the people trading on bullionvault are likely 'goldbugs' to some extent, and not so subject to liquidity shortages, margin calls etc.

Terra-Firma's picture

The market in the last few weeks has shifted from hope to denial to resignation. Capitulation to follow? But never discount central banks injecting some juice to temporarily revive the comatose market. Deleveraging is not stopping or even slowing so the patient continues to bleed out. The social compact is broken. Very dark times are coming; not unlike 1937-1938. The spoils of WWII have run their course. More spoils to follow.