What Do FX And Bond Traders Know That Stocks Don't (Again)?

Tyler Durden's picture


Treasury yields disconnected (lower) late last week from the ebullience of stocks and while EURUSD managed to spike on the Greek hope (in a perfect reflection of last week's Spanish bailout market reaction), it is now also disconnecting (lower) from equity exuberance in the US (having totally round-tripped from its opening spike lows on the 1st exit polls last night). European stocks are ending near their lows, credit markets notably underperforming (in another almost perfect echo of last week's early market reaction), and while Spanish sovereign bonds are performing the worst, the rest of Europe is also pulling wider in spread and higher in yield. Swiss 2Y rates are down 3bps more at 34bps (and 5Y rates are down 2bps to -3bps - lowest ever on record!). Italian and Spanish stock indices are down over 3% led by financials (which leaves them both lower from pre-Spanish bailout), with only the Swiss and German indices managing modest gains on the day.

It appears only US equities remain a) 'hopeful' or b) 'ignorant' of the new reality...

As European credit markets react in the same way as last week to renewed hope (orange ovals), credit is fading rapidly while stocks traverse sideways - we would expect stocks to revert lower (in abso0lute or relative terms)...

and European Sovereign bonds are all bleeding...

as Italian and Spanish equity markets are now notably red relative to their peers since the Spanish Bailout weekend...


Charts: Bloomberg

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Mon, 06/18/2012 - 11:46 | 2536369 Darkness
Darkness's picture

This has got to be a bullish sign... Right?? 

Mon, 06/18/2012 - 11:47 | 2536374 Lost Wages
Lost Wages's picture

Like a bull in a china shop.

Mon, 06/18/2012 - 14:52 | 2536988 falak pema
falak pema's picture


the most awesome challenge I met as a lascivious woman was a  blonde who had the hips of an athlete, the tits of Diogenes and the eyes of a dimmed madonna who had never felt or  seen passion. She was hungry as a bee on the run for pollen but nothing showed in her eyes. It took me three hours to open her Pandora's box. I ran for my life afterwards! Thats in my novel. 


Mon, 06/18/2012 - 12:01 | 2536420 veyron
veyron's picture

This has got to be a bullshit sign...

Mon, 06/18/2012 - 13:43 | 2536765 viahj
viahj's picture


Mon, 06/18/2012 - 12:10 | 2536452 HarryM
HarryM's picture

The idea is to make it appear that things are worse than they are - get QE# - then roll in the dough

Mon, 06/18/2012 - 11:47 | 2536371 transaccountin
transaccountin's picture

the white beard guy never fails us. he's just getting the ink cartridges installed - tough suckers as the manual is in chinese.

Mon, 06/18/2012 - 11:50 | 2536380 bingo was his name
bingo was his name's picture

Christmas is not for several more months

Mon, 06/18/2012 - 12:09 | 2536443 Dr. No
Dr. No's picture

From the Adjusted montary base chart (published by the FED), he may have figured it out.  The base was up sharply the last two weeks, a change from over 2-3 months worth of decline/tightening.

Mon, 06/18/2012 - 11:48 | 2536378 gjp
gjp's picture

Stocks higher, bonds higher.  It's the Fed fulfilling its unstated mandate, boost all asset prices to make their friends rich.  Long-term that's certainly been the way.  Yields down from 18% to 2% since 1980 while stocks went from 1,000 to 13,000 on the Dow.  Short-term is now in line with long-term.  Any thought that bonds would price in inflation risk is a relic of the distant past when the bond market represented something other than ongoing, evergrowing, monetization.

Mon, 06/18/2012 - 12:17 | 2536457 vast-dom
vast-dom's picture

yes. and if yields were allowed to rise back up to, say, 9% today, then the Dow would be at sub 8k. and then we would know what the free hand of free markets would start to look like.

but for now so much for progress, in a centrally planned scammed out marketplace. 

Mon, 06/18/2012 - 13:00 | 2536633 eclectic syncretist
eclectic syncretist's picture

The FX and bond traders know the risk of holding any assets right now is high and likely to just get higher in the future.  The European-American model of central bank money management is coming into question, and could collapse at some point.  All it takes is a lack of confidence by the depositors.


Mon, 06/18/2012 - 11:50 | 2536381 Village Smithy
Village Smithy's picture

The EU is probably selling off Bunds to keep the Spanish/Bund spread from going hyperbolic. No wonder Angela is upset.

Mon, 06/18/2012 - 11:51 | 2536385 daneskold
daneskold's picture

Friday the CONTEXT model ran consistently 20- points below ES1.


No reversion to the model.


What's the correlation and timing of reversion to model?

Mon, 06/18/2012 - 11:55 | 2536402 InsurgoCasca
InsurgoCasca's picture

Good question. It seems to be a matter of hours though from the Euro-markets chart.

Mon, 06/18/2012 - 12:07 | 2536436 BlandJoe24
BlandJoe24's picture

I'm not sure, but what's happening now, happened last week (Thurs) too:  instead of equities coming down to bonds' level (which is what usually happens), bonds popped up to meet equities.  I hate when that happens!

Mon, 06/18/2012 - 11:51 | 2536387 derek_vineyard
derek_vineyard's picture

the wonders of ZIRP at work

Mon, 06/18/2012 - 11:57 | 2536415 knukles
knukles's picture

That's what happens when the economy gets its dink caught in a ZIRPer

Mon, 06/18/2012 - 11:55 | 2536393 BlandJoe24
BlandJoe24's picture

Just a guess:  Maybe equities are bullish about everything "on purpose", to bring them as high as they can get so that on Weds, when no big QE is announced, the fall can be greater. 

Mon, 06/18/2012 - 11:57 | 2536410 InsurgoCasca
InsurgoCasca's picture

I agree. If the bulls expect anything other than an extension of the pretzel, then I think they are delusional. QE3 at 1342?! SocGen is crazy. If these markets really wanted QE3, they would have stayed at 1280 and prayed. I expect fallout today after ND fails to form a coalition with PASOK and the others.

Mon, 06/18/2012 - 11:55 | 2536400 Dr. Engali
Dr. Engali's picture

It sure feels eerily quiet an boring today considering all that's going on.

Mon, 06/18/2012 - 12:41 | 2536556 Element
Element's picture

+1  Yeah, got the same here. All day I had the feeling a lot of consequential stuff was happening that will unfold from here.  Then you look around at what's going on ... and it seems unreal ... too quiet ...

Mon, 06/18/2012 - 12:51 | 2536597 BlandJoe24
BlandJoe24's picture

Since most everyone was either betting for a big pop up or a big drop down right after the greek elections, where does the house profit most?  keeping things in the muddling nothin' middle ....

Mon, 06/18/2012 - 11:57 | 2536403 skepticCarl
skepticCarl's picture

Equity, Debt, and currency markets are affected by a variety of factors, sometimes in the same direction, sometimes opposite.  Artificial stimuli from goverments can cause a de-coupling, as bond and currency speculators scurry away to avoid risk, but equity and commodity speculators buy as an inflation (currency devaluation) play.  Both may be right (and both may be wrong).

Mon, 06/18/2012 - 11:59 | 2536419 Conman
Conman's picture

the point is they always recouple sooner or later.

Mon, 06/18/2012 - 12:02 | 2536425 RobotTrader
RobotTrader's picture

Bottom line is that the extended period of rock-bottom interest rates is fueling an epic bubble in:


- Dow Dividend stocks (check out VZ, T, WMT)

- REIT stocks

- Utility stocks

- A new Transport Bubble (check out JB Hunt and Union Pacific)

Mon, 06/18/2012 - 12:10 | 2536448 adr
adr's picture

I just wish a corporation's worth was based on what it actually earns. Actual sales and actual profits. Not mark to fantasy inventory stuffed bullshit.

Hey, do you want to invest in a company worth 86 times it's actual net profit on 900 million supposed users? Sure sign me up, there are 86 billion people in the world to grow that profit right?

Mon, 06/18/2012 - 12:13 | 2536462 azzhatter
azzhatter's picture

No worries, I just saw Ron "Cue Ball" Insana on CNBS. Everything is fine

Mon, 06/18/2012 - 12:15 | 2536473 PivotalTrades
PivotalTrades's picture

Here's the thing ,,you guys keep saying that they CB's are going to print, it's the only way out ... so why are you surprised that equities remain supported,,,printing will drive  equities higher the more they print the higher equities go,,,the confusing part is UST yields,, so I am now assuming that they will print enough to cause the inflation necessary to wipe out the deficits over 5 years and having enough to keep yields right here.

Mon, 06/18/2012 - 12:36 | 2536543 prodigious_idea
prodigious_idea's picture

My sentiment too.  For many employees their 401k represents their largest asset - particlulary with the collapse in real estate.  The practical problem for most people with a 401k is that your choice is either a debt or equity investment.  And other than limited withdrawl or loan options you can't get your money unless you quit your job.  It must feel like incarceration.

Mon, 06/18/2012 - 13:06 | 2536656 junkyardjack
junkyardjack's picture

For UST barron's had an interesting take on it a few weeks back basically that with fewer countries qualifying for AAA, the few ones that do have it are being flooded with capital as safe havens.  So I would think where as in the past people would have purchased other European countries now all of the focus is in US and Germany bonds so their yields are especially low.  You can check it out and see they had some other stuff about it as well.


Mon, 06/18/2012 - 13:21 | 2536698 PivotalTrades
PivotalTrades's picture

The Fed is buying 40+%   of UST other wise our rates would reflect the real depth of our financial problem  @ 5.5% for now with 8% and then 11% to come

Mon, 06/18/2012 - 13:57 | 2536819 prodigious_idea
prodigious_idea's picture

Agreed, except that I would expect UST's to be the last flight to quality asset which should hold down yields until those too get downgraded.  And then your rates seem very plausible.

Mon, 06/18/2012 - 12:29 | 2536515 HaroldWang
HaroldWang's picture

US markets aren't ignorant but certainly hopeful - hopeful the Fed will QE or Twist again on Wednesday. And why not be hopeful? Everytime they do it, the market rallies. Hard to short into that.

Mon, 06/18/2012 - 12:36 | 2536541 NeedleDickTheBu...
NeedleDickTheBugFucker's picture

Equities in Dallas!!



Mon, 06/18/2012 - 12:45 | 2536572 Rob Karp
Rob Karp's picture

Just as something to note here;

I recall reading recently that 70% of trading in equity markets is algorythm based in comparisson to only about 20% in foreign exchange and 5% in bond markets.

Anyone else recall reading this here? Also if so, I would say that the cause of this equity consistently out of context with other assets is headline scanning machines pumping up prices. The people with the ability to think about the future are probably right.

Anyone else have any thoughts on this matter?

Mon, 06/18/2012 - 12:52 | 2536603 skepticCarl
skepticCarl's picture

The Transports are leading the rally.  That indicates underlying buying strength.  Stay long, and btfd.

Mon, 06/18/2012 - 13:17 | 2536688 slaughterer
slaughterer's picture

SPX dead set on the 50DMA before FOMC announcement.  

Mon, 06/18/2012 - 13:20 | 2536695 slaughterer
slaughterer's picture

There are major disconnects on futures as well.  

Mon, 06/18/2012 - 13:55 | 2536812 IMA5U
IMA5U's picture

equity markets like to be long (that's what she said!)

Mon, 06/18/2012 - 14:00 | 2536832 BeetleBailey
BeetleBailey's picture

Two Sunday FX market opens in a row for the gap up in EUR/USD...only to watch the loose, wavy, dead as Kelsey's nuts flag chart pattern emerge. Spiked right to my resistance level...I mean, right on it - and sagged like Joan Rivers tits sans bra.

Some jack-boot over in Asia is front running and doing stupid trades - then whomever cashes out, and the reality of the shit-market and state of affairs takes grip.

Central bankers/appointed buraeucrats are one step below child molesters.

No....a full FLOOR below them. Fuck - even lawyers are polling above them - and they're pure dog shit.

Mon, 06/18/2012 - 14:21 | 2536904 GernB
GernB's picture

It's the reverse. Stocks know that the FMOC meeting will result in more QE (I mean obviously it has too, eveyone knows that). FX and bond traders must have forgotten the FMOC was meeting this week.

Mon, 06/18/2012 - 15:17 | 2537077 q99x2
q99x2's picture

Buy low and sell high.

Mon, 06/18/2012 - 18:13 | 2537638 W10321303
W10321303's picture
Dimon Redux: Why Bank Risk-Taking = Risk Making

In case you haven’t had enough of Congresscritters lobbing softballs at Jamie Dimon, the JP Morgan CEO is appearing before the House Financial Services Committee on Tuesday. There have been a number of suitably scathing accounts of how members of the Senate Banking Committee fawned over Dimon, with Matt Taibbi pointing out that Dimon was actually not terribly persuasive, stumbling and mumbling over the parts of his defense that were a stretch. But most important, they had an opportunity to demand explanations, such as of what the trade actually is, who was involved in approving it, when did it start to go awry and when did management realize there was a problem, and muffed it. For the overwhelming majority of the legislators, that was no accident.

As we wrote, Dimon took what is actually an indefensible position: that any bank risk taking should be permitted, so long as it will arguably do well when there is a crisis (watch for this to be broadened to merely be a bet to improve bank profits when its regular businesses are under stress). We pointed out that this logic would justify engaging in systemically destructive activities like the Magnetar trade, and that with government backstopping behind it to boot. And that is a bigger risk than it might seem at first blush. (www.nakedcapitalism.com)

Also, they hacked JD's confidential 'mental health' and found out what his Dr's diagnosis was.  HE'S INSANE! 

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