Equity and credit markets traded in a narrow range with late day ebullience (as VIX collapsed but we note implied correlation did not) pushing them to marginally new multi-month highs and tights respectively. The markets tracked one another very closely as did HYG (the high-yield bond ETF) but into the close HYG sold off quite notably (relative to the day's action). Financials staged a late-day advance (responsible largely for the move in the index along with Energy names) as average trade size picked up right at the end suggesting covering at the end. The relatively calm in equity, credit, and FX markets (especially post Europe's close) was not at all evident in the commodity markets where Silver jumped dramatically (up over 8% on the week) while Gold gently pushed higher (+1.7% matching USD's weakness on the week). Oil was the week's biggest loser (down 0.5%) as Copper clung to 3% gains on the week. Treasuries ended the week at their high yields (30Y +19bps) with the curve considerably steeper (and 2s10s30s up nicely) which supported risk assets broadly as opposed to oil's weakness (and stability in FX carry pairs) which did not.
[5]
Commodity divergence was the theme today as Silver took off and oil did not. Ever get the feeling that as much as they try to pressure one market down or up, that liquidity squirts out somewhere...
[6]
FX markets ended with the EUR 2% higher vs USD on the week, JPY unchanged and SEK a notable winner up 3%. AUD rallied today vs USD back in line with USD overall weakness on the week.
[7]
but equity and credit markets stayed in very close proxiomity as risk was clearly on. Stability in the last day or so (amid rising average trade size) may suggest we are topping but any good news on the Greek PSI deal (no matter how totally spun it is) will probably lead to a pop given perceptions of downside risk here (and we note that the continuous ES is very clsoe to seeing the 50DMA cross above the 200DMA which is sure to garner much attention once it does). The late-day jump in financials and dump in vol may reflect mostly options run offs but its tough to fight this tape - even though the number of canaries in this coalmine continue to rise.
Charts: Bloomberg