With quarter-to-date volumes at the NYSE 20% below Q4's average, we wonder just how much bank's earnings will be impacted as today saw the credit derivative index market 'disappear' this afternoon also. IG and HY traded (or at least were quoted) in an extremely narrow range post the European close (as ES also traded in a 2pt range for two hours post Europe before making a slightly bigger move). Stocks (and HYG) outperformed IG/HY today but ES has not been levitating as much as credit post OPEX. EURUSD rallied post the Europe close (as for the 4th day in a row, European equity and credit markets reversed direction pre- and post-US day session and then EUR reversed direction on Europe's close). The EUR-implied USD weakness did nothing to drive risk assets too much though HYG (the high-yield ETF) was active and positive on the day as we see HY credit and stocks as close in 'value' as they have been in almost 8 months. It seems obvious that between AAPL earnings (down today), the SOTU, and a Greek fiasco any moment that most 'traders' are either fully positioned and biting their nails or simply in wait-and-see mode. Copper outperformed on the day as Oil, Gold, and Silver all fell on the day (with Silver in a frenzy last evening). Gold and Silver are lower from Friday now and while TSY yields did drop into the close, they remain3-4bps higher on the week. The modest rally to almost unch in ES into the close was not supported by broad risk assets which were stable to modestly lower after holding high correlations all day.
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Volume was the second lowest of the year today on the NYSE (and ES volume was also very light around 25% below 50DMA) and is around 20% below Q4's average volume for the year-to-date. As the chart below shows, we are also seeing the credit derivative market starting to dry up (and bid-offers widening significantly) as the range post Europe's close was incredibly tight today.
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HYG now seems the liquid credit instrument of choice and we note our comments on the huge disconnects between the credit derivative indices and their fair values that we discussed yesterday. Liquidity is falling away fast.
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As an interesting aside, we have noted the fade pre- and post- the European close in EURUSD but as the chart above also shows, there has been a pre-and post- US open fade in European equities and credit. Quite incredible.
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Silver seemed to be having a fit in the early evening last night but ended closing at its lows of the week and gold down on the week also. Copper rallied this afternoon as Oil stabilized.
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As the EURUSD rallied back over 1.30 (and JPY sold off to almost 1% lower on the week), correlations between risk drivers and US equities were high for most of the day but as markets dried up this afternoon, stocks leaked up and risk leaked down as TSY yields dropped, and AUDJPY rolled quietly over.
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Interesting that the dispersion across FX majors has risen very significantly in the last few weeks (and obviously notably this week as Japan's surplus becomes deficit). The key is the discoonects between EURUSD and DXY for now which while correlated are not synced at the hip as they have been for months.
Charts: Bloomberg and Capital Context [10]