Between our overnight discussion [6] of the size of the Fed's QE and Goldman's call for QE [7] as soon as April, risk assets all synced and surged today as the USD gave back most of the week's gains. The S&P 500 managed to close above 1400 for the first time since June of 2008 on decent volume - even as AAPL closed down 0.7% (and -2.5% from the $600 threshold it peered over) as financials once again took the lead. BofA is now up 13.6% from pre-JPM-dividend news (more than double its peers) while GS and C languish up only around 2% from that point. High-yield credit markets were nothing like as QE-ebulient as stocks today as investment grade outperformed (more up-in-quality rotation) and the last 45mins actually saw active selling in HY and HYG while IG and the S&P leaked higher. Treasuries steepened very modestly with the long-end maybe 1bp higher in yield close-to-close but the 7-8bps compression off overnight high yields is noteworthy and brought the broad risk asset complex back in CONTEXT with stocks (after yesterday's dislocation). The USD lost around 0.4% from late last night on the day (though still stronger on the week) as EUR and JPY tracked it broadly but higher yield AUD outperformed handsomely (more QE-funding currency needed). Commodities bounced nicely with Copper the day's winner followed closely by Gold and Silver (up around 0.9%) and Oil practically unchanged after dipping over 1% on the SPR chatter and recovering on the denial. VIX ended the day (spiking) higher and the term structure very slightly flatter. After spiking Friday and Tuesday (as we broke the uptrendline) average trade size has drifted notably lower and was its lowest in over a week today suggesting less institutional buying here.
The FX markets maybe sent the most direct message that from the start that expectations were ramping again for USD-intervention QE which was then helpfully confirmed in a weird parallel universe by stronger than expected US data (implying no need for QE?)...
[8]
Higher beta credit markets, which we would expect to follow glibly along on a QE/risk-on day - did not. Particularly notable is the selling pressure into the last 45 minutes or so in HY and HYG compared to IG (up-in-quality) and the S&P...
[9]
Post-JPM, financials remain in charge as the worst continue to be first. BofA is the new champion of the underdogs (over $9) as GS and Citi lag...
[10]
Commodities did well - even as Oil dropped (with the Brent-WTI briefly but sharply compressing then recovering) on SPR and recovered to unch as the USD lost 0.37% on the day. Gold and Silver rejoined at the QE hip and outperformed (removing the sport of calling the drop in Gold from CNBC's ticker) as the realization that QE is inevitable washed over market participants. Copper benefited also.
[11]
Broadly speaking, thanks to Treasuries rally all day and only quite JPY-cross moves, CONTEXT reverted back to equity market's new reality. Whether yesterday's spike was corporate bond supply or purely technical breaks is unclear but it was a dislocation we have not seen in a while.
[12]
While betas make for tough comparisons, today seemed to us like a story of precious metal outperformance as it outpaced equities and Treasuries (in CONTEXT) and even the USD. This makes us wonder if the lack of real broad enthusiasm in stocks today on such an otherwise surge day is a sign of QE's increasingly weak effect on reality or perception or merely a reflection of Treasuries rally and the correlation machines not knowing which way was up...
Charts: Bloomberg and Capital Context