Turning on the screens this morning to red pixels was an odd feeling for anyone who has traded stocks this year and while the low was put in soon after the US open the slow and steady weak volume limp higher in equities (led by financials and too-hot-to-handle Apple but breadth was nothing special for a change) got ES (the e-mini S&P futures contract) back up to close at 1400 on the nose (-4pts on the day). Investment grade credit was generally an outperformer relative to stocks today (though AAA corporates were net sold perhaps on rotation back into Treasuries) though the roll in credit derivative markets hinders comparisons a little, however, high yield credit dwindled a little (on light flows) into the close. Commodities were the hardest hit of the day - dramatically underperforming the implied weakness of a modestly stronger USD. Silver, which recovered well off its lows of the day, was equal worst performer with Copper as China's slowdown story dominated. Interestingly Oil also fell as increased supply news hit pushing WTI under $106. Gold outperformed (though was lower on the day) and stands down only 0.6% on the week now (less than half the losses of the other metals/oil). Treasuries (as we already noted [8]) broke their record losing streak with a modest 1-2bps compression in yields close to close (after being closed for the Japan session last night). A relatively large jump up in EURUSD near the US day session open was the biggest news in FX markets but that leaked away all day as the USD limped high off that low (helped by AUD and JPY weakness). The AUD weakness and EUR and JPY strength at the time suggests a sizable carry unwind and it coincided with the drop in US equities and drop in WTI. VIX managed to rise once again, expected given equity's drop, but as equities rallied this afternoon, VIX kept pushing higher (and we note longer-dated months saw vol compression) suggesting steepeners being unwound - or maybe still hangovers from the TVIX debacle.
IG continues to outperform (though some of this is likely roll-related compression) even as we saw net selling in the AAA bucket of corporates today. HY was not as exuberant as the up-in-quality trade remains firmly in place but stocks managed to rally almost the entire day off a nasty gap down open - the likes of which we have hardly seen this year...
[9]
FX markets generally continued to trend USD higher but were interrupter early in the US day session by a rip in EUR and dip in AUD...
[10]
Commodities got double-whammied by China growth concerns and a leaking higher USD this afternoon. Clearly they are generally clustering again with Gold the slight outperformer but the coincidence of Oil, Copper, and Silver all down around 1.1% on the week is surprising (given USD's 0.2% loss on the week).
[11]
Correlations started to break down this afternoon as stocks rallied and broad risk-assets (proxied by our CONTEXT [12]) did not partake. Most notably Treasuries leaked lower in yield while JPY crosses managed very small gains to support stocks.
[13]
Treasuries remained in a narrow range but rallied into the US day session close to manage a gain on the day (as the front-end underperformed notably). A glance at the chart below tells you that it didn't exactly feel like a trend reversal but at least we broke that losing streak as the narrow range suggests there is a fight to break that late-October swing high in yields.
[14]
Charts: Bloomberg and Capital Context [15]