While stocks staged an 'interesting' recovery this afternoon, it was not enough to save them from a fate-worse-than-death - a red-weekly-close! The only (and therefore) largest drop in the S&P 500 of the year (after GS long stocks call) was dominated (beta-adjusted) by the largest 30Y Treasury yield improvement of the year (after GS said get short Treasury futures). It seemed we reverted to good-is-good, but bad-is-better trading this afternoon, as dismal global macro data spurred a surge in commodities, rally in stocks (carried by the QE-high-beta faves Energy/Materials/Financials but not Industrials notably), compression in Treasury yields, a drop in the USD as QE-hope was back on (and Lockhart helped a little in the last hour with some punchbowl temptations). Futures volume was below average but not dramatic though cash (NYSE) volumes were on the weaker side. The small drop in the USD was dwarfed by the pop in commodities as Silver outperformed but only Gold managed to get back into the green for the week. Oil popped $2-3 around the US open but remains down on the week. Treasuries are 15-20bps lower in yield from their Tuesday highs and 2s10s30s has dropped modestly on the week. AUD reverted from yesterday's late lows and rallied (mildly supportive of the equity move) but JPY kept on rallying (with a small selloff this afternoon) leaving the USD (DXY) in that same very narrow range for the week ending the week down 0.55%. Broadly speaking risk assets did not participate as positively as stocks this afternoon as HY (and HYG) underperformed stocks once again though VIX managed to end under 15% again as the TVIX compressed back down close to its NAV and VXX closed at new lows as the term-structure flattened a little more. Oh yeah, and BATS and AAPL flash-crashed...
The ES (S&P 500 e-mini futures contract) rallied right up to the last minute today - successfully closing the day-session gap (which had been closed overnight in light volume) from Wednesday (h/t Andy Y)...
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Stocks (blue line) managed a decent recovery today off pre-open lows which dragged HY higher (and HYG) but into the close HYG gave up its gains in a hurry. Investment grade spreads leaked wider - which is fair given how incredibly rich they were/are to fair-value but in general it is outperforming. Overall, Credit and equity is down for the week - though IG outperformed.
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Forget the EUR (for a second - as CFTC data shows its smallest net short position since Nov 15) - even though it trades a little rich here based on our EUR-USD swap-spread model of around 1.30 (now at its richest in 5 months) - this week saw the volatility in AUD and JPY pairs with AUD recovering some of its losses today but JPY continuing on its dark path higher. DXY (USD) stayed in a relatively narrow range all week - but closed near its lows...
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Treasuries were the talk of the town as they went from most hated and hyper-inflation is here to most-loved and safety-feels-good. A 15-20bps or so compression off Tuesday's peak yields was impressive and left the longer-end with its best week of the year in yield terms...
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Gold outperformed on the week as Commodities overall staged a valiant attempt today to get back into the green on USD weakness this week. Oil's pop and Silver's high-beta efforts were strong today...
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VIX had its largest up week in six weeks but managed to close down aggressively today as the whole vol complex remains mired in technicals from the TVIX debacle.
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Overall, stocks tried to push up to the bottom of their up-trendline and heavier volume and larger average trade size came in at the close more on the selling side (whether covering intraday longs or fading the bounce is unclear - though we suspect the gap-fill signals fading the rally). Credit remains notably weaker (than stocks) on a medium-term basis and while short-term vol keeps saying all-is-well, the term structure remains steep (though gave some back this week - removing some short-squeeze ammo). Whether today's follow-on from the European close was due to the actions of the ECB during the morning or simply more hope for QE off terrible data is unclear but the defection strategy must be getting more optimal as without equities taking a tumble - even with data missing - it seems a pretty hard sell-job by Bernanke et al. to push through QE3 sooner rather than later. Perhaps the next NFP is being set up for a big miss and the proceeding cliff-dive is just the indication they need?
Charts: Bloomberg