As AAPL surges over 3% on the second lowest volume in 3 weeks, the start of Q2 was exuberance-exemplified as stocks, commodities, and Treasuries all enjoyed a bid - though most of the excitement was from the US open to the European close only. A weak start as European credit and equity markets leaked lower (as did ES - S&P 500 e-mini futures) was extinguished as the US day session opened and while construction spending was a bust, ISM managed a small beat. This didn't seem like the catalyst really but we were off to the races as everything rapidly levitated into the European close - except US credit markets which were far less sanguine once again. Stocks stalled at that point and limped on to test last Tuesday's overnight highs before sliding back 6pts or so into the close. Typical high-beta QE-driven sectors outperformed with Energy and Materials heavily bid but even they gave back some advantage into the close as did Tech and Financials. Oil staged a magnificent recovery (best performance from low to high today) topping out over $105 but just outperformed (from Friday's close) by Copper and Silver which ended up around 2.4%. Treasuries rallied 8bps from overnight weakness to their best of the day but son after the macro data, TSYs sold off with the long-end underperforming - though the entire complex ended lower in yield on the day. AUD and JPY strength matched on another providing little support from carry FX as the USD limped weaker - though Gold tripled the USD's performance managing +0.47% and a close above $1675 once again. VIX gapped notably higher at the open but rapidly compressed but from the close of the European session it pushed considerably higher to end the day fractionally higher (oddly on a decently higher equity market performance).
Equities (blue) continue to sustain their separation from a seemingly more reasoning credit market - with high-yield as 'cheap' as it is currently relative to both stocks and vol, it remains odd that those risk-seeking bandits that are backing up the truck in stocks don't dip their toes into HY? or is it simply the same pattern of the last few cycles where credit market's focus on more than simply momentum and the next headline (instead focused on real cash flows for more than one quarter) that is holding back the ebullience in bond-land.
It certainly didn't have the feel of asset allocation or rotation as Treasuries rallied (red) from the US open to Europe close at the same time as stocks and commodities surged. Contrarian-wise, shouldn't the 'strength' of ISM mean less probability of QE? though this action had the feeling of a QE-trade all over it.
Nowhere more exemplified than in the commodity complex but as is clear in the chart above, most of the exuberance in the metals was from US open to Europe close with only Oil continuing to glide higher into the close.
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After the European close, Treasuries leaked higher in yield with the long-bond underperforming - but they all closed lower in yield on the day.
But it was VIX that had one of its days today...opening significantly above where one would expect given where stocks traded (up over 16.5% implying more like a 1395 S&P than a 1405) and while VIX futures (red) tracked the S&P (white) tick for tick - even though they also ran ahead of the equity market into the close - VIX (orange below) remained significantly more bearish than stocks would have expected.The European close (red vertical) is the approximate inflection point for VIX underperformance.
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The rise in implied correlation (green) on a solid equity performance day combined with VIX's underperformance (orange), Credit's ignorance of the rally, Treasuries shrug in general, and Apple's lackluster volume on its big Q2 'debut' doesn't suggest a wholesale rotation by any means. If you are bullish here, it seems rotating to HY (or HYG) makes more sense, if bearish stocks remain the most expensive.
It's perhaps also notable that the ES managed to test above and fail, closing back below the March 2009 up-trendline once again...
Click on chart to see details...
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and the uptrend-line from the 11/23 low on day-session ES also was tested from below and not broken into a new up-trend - still acting as resistance.
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Click on chart to see details...
Charts: Bloomberg