Since Goldman continues to press clients into the worst trade recommendation in the firm's history (remember that once in a lifetime long equity, bond short? no? look here [6]) it means that at least the Goldman version of Bruno Iksil who sits on the firm's prop desk (but only hedge for god's sake, don't go getting any ideas) is having a great time since he is on the other side across from Goldman's clients. Still, while we won't feel bad for them, it is always interesting to note what are the things that Goldman watches for during market wipe outs, such as today, the worst day of trading so far in 2012. So without further ado, here is Goldman's Tuesday roundup.
From GS sales/trading
- Stocks lower, again. Fifth day running. Europe is again the catalyst as the damage done there makes US violence look like a minor scrape. Italian bourses down almost 5%, and same goes for European financials. Spanish banks now back to last year’s lows and SX7E not too far from the same. Cash flow reasonably balanced, but ETF flow much better for sale – which follows notable buying of downside protection yesterday. Heavy flow clearing today – NYSE volumes 30% above 10, 20, and 30d average. Not the most relevant line, but SPX broke its 50d moving average. Not too far now from uptrend support drawn from the October lows. That comes in around 1350 (cash). SPX closes down 24 at 1359 (-1.71%). The DOW closes down 216 at 12716 (-1.65%). The NASDAQ closes down 56 at 2991 (-1.83%).
- The VIX up another 1.6 to 20.4. The VIX term structure flattened pretty significantly – today the front month VIX contract (Apr) closed less than 1 point above spot (compare to mid-Feb when front month VIX traded at a 5 point premium to VIX spot).
- Owned positions under significant attack in FX today, led by MXN. While USDMXN up 1.5% makes sense in the context of stocks down a similar amount, that damage was done prior to 10am EST when US equities started their decline. USDZAR too had already made an aggressive move higher. Contrast with AUD where losses were more modest. AUD in fact outperforms CAD (ie, AUDCAD higher), which is quite rare for such a serious risk-off day. Relative EUR outperformance even more significant / surprising / frustrating. EUR lower is the opposite of a pain trade, something of a pleasure trade – many winners and few losers as EURUSD trades lower.
- Another day, another rally for the US rates market. The tone was set overnight as peripherals opened up weaker following the holiday weekend, and Spanish and Italian yields continued to push higher over the course of the day. Bunds, Gilts and USTs all rallied in due course and ultimately the 2.02% resistance level in 10y USTs failed to hold. Spreads also widened again, closing as much as 2.7bps higher in 10s. While we saw better receiving over the course of the day from a variety of accounts, we also saw some stabs at reinitiating shorts at these levels from both levered accounts and real money.
- Copper the story in commodities today - $8088 was 3m copper’s 100 day MA and is now history and again on volume. Some shorts squaring up late in the day given size of and volume behind this move and thus the potential for a snap back especially given the potential for further LME/SHFE covering that was seen last night. Other highlights - gold up 1.2% and silver up 0.8%, WTI down 1.5% and brent down 2.5%. In our new energy weekly we reiterate our long Sep12 WTI as we continue to expect the Seaway to debottleneck Cushing, with WTI-brent spreads narrowing in line with pipeline tariff economics.
- An active day in credit with two way flow from fast money accounts with some better buyers of protection. IG closed at 104.75 and HY closed at 94.75.