An ugly European market initially dragged stocks notably weaker overnight, with plenty of headline-makers from Apple's moves to WMT's 'Sinko-de-Abril' accounting for 20% of the Dow's loss, and Europe's macro data but after the first 30 minutes or so, S&P futures bounced off 4/10 day-session lows and leaked higher all day from there to end around last Monday's closing print. Volumes lagged as we rallied - as did average trade size - but in the last few minutes heavy volume and large average trade size stepped back in more biased to the downside. Stocks and volatility continue to follow very similar paths during this reflation phase as they did in 2010 and 2011 and while much was made of VIX's more-positive-than-expected performance today, we remind readers that we are at 8-month wides relative to realized vol - suggesting markets are anticipating a lot more anxiety ahead. FX markets leaked higher in the USD until shortly after the US day-session open and then drifted USD weaker from there as Treasury weakness coincided with EUR buying - smelling a lot like more repatriation flows. The drift higher in equities is therefore supported from a correlation-perspective as carry and rates (and oil) pushed up from soon after the US open. The USD ended up around 0.25% from Friday's close (with JPY the best performer and stable from the Tokyo close) which matches gold's 0.25% loss (though still best of the group) as Commodities all lost ground today with Silver underperforming. WTI managed to get back over $103 by the close. Credit markets underperformed close-to-close but from the lows intraday, they managed to out-gain stocks with a late-day pop in HYG bringing it in line with its intrinsic value and SPY for the first time since 3/29.
HYG (red) and SPY (green) dropped today largely in line with each other but most notably pulling back in line with HYG's intrinsic-value (dark-red) for the first time in almost a month (orange ovals)...This may remove some of the technicals from the market.
VIX ended the day a smidge under 19%, which would appear about 1vol below its recent market experience would suggest was fair given stock relative performance. Post-OPEX is always a little tricky but (h/t Andy Yorks) we note that the implied volatility market (black upper pane below) is clearly pricing in much more chaos ahead as it now stands at its highest relative to realized volatility (orange upper pane) in over 8 months - lower pane (perhaps explaining some of the relative bullishness - meaning drop - in VIX today).
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This kind of gap is unsustainable and our recent comments on the pick up in close-to-close and high-to-low market swings is very reminiscent of the ends of previous reflation-attempt periods. This chart below shows the daily changes of the S&P for each of the last 3 'Easing' periods - indicating the massive compression in vol, moderation, then explosion. This anecdotally shows the fact that artificially suppressing risk in a market only causing that risk to squirt out with even greater magnitude. Most notably the current (orange) period has seen even more vol compression in the last few months than in previous periods BUT the start of the explosion or change in vol regime is occurring fast now...
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And comparing equity price movements themselves provides a similar picture for the potential for events to unfold rapidly...
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Equity markets, just as they did in Europe, played catch up to US credit markets overall today. High yield remains much less excited about things in general but HYG continues to beat to its own flow-driven technical drum...
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Commodities, helped by weakness in the USD and a correlated sense of well-being from stocks perhaps, pushed higher from their early morning lows with Silver the last to get the joke today...
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Treasuries round-tripped today pulling back off their best levels of the day. 30Y outperformed as the whole complex was better (lower in yield) on the day but 30Y went from -6.5bps heading into the European close to -3.5bps at the close.
All nine of the S&P's major sectors were in the red today but Energy interestingly outperformed as Staples underperformed - not what one would expect on a down-day but given the gap down and drift hgher perhaps understandable. Financials were mixed with the majors generally underperforming (MS -2.75%) as BofA shook off an early $7 handle.
The week ahead remains full of events and so today's lackluster performance is perhaps understandable with nervous shorts taking some early profits or locking in protection but the volume/trade-size into the close felt more like advantageous sellers managing to get their trades done 1 sigma above VWAP on a notably down day overall.
Charts: Bloomberg