Well, they sold in May but did they go away? If today is any guide, they did as the swings across asset classes intraday were very reminiscent of 'death rattles' with trading scenarios becoming more and more binary and more and more extreme. Into the US macro data this morning risk assets in general were behaving in a synchronized manner. As the dismal data hit, it got wild with gold and stocks gapping down and Treasury yields crashing lower (10Y 1.53 handle!) only to be saved around the European close by chatter of IMF aid for Spain (funded by the selling of unicorn tears) at which stocks erupted (and while bonds, the USD, and Gold also reacted - they were far more muted). The afternoon was quiet until stocks had a mind of their own and went on a stop-hunt up to yesterday's late day highs (and that magical 1315 level) - pulling well away from any other asset-class reality - only to fail dismally, ending with an abrupt tumble back to sanity (just slightly in the red for the day) grabbing VWAP into the close.
The signals were everywhere that risk was not 'on' no matter how hard stocks tried with high-yield credit (most notably the ETFs) surging and purging ending with a terrible dive (after popping up to VWAP after our earlier note) on heavy volume. Financials outperformed on the day - though late day gave some back - ending the month down dramatically (MS/JPM -22%).
Among commodities, Gold remains the winner on the week (though down 0.6% - which still beats USD's 0.8% gain effect) as Copper and Silver have recoupled around -2.5% on the week and WTI is just terrible -4.75% at $86.50. FX markets were quiet this afternoon but EURUSD remained near its worst levels and JPY continues to strengthen. Treasuries bounced off record low yields but 10Y and 30Y remained around 17bps lower on the week.
VIX broke above 25 and below 23 to end unch at around 24%. Heading to tomorrow's NFP (and today's month-end) seemed to make many nervous and the swings were extreme in many assets but at the end of the day stocks remain notably rich relative to credit (and TSY's) view of the world and even more so relative to broad-risk assets.
Stocks (blue) tried and failed again to pull away from Gold and USD reality and Treasuries even less sanguine...
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As we noted earlier, HYG whipsawed - and stocks tried to pull away from credit but failed again...
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and here is HYG vs SPY more clearly...
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HYG's destruction did not appear to be an arb trade (here against HY18 - the CDS index)...
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The month of May was ugly for financials leaving Citi and JPM unch YTD and MS still -11% (and fo course BofA +32% - makes perfect sense)...
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Commodities starting to increase dispersion (though Copper and Silver seem like buddies again) with gold holding in for now...
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especially relative to the USD's strength (bold green)...
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Broadly speaking, equity markets remain rich relative to capital structure (vol, rates, and credit) and also to risk-assets in general (TSYs, FX, commodities, spreads, and PMs) as is seen in the upper left and right charts respectively. Lower left shows that VIX popped then leaked back to credit/equity fair-value before jumping again into the close and the disconnection between stocks and risk-assets is highlighted by the drop off in correlation (lower right) between the markets - as we assume front-running the front-runners into month-end with NFP tomorrow left a few more nervous than normal...
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and for those wondering why Facebook surged today - between the volume - which was huge and the fact that we ripped and stopped perfectly at Tueasday's closing VWAP - we suspect it was algos enabling a broad-based selling into some multi-day VWAP into month-end - coincidence?
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Charts: Bloomberg and Capital Context [18]
Bonus Chart: Via Bloomberg's Chart of the Day today - the 200-day correlation between Commodities and MSCI World Stocks is nearing record highs once again and as is clear - the world appears to have become more and more interconnected (hhmm, central banks footprints)...
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And Bonus 2: those hoping to sucker in gullible traders may be out of a job: yesterday saw the 14th consecutive week of equity fund outflows as the redemptions accelerate ever more, with the weekly outflow the second highest in 2012 to date. Year to date $53 billion has been pulled from domestic equity mutual funds. For the same period in 2011? $4 billion.
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