After opening over 1% higher, S&P 500 e-mini futures plunged to close at their lows of the day (down 1.5%) amid the widest range day in six months. Volume was heavy after ES touched up to its 200DMA at the Sunday night open slide along with Europe's weakness, stabilized at Thursday's closing VWAP around the European close, only to dump in the afternoon (as financials, materials, and AAPL led the plunge). The major US financials lost 5-7% from their opening ticks of the day with Citi, BofA, and MS the worst performers (as AAPL ended -1.5% after being up over 1%). Gold back at $1600 (and Silver) rallied 0.4% (diverging from recent sync with stocks) even as USD strength kicked in - ending the day +0.17% (from a -0.85% low in early European trading). Oil meanwhile ended down over 3% (ending below $81.50) from up 3% in early trading on OPEC chatter and global growth concerns (and we assume correlated risk liquidation). Credit underperformed - leading stocks once again - with IG back to last Wednesday's wides (as cheap macro overlays were laid out). Stocks and HYG (the high-yield bond ETF) plunged into the close to catch up to HY credit. Treasury yields dropped, along with stocks, down 2-5bps from Friday's close, as the 7Y segment outperformed (but were down 11-13bps from their opening high yields). VIX saw a huge range day of around 3.6 vols as we closed back above 23.5% and implied correlation soared almost 6pts to 74.5 (biggest pop in 7.5 months). Realized cross-asset class correlation rose significantly and remained extremely high into the close implying very systemic market movement - which given the weakness after-hours seems worrisome.
S&P 500 e-mini futures touched their 200DMA (light blue) before plunging with the largest range day in over six months (middle pane) and along with a pick up in volume is very reminiscent of the summer of 2011. A 42pt high to low range today!...
[7]
Selling pressure was significant as aside from the lift into the European close, ES was unable to get back close to VWAP (light blue). After stabilizing at the Thursday closing VWAP level (blue dots), ES rolled over in the afternoon to end at Friday's lows...
[8]
Which is where IG credit was warning us on Friday. Notice the plunge in ES and HYG towards the close as they reverted back down to HY's reality. IG likely being used a cheap carry macro hedge here (given the cost of carry on HY). HYG closed modestly below its intrinsics fair-value - its 'cheapest' in a week. Will this time be the contagion to real bond selling (as we saw more HY outflows last week)...
[9]
Interestingly, the IG and HY bond advance/decline lines are really stressed here - and yet cash prices are not tumbling (yet)...
[10]
The USD gained over 1% from its early morning lows today but AUD and CAD (carry) underperformed (as JPY and GBP outperformed)...
[11]
But gold was the standout in terms of divergence (especially in light of the USD strength) as Oil got destroyed...
[12]
and diverged from equities, USD, and Stocks...
[13]
But it was financials that were just a disaster today (from the opening tick)...Citi -7%, BofA -6%, MS -5.5% and JPM -4.5%
[14]
Across asset classes, correlation rose significantly from early overnight and stayed very systemic (lower right chart). SPY (the S&P 500 ETF) oscillated around HYG, VXX, TLT fair-value (upper left) but at the close the drop in HYG and pop in VXX implied more pain for SPY (which we also saw in ES). The upper right chart shows that broadly speaking risk assets were dragging stocks lower today and the after-hours plunge basically reconnected ES with CONTEXT reality (for now) at around 1300 again. What is most interesting once again is the fact that VIX leaked higher and higher all day to catch up with the credit/equity fair-value framework (lower left).
[15]
All-in-all, stocks shrugged off their hopium once again and reverted to more of a fair price to other risk assets. The rise in implied correlation (and demand for macro protection in credit) suggests there is more to come here.
Charts: Bloomberg and Capital Context
Bonus Chart: AAPL gave up early gains for an ugly close but VWAPs remained key support and resistance...
[16]