S&P 500 e-mini futures managed to get back above their 50DMA, fill the gap back to the 5/4 ugly-NFP print levels, and retrace 61.8% of the recent swing high-to-low ahead of tomorrow's hope-laden FOMC-print-fest. As we noted here [8], credit markets do not agree that QE is coming anytime soon and today's Gold deterioration suggests expectations for anything more than a twist extension are overblown (which we suspect would be a huge disappointment to a market only 4% off its highs and a VIX with a 17 handle earlier in the day. As the afternoon wore on and the incredible reporting falsehoods were denied, equity markets (and EUR) reverted lower (led by financials) pulling back to VWAP (and VIX pushed back rapidly to 18.5 - ending the day higher in vol (despite a 10pt jump in the S&P). Low volume and falling average trade size suggests this was far from the start of a new trend in stocks and the push higher (and steeper) in TSY yields to Monday's opening highs seems more like QE hope fading than growth hope. Silver just underperformed Gold on the day (both leaking lower) as Oil and Copper rallied (leaving WTI in the green for the week) as USD weakened and round-tripped to Monday's opening lows (with AUD now 1.3% stronger on the week). Investment grade credit remains a considerable underperformer relative to the high beta equity and high yield markets but 'agrees' with Gold and Treasuries in its view of no LSAP tomorrow- and the surge in implied correlation into the close suggests macro overlays as opposed to a market with any conviction.
IG credit remains a notable underperformer from the 5/4 NFP print trade but high-beta credit and equity have reverted perfectly. Note tomorrow is CDS roll day and credit index options expiry which likely explains some of the squeeze today - with credit in the middle of the recent cycle meaning plenty of to-and-fro in risk...
[9]
But gold and Treasuries appear to have faded the QE hope today (as TSYs gave up their hope-gains and gold faded today)...
[10]
ES closed rather weakly - ending the day just shy of Monday's opening highs and at today's VWAP...
[11]
It would appear AUDJPY has been the whipping boy for powering ES higher as we see quite a significant divergence between AUD's 1.33% gain this week relative to USD's 'average' 0.25% loss. If we are disappointed tomorrow, we suspect AUD will get crushed...
[12]
Correlations between equities and broad risk assets faded significantly as stocks surged but increased notably as the late day weakness arrived. Most notably though into the last hour of the day was the surge in implied correlation (think systemic/crash risk) and disconnect between a higher VIX and higher stocks...
[13]
Most of the major financials gains were in the first 30 minutes of today and after that they were flat to sideways as we suspect the shorts were squeezed out in a hurry on some technical crosses.
[14]
Charts: Bloomberg