An expectedly low volume day saw equity futures wiggle around VWAP until the day-session open at which time Energy and Materials sectors surged to lift stocks 10 pts higher into the European close. Commodities all surged - led by Oil with its 'Hormuz'-premium pricing in - and while the USD weakened after the European close ( driven by EURUSD bouncing off the 50% retracement of the EU Summit spike), equities also lost ground and rapidly reverted back down to VWAP. The strength in gold and silver was interesting as they extend their gains from pre-Summit lows (gold up over $70) and most notable to us was the recoupling of risk assets broadly with equities. Gold and stocks are seemingly back in sync and so are (separately) the USD and 10Y Treasury yields. After stocks hit VWAP they rapidly resurged back up to the highs of the day and closed there dragged up by a push into the green by HYG (with both stocks and high-yield seeing some sizable blocks going through at the highs). VIX closed down very modestly at 16.6% but most notably was the rise in implied correlation (and implicitly index vol - VIX - from around 1045ET into the close, even as stocks rallied). It would seem that the rise in WTI back over $87.50 (and Brent over EUR80) has been the 'risk-driver' for much of this rally (with CONTEXT - broad risk proxy - playing squeeze catch up to equity's health). In summary, equities are up over 5% as oil is smashing higher due to pending Hormuz strait closing and WAR; Germany and Finland basically saying NEIN to EU Summit deal as it stands; JPM in an energy market probe and BARC told to lower rates by the government!! All is well in nominal, central-bank, asset-value land.
Whether it is QE beig priced in again or simply a reversion to whatever value assets can find is unclear but the convergence between Gold and Stocks as well as Treasury yields and the USD is coincidental...
[9]
Commodities surged with Oil on its own but PMs notably levitating...
[10]
and VIX decoupled from equity's ebulience...
[11]
The squeeze in equity markets finally drove a squeeze in other assets as is very evident from the chart below of CONTEXT (our broad risk-asset proxy) which reverted higher overnight (thanks to Oil and Treasuries more than FX/spreads) to converge with stocks around the US day-session open...
[12]
It would seem that given this squeeze in risk-assets and the rise in VIX and implied correlation - along with gold/stocks and USD/TSYs recoupling that there is little ammo left for a further squeeze higher and from here it is real macro data or CB headlines that make-or-break reality (as usual).
Have a great 4th.
Charts: Bloomberg and Capital Context
Bonus Chart: The hope-driven rally and re-convergence of the S&P 500 priced in gold relative to Treasuries - are we set for Gold to outperform ES in the nest few days?
[13]