After a brief spike higher (just to flush all those stops) in front of Draghi's 'dis-believe' press conference this morning, markets plunged. Some wanted more but algos tickled us up to VWAP into the close once again though we note that once there - volume and average trade size surged, allowing those bigger momo players a better exit than mere mortals. Equities and broad risk assets stayed in very close sync all day with cross asset class correlation surging systemically, VIX rose and fell on the day ending down 1.4 vols at 17.5% (after touching 19.25% after the European close) - but notably VIX is now more back in line with equity/credit implied values. The USD ends today up 0.8% on the week, and implicitly commodities tumbled (copper and oil down 3-3.5% on the week and gold/silver -2%). Treasury yields bounced higher as stocks nibbled back to VWAP into the close but ended down 2-4bps (long-end outperforming). All in all - no capitulation, but a broad based derisking that seemed to benefit from some pre-positioning in protection (and help from the VWAP algos twice). Wil tomorrow's NFP be good enough to be bad or bad enough to be good (high volume and low average trade size suggests few want to position for it too aggressively).
S&P 500 e-mini futures (ES) saw two reversions to VWAP (red rectangles) - at Europe close and US close that were accompanied by heavy volume and large block size exits...
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VIX surprised a few with its 'weakness' today as stocks sold off - but hopefully this will clarify - as it seems the warning we noted a few days ago of pre-emptive positioning was indeed what occurred and likely supported today's market modestly...
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But broadly speaking risk markets clung together in a non-capitulative manner today - and notably gold (beta-adjusted) underperformed...
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and across all risk-asset-classes correlation picked up (lower right) and equities tended to cling to risk all day (upper right). Despite some early shenanigans into the European close (upper left), equities stayed true to their rates/vol/credit capital structure. The VIX vs 'fair' equity/credit relationship reverted today (lower left) and it will be interesting to see if today's vol selling (unwinds of hedges) was accompanied by derisking in the underlying or simply a lifting of hedges (we suspect - given the VWAP reversion, high volume, and pick up in average trade size at VWAP that this was real money exits)...
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Charts:Bloomberg and Capital Context [10]
Bonus Chart: Terrible Truth - How many more jobs are gonna be lost thanks to algos? Knight Capital trades with a $1 handle after hours...
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