Both VIX and credit markets decoupled to the downside soon after Europe closed as equities clambered higher amid lower and lower volumes. As we headed into the last hour though both markets snapped higher to catch up to stocks and that mini-capitulation seemed enough for the equity rally to run out of steam. With the JPY strengthening all day, equities ignored the message of the carry traders until the close - when a big sell-side imbalance (and reality) smacked stocks lower to catch down to the all-important VWAP level once again. The USD saw its worst two-days since Oct 2011 giving up 3 weeks of gains. Gold and Silver are up nicely on the week (1.6 to 2%), outperforming today. Equities still managed gains on the day (despite the late-day tumble) and (oddly) Treasuries also ended very marginally in the green. The last few minutes of the day - normally kept open for some levitating algo to save the day - was a cliff-dive as news of FX margin controls on the all-important JPY carry driver smashed all risk-assets lower.
The USD had its worst two-days in 19 months...
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The USD has been hammered (with EUR and JPY strength dominant)...
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Credit decoupled after EU close, was ripped back to recouple then collapsed lower...
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notice HY (light red) closed at the lows of the day!
just like VIX...
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after the JPY margin chatter...
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But at least we now know - in case it was ever in doubt - what the most leveraged to the carry trade are... (HY see above and Trannies and the Dow)...
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Charts: Bloomberg and Capital Context