After a couple of days of exuberant dead-cat-bouncing in Japan (and therefore implicitly US equities), the reality that credit markets had been hinting at is starting to be realized once again. A nasty gap-down open in US equities saw BTFDers come piling back in, aided by pressure on bonds and a final liftathon into the EU close in AUDJPY. That was the best of the day and JPY's biggest surge in over 3 years (~3%!) dissolved any equity-dip-buying power as stocks jerked up and down around VWAP for the rest of the day. Credit markets opened even more gap wider than stocks weaker as chatter was that bondholders were hedging exposures (as opposed to reducing exposure - hoping that redemptions don't come). That gap was very rapidly filled and aided the parabolic ramp into the EU close. Then, credit was offered, stocks followed as VIX and Treasuries were bid the rest of the day. A very chaotic day in almost every asset class (with PMs actually relatively stable) as US markets begin to mimic Japanese volatility. The Nikkei is now 800 points off the dead-cat-bounce highs from 2 days ago.
All that really matters is this...
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But we should look around at a few other markets too... since volatility exploded everywhere...
Stocks gapped down at the US open, but once the Dow hit unch - the sellers resumed and it was down all the way... a change in regime...
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Credit gapped wider as real money hedged their over-exposure (preferring that than to sell - hoping that redemption do not occur)... but selling pressure remained even after the technical gap fill...
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FX markets were extremely volatile...
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Commodities were relatively calm though - until Taksim Square which snapped TWI higher...
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Bonds were bid and Stocks offered as the Turkey video streams hit...notice that when Europe opened US assets (Bonds and Stocks were sold)...
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Volume was well above average after yesterday's dismal trading. Credit indices were all above ther averages with IG's range large again and ITRX EUR volume extremely heavy compared to normal...
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Today's on-again-off-again cross-asset-class correlations are nowhere more eveident than in Capital Context's CONTEXT model (proxy for risk-assets) which was extremely tightly coupled with US equities into the European open, then decoupled until the European close and then was very tightly correlated nto the US close... (still think the machines aren't in charge?)... the disclocation appears mainly driven by the selling of both US equities and US bonds...
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Tuesday Capital LLC was just Stevie Cohened. Reopening next week as a family office...
Charts: Bloomberg and Capital Context
Bonus Chart: Nikkei is now over 750 points off Monday's highs and Goldman's stop is getting close...
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Bonus Bonus Chart: The Short-Interest ammunition to take us higher from here is gone... unlike every dip since the 2009 lows... (NYSE just reported a 90 million share drop in market-wide short-interest).
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