From the moment China opened last night, precious metals were under pressure; this accelerated during the middle of the European day, recovered modestly into the US open (on crappy data and implicitly no taper) and then slid lower for the rest of the day ending at its lows (gold -4.3%, silver -5.6%). Stocks were loving it - but again we saw the opening spike in homebuilders sold all day and Staples and Utilities outperforming (not really risk-on?). Treasuries never looked back and rallied all day (belly -7bps) to leave rates practically unchanged on the week (while S&P is up 20 points). The USD is up 0.7% on the week having rallied all day today - led by EUR weakness (and notably AUDJPY once again recoupled with stocks this afternoon). Credit modestly underperformed but rallied technically (more below) as the cash S&P 500 regained the all-important 1,600 level but Trannies rolled over into the close (and stocks remain down around 3% from FOMC levels). Oh, and AAPL <$400
Gold and Silver were monkey-hammered...
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and on an intrday basis the pain began as China opened...
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Stock indices continue to rise...
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but the sector shift is notable for its seeming lack of real risk-on exuberance...
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Treasuries were bid all day - especially as the crappy GDP print hit...
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For some sense of how 'cheap' Treasuries have become relative to stocks, we dust off an old model... simply put (despite the appearance of convergence in levels) this shift in bonds leaves them around 8-sigma cheap to stocks if the taper is off...
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VIX tracked stocks tick for tick all day and filled the gap back to 6/19 levels.
Intraday, the S&P futures followed a similar pattern into the close with low volume ramps and heavier volume dips to VWAP after the cash close...
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Charts: Bloomberg and Capital Context
Bonus Chart: Just WTF is going on here?
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Bonus Bonus Chart: Oil is its most expensive in 5 years on a 'real' gold-adjusted basis...
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Bonus Credit Discussion (for 10,000 extra credits):
As we noted yesterday, credit indexes rallied again today but it seems very clear that the reason is the same as yesterday. The knee-jerk move in HY CDX especially reflects more index-arbitrage. We also hear increasing chatter of funds removing the macro overlay hedges that they grabbed en masse (driving the skew - 2nd and 4th pane below - between the index and its underlying value to extremes) and are both selling down individual holdings (as we saw here in the cash markets) or being more selective on hedges in individual names.
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In english (we are explaining this as it is important and little discussed in mainstream media) - credit bond managers were worried but didn't want to sell as they knew the avalanche is cash bonds would happen; so they grabbed the most liquid protection they could (ETFs and credit derivative indices); this left credit indices massively cheap to their underlying value (NAV discount/premium in ETF and skews in CDS land); as the pain continues, they are unwinding the hedges now and reducing underlying exposure... which means the modest rally in credit indices is misleading in its positivity since it merely gets the index back to its fair value.
With skews now more normalized, the next leg one way or the other is important.