Copper

Middle East situation not really in the prices, as the tension in Syria is growing to new heights.

IMF annual review of EZ policies pitches a lot of already pitched ideas (QE, etc etc). No news

Nothing crisp from Ben – outside comments that “Europe is not close to having a long term solution”… Thanks for the thumb up!

Equities managed to rally after slumping on heavy volume to the 1340 level (scene of crime for Greek election, Spanish bailout, and EU-Summit) pushing up to close at the mid-June swing high levels and post EU-Summit close levels around 1358 (back over its 50DMA). Total volume for the S&P 500 e-mini (ES) was just below average but the average trade size was dismal - around the lowest of the year. Whether due to VIX options expiration squeeze sending VXX and other derivatives tumbling (with VIX almost testing a 15 handle intraday); or a safety 'algo' running things up and over VWAP; or a reflexive reaction to bad is good and Bernanke has our backs no matter what happens, equities pushed 20 points off their lows but stagnated for much of the afternoon. The surge in stocks far outpaced risk-assets and what was more worrisome was the notable divergence in gold as the afternoon wore on - if this was QE-hope then the main QE-sensitive asset class of choice was not playing along at all into the close. Gold and Silver ended the day down modestly, Copper worse, but WTI ended the day up 2.3% on the week and back over $89. Treasuries pushed higher in yields (oh yes very QE-on?) - no higher in yield on the week with the long-end underperforming. FX markets were a little more aggressive - like Treasuries - and extended their rallies relative to USD with AUD now up almost 1% and the USD now down 0.36% on the week - which is interesting given Gold is also down around 0.5% on the week.

Same story again: Recurrent picture of Hard Core grinding slightly tighter, Soft Core doubling down on that . Italy eventually better today but still over the 6% mark and Spain stuck over 6.75%. Equities just a tick weaker after all. Gold non-QE victim. EUR slammed through 22, but rebounded off 1.219.

Eventually quite resilient markets, given all the expectations…

Gold inched up on Tuesday ahead of Federal Reserve Chairman Ben Bernanke's Congressional testimony today and Wednesday which should provide the market with information as to whether the US central bank will flood the market with more US paper.

Treasuries seemed to shrug off the QE-on trade from yesterday in the lead up to this morning's big disappointment from Bernanke. Gold lost it first and then as the statement came - with no mention of hyperinflation, helicopters, or new printers - so equities dumped - gapping down to converge with the rest of risk assets. The USD rallied as its cloests relative neighbor in disaster the EUR legged lower and the USD strength exaggerated commodity weakness further (Silver and Copper worst but all falling). ES is back to the post-ramp open on cliff on Friday at the magic 1340 level but momentum is not in its favor now and Treasury yields are reverting lower now also. Financials were the early laggards and have extended losses with GS back in the red and JPM down notably.

UPDATE: Biggest down day in Faceplant since 5/29 (down 8%) to close at $28.25 on double recent volume.

This was the narrowest day's range in S&P 500 e-mini futures (ES) in over three months and volume was dismally slow as it clung to its 50DMA amid larger than normal average trade size. Elsewhere, markets were anything but dead. Commodities dipped and ripped with WTI breaking back over $88 on Saudi news and Silver/Gold/Copper all ending around unch on the day but leaking off their highs into the close (though well off lows). For a while 'bad was good' as the retail sales print prompted QE-on-esque trades with Gold up, USD down, and Treasury yields plunging to near-record-lows. FX and commodities appeared to catch up to stock's more sanguine view of things from Friday but once there, Treasury yields reversed and rose into the afternoon as EURUSD continued to rally back well into the green (repatriation?) dragging the USD down 0.25% from Friday's close. Credit notably underperformed equities on the day (with HYG stumbling into the close). It seems everyone is waiting with baited breath for Bernanke's speech tomorrow and VIX (which is back in line with realized vol for the first time in 5 months) limped higher by around 0.4 vols to 17.1%.

The sharp losses in the gold mining sector Friday and last week could presage further weakness today but the higher weekly closes for gold and silver were constructive from a technical perspective.

After initial gains in Asia, gold fell early in Asian trading prior to recovering and then weakening again bang on 0800 GMT as Europe opened (see chart below).

Gold is higher in euro and Swiss franc terms but slightly lower in dollars and pounds.

Europe slipping into (light) ROff (and then out). Recurrent picture of Hard Core grinding tighter, Soft Core doubling down on that . Peripherals drifting wider with Italy eventually further off the 6% mark and Spain at 6.77%. Equities about unchanged after all.

BKO eventually closing on a historic -0.060% low.

Slow dragging day, if it wasn’t for the EUR jogging back and forth all the time. Something gotta move, I guess.

By now, everyone is aware of the incredible increase in the price of corn thanks in large part to the almost unprecedented drought levels across the country. Up another 5% today at over $777, the 30-day run has seen prices up over 41%. However, while this is an unbelievable move to record high prices, on a trailing 12-month basis, this price move has merely mean-reverted to the average gain of the last 10 years. From 2002-2011, the average price rise from July-to-July was around $55 and the current July-to-July price rise is only around $75. While things do not look set to improve any time soon for the weather, some longer-term context for Corn may well be worth considering. Furthermore, as Goldman notes the lack of rainfall and extreme warmth has shifted corn yields to the second-largest yield-loss since 1950 (noting that the current 24% rise in the Ag complex is still well below the 35% rise in the 'drought' summer of 1988) and the implications for global inflation are gravely concerning as hopes of China stimulus are impaired.

The reason for the ramp in risk as attributed by various buyside desks as to what recently has become the trademark of more hope, prayer and magic from Jefferies' (yes, Jefferies is driving the market for once, who wouldathunk it) David "SPOOS" Zervos, whose latest note that the Fed will follow the ECB and cut its overnight excess reserves rate to -0.25% has picked up some traction, and is causing a modest rise in risk markets. Here is the problem: the Fed will NOT do this, and certainly will not do this for months and months as not only would it destroy the US money market, general colalteral, unsecured and virtually every other overnight market instantaneously (and not even Ben is that dumb to trade a few trillion in private sector overnight funding for 10% in the S&P), but even as Zervos says this is nothing short of a thought experiment in what may happen: "Whether it happens or not is not the point. The issue is that we are not priced for it AT ALL." Correct David: they are unprepared because it will not happen. The Fed will do much more LSAP, and even that other flow-based lunacy, NGDP targeting, before it decides to blow up overnight markets (not to mention destroy the entire Primary Dealer risk analytics system all of which is based on positive flow from Reserves). Because if the Fed telegraphs it is ending the inflows from reserves experiment started 3 years ago, we better be having 4% GDP growth. Reality check: we have 1.1% Q2 annualized GDP. Finally, that whole ECB experiment with negative Deposit Rates led to... absolutely nothing... correction: it led to yet another plunge in Spanish and Italian yields: something the Fed is quite aware of.

Last week the S&P erased 6 days of consecutive losses in 30 minutes of trading on the back of news that JPMorgan lost at least 25% of its average annual Net Income in one epic trade, and stands to make far fewer profits in the future, even as the regulators are about to fire a whole lot of traders for mismarking hundreds of billions in CDS. This was somehow considered "good news." This being the "new normal" market, where nothing makes sense, and where EUR repatriation as a result of wholesale asset sales by European banks drives stocks higher, we were not too surprised. Sadly, even in the new normal, things eventually have to get back to normal. And that normal will come as corporate earnings are disclosed over not so much over the next 3 weeks, when 77% of the companies in the S&P report Q2 results, but in the 3rd quarter. Why the third quarter? Simple: as Goldman's David Kostin explains, "consensus now expects year/year EPS growth to accelerate from 0% in 2Q, to 3% in 3Q to 17% in 4Q." Sorry, but this is not going to happen...

Greece's Eurozone exit is almost done.

S&P 500 e-mini futures (ES) traded up to almost perfectly recapture their 415ET close from last Friday after a 15-point, 30-minute ramp out of the gates at the US day-session open recouped five days of losses - as once again - we go nowhere quickly. Just for clarity: China GDP disappointed and provided no signal for massive stimulus; JPM announced bigger than expected losses, cheating on CDS marks, and exposed just how large their CIO was relative to income; Consumer sentiment printed at its worst this year; and QE-crimping inflation printed hotter than expectations - and we get a more-than-30 point rally in the S&P. Whether the fuel was JPM squeeze or another big European bank biting the liquidity dust and repatriating cajillions of EUR to cover costs (or Austria needing some cash for a debt payment), what was clear was equity market's outperformance of every other asset class - with the late day surge for a green weekly close particularly noteworthy. Apart from unch on the week, ES also managed to close right at its 50DMA, revert up to credit's less sanguine behavior intra-week, and up to VIX's relative outpeformance on the week (as VIX ended the week with its steepest term-structure in over 4 months). Treasuries ended the week 6-9bps lower in yield at the long-end (2-3bps at the short end) but the USD's plunge, on the absolute rampfest in EURUSD, took it back to unch for the week. Despite the USD unch-ness, Oil and Copper surged (on the day to help the week) up 2.5-3% on the week while even Gold and Silver managed a high beta performance ending the week up around 0.5%. ES ended the day notably rich to broad risk assets - and wil need some more weakness in TSYs and carry crosses to extend this - for now, the steepness of the volatility slope, velocity of squeeze, and richness of stocks to risk makes us a little nervous carrying longs here.

Nice equity (and commodities) close (DAX futures peaking at +2%).

Didn’t seem to impress EGBs, though. Nor credit, as it stands. No ROn mode behaviour here. And certainly not for Italy.

As we wait anxiously for the not-too-hot and not-too-cold but just right GDP data from China this evening, we thought it instructive to get some sense of the reality in China. From both the property bubble perspective (as Stratfor's analysis of the record high prices paid just this week for Beijing property - by an SOE no less - and its massive 'microcosm' insight into the bubbliciousness of the PBOC's attempts to stave off the inevitable 'landing'); to the rather shocking insight that Diapason Commodities' Sean Corrigan offers that 'Hot Money Flows' have left China at a rates exceeding that during the worst of the Lehman crisis; take a range of key indicators – from electricity usage, to Shanghai container throughput, to nationwide rail freight ton-miles, to steel output – and you will notice that none of these shows a rate of growth during the second quarter of more than 4% from 2011, and some are as low as 1%. Whatever fictive GDP number we are presented with this week, the message is clear: “Brace! Brace! Brace!”