Volumeless Rally In Stocks; Bonds Still Tapering

The overnight gains from a market's misperception of PBOC comments faded quickly as out of the gate this morning it appeared 'good news was bad' as the market faded fast on heavy volume (after decent volume) but once the first hour flush was done we retested highs and then trod water for most of the rest of the day. S&P 500 tracked AUDJPY almost tick-for-tick all day and got its lift - testing up to unchanged from Friday's close. Equities were aided (in a correlated fashion) by VIX compression (down over 2 vols below 18%) and a very significant compression in credit markets (more below) which provided a stop-run ramp at 330 (surprise) but that faded fast into the close (leaving stocks still with decent gains but on very weak volume). Treasuries saw more longer-dated underperformance (bear steepening with 10Y/30Y +7bps, 5Y +3bps) and FX markets saw the USD rise modestly - both clearly more Taper-on moves. Equities closed weak.

 

Equities diverged from gold, the USD, and Bonds...

 

and stocks had only one thing on their mind today...

 

Treasuries saw the long-end playin catch up (in yield) to the belly's post-FOMC underperformance)...

 

Credit markets ramped tighter (higher in the chart below) providing some impetus in that late ramp for stocks...

 

but it seems more driven by a compression trade between the index and its underlying positions (put simply - the S&P 500 equivalent of credit was trading significant cheap relative to its underlying components - which occurs due to technical demand issues that are not as easily arb'd away as they are in HFT-algo driven equities - and so traders sold index protection and bought the underlying indivdual names protection to bring the two more in line)..

 

In other words, do not get too carried away with the credit rally.

 

Homebuilders were juiced at the open by the data but did nothing but fade all day (and are still -8.5% from FOMC)... also Utilities did well on the day - even as bond yields pushed higher still...

 

Charts: Bloomberg