ES 13 Points Rich To Intrinsic Risk Value

Since just before the US equity day session open, ES has diverged dramatically from what was a highly correlated trajectory with global risk assets. European credit markets are rolling over - notably off their highs, European sovereigns are leaking wider (BTPs from -25bps to -10bps now and Portugal +75bps), US TSYs are 6bps off high yields of the day and 2s10s30s is dropping fast, Oil has cracked back through $99 (2.5% off highs), and AUDJPY is losing steam. European financials were underperforming in credit-land and now we see US financials drop from best performer to sixth (admittedly still +3%) as EURUSD starts to leak back into the EUR close.

The ES-CONTEXT spread at 13pts offers a great chance of compression and for non-institutional execution, it seems fading the ES rally is most appropriate (though obviously much more risky - size accordingly) at least to VWAP around 1188.

Chart: Bloomberg and Capital Context