Gold Outperforms As Stocks Drop and Volume Pops

For the third day in a row, stocks fell, led by the broad high-beta sectors (as one would expect) with energy (suffering as WTI lost almost 2%), materials, industrials, and financials all down notably (with the majors dominating weakness in the financials - though still up significantly post-JPM-divi). Futures and cash volumes picked up from yesterday - nearing their average year-to-date but average trade size fell further equaling the lowest year-to-date. With the China news (and then Europe), it was AUD and JPY that dominated price action as JPY strengthened and AUD weakened leaving the USD tracking the EUR and ending very modestly higher on the day. Commodities faced another day of torment with Silver underperforming. Gold outperformed but was down on the day still as from mid-afternoon, the commodity complex crept higher as the USD stabilized.  Broadly speaking risk assets (CONTEXT) led the equity market lower into lunch and then stabilized this afternoon - holding stocks off from further deterioration. An up-day for HYG (the high-yield bond ETF) - seemingly on the back of HY-HYG arbitrage more than asset rotation - and the craziness in the vol complex (VXX vs TVIX) somewhat supported SPY on the day but we note that ES (the S&P 500 e-mini futures contract) was unable to break above its VWAP meaningfully the entire day. Treasuries sold off from early in the US day session but only very marginally as 30Y remains -4bps on the week while the rest of the curve is unch to 1bps lower in yield only.

After yesterday's shenanigans with Silver, it remains the biggest loser on the week - and Gold the best performer of the metals/oil complex - though still lower. WTI was a disappointment today as more SPR chatter was a factor but it recovered quickly this afternoon back up almost to $105.50.

The USD remains in a narrow band for the week but the huge divergence between JPY strength (up is USD Strength on the chart) and AUD weakness is evident as carry unwinds and China knock-ons (and Kiwi GDP) gang up to reverse trends for now...


ES, the S&P 500 e-mini futures contract, rallied to VWAP (light blue below) an impressive nine-times today as it tried to escape the clutches of the sell-off and each time - as we would expect volume picked up as institutional sellers were 'allowed' to exit.

The blue line (above) also shows a longer-run CONTEXT from before the Treasury sell-off of last week. The chart below shows the fact that we have recoupled (Green rectangle) from the Treasury-driven-disconnect (orange rectangle) suggests whatever the factor was that drove Treasuries off a brief cliff - has subsided for now.


We wrote earlier on the TVIX-VIX debacle, but it is perhaps noteworthy that short-dated VIX dropped considerably into the close today from 16.5 to 15.5 - though ended the day higher close to close.

Investment grade credit leaked back wider (from its ridiculously rich level relative to its intrinsic underlying fair-value). High-yield underperformed (against stocks and HYG) as we suggested yesterday that the HYG-HY17 arb was back in play (though it is as likely roll-related technicals as there are plenty of rate-related and call-related differences between the yield and spread based products.

Finally, it appears we have once again broken quite a significant uptrend off the Thanksgiving Day start of this rally. As the chart above also shows (based on 135min bars of the day-session of the ES) we also saw an earth-quake in terms of institutional size 'trades' (lower pane is average trade size) as we broke through the trendline this time.

Charts: Bloomberg and Capital Context