Pre-QE Trade Remains Only Beacon As Gold, Silver Outperform, Financials At October Highs

Equity and credit markets eked out small gains on the day as Treasuries limped a few bps lower in yield (with 30Y the notable underperformer) and the EUR lost some ground to the USD. ES (the e-mini S&P futures contract) saw its lowest volume of the year today at 1.35mm contracts (30% below its 50DMA) as NYSE volumes -10% from yesterday but average for the month. Another small range day in almost every market aside from commodities which saw significant divergence with Silver (best today) and Gold surging (up around 1.15% on the week) while Oil and Copper dived (down 2.6-3% or so on the week) with the former managing to scramble back above $96 into the close. ES and the broad risk proxy CONTEXT maintained their very high correlation as Oil and 2s10s30s compression dragged on ES but AUDJPY and TSYs post-Europe inching higher in yields helped ES. HYG underperformed all day (often a canary but we have killed so many canaries recently). Energy names outperformed on the day (as Brent and WTI diverged notably) but financials did well with the majors now back up to the late October (Greek PSI deal) highs. All-in-all, eerily quiet ahead of NFP but it feels like something is stirring under the covers as European exuberance didn't carry through over here (except in ZNGA and FFN!).

ES volumes were the lowest ex-holiday in two months and 30% below the 50 day average volume.


Investment Grade credit just outperformed (on a beta basis) its high yield and equity peers today as HYG leaked lower in the face of the slow push higher in stocks (back up to their VWAP once again).


The commodity complex split into economically-sensitive and fiat-fiasco flows today as Gold and Silver just kept pushing to new recent highs (coordinated monetary policy and realization that LTRO doesn't solve insolvency - as Greece becomes farce) and Copper and Oil fell (global growth concerns?). With the USD up modestly on the week the outperformance is even more impressive and the fact that stocks are still nominally tracking gold and silver suggests the reality of their USD-numeraire is perhaps dawning on many.



Financials have had an incredible year-to-date with BofA up 34% for instance and Morgan Stanley a stomach-churning +29%. What is interesting though is that we have now stabilized at the late October highs which is when the European leaders decided on the Greek PSI deal (striking a deal that banks and insurers would accept a 50% haircut on GGBs). Citigroup remains the underperformer from these highs while more domestically focused WFC is outperforming.

30Y yields rose just over 1bp while 10Y was unch and 5s to 7s compressed 1-2bps in a lackluster day for Treasuries. This leaves 10Y as the week's outperformer (-7bps on the week) with 2Y actually +1bps on the week and the 30Y -5bps.

The USD rallied in early going after a miss in the Spanish auction (yes it was a miss no matter what certain TV chaps want to tell you) and a meet in the French auction. After US opened, the USD reversed and sold off and then as Europe closed the USD bottomed and leaked higher for the rest of the day. Once again FX markets reversed on market opens and closes. The EUR is down around 0.6% on the week (and the worst performer of the majors) though well off its worst levels from Tuesday. JPY is the best performer against the USD today and on the week as it has gained 0.6% (hence EURJPY has not been a big carry driver this week - though AUDJPY has seen renewed interest). The USD (proxy DXY) is up a modest 0.17% on the week.

Correlation between ES and broad risk assets continues to be high here (even as realized correlation within the equity indices actually drops to multi-month lows).  Risk is indeed on or off only and today's lack of volume push to new highs combined with financials back at what appears critical event highs and HYG's underperformance are a little more worrisome than normal but with NFP tomorrow, perhaps it is merely an example of fewer and fewer traders willing to participate.

Charts: Bloomberg and Capital Context