Gold managed a 1.8% surge today (back above $1690 and its 200- and 100-DMAs
and its largest jump in 2 months) from Friday's close thanks to the combination
of the ECB on Friday and Merkel and Bernanke today assuring the world that
anything more than a 2% dip in stocks will not be tolerated. While Silver
outperformed Gold from Friday's close, based on its 2-3x beta of the last year
this was a notable 'underperformance' as Gold outpaced everything (beta
adjusted). Perhaps importantly, the S&P 500 when priced in gold met
and rejected resistance at a key level today - even with its nominal
30pt rally off of Friday's S&P lows. Volumes were abysmal with
stocks well below YTD average and the S&P futures 20% below
average and among the lowest few days' volumes of the year. Credit
markets did not participate as exuberantly (though HY outperformed IG as you
would expect) but the day seemed split into 4 segments:
pre-Bernanke (quiet/sideways), Bernanke to US Open
(rampfest, Gold outperforms, TSY rally), US Open to EU Close
(TSY selloff notably, equities sideways, Gold rips), and then from EU
Close to US Close (Equity/Gold/TSY rally as USD leaked lower). In
FX, JPY was relatively stable at its lows after Bernanke's
speech as the rest of the majors strengthened versus the USD (as EUR broke above
1.3350 once again). Oil managed a small rally on the day but
underperformed the USD's 0.5% weakness from Friday as Treasuries
were very flip-floppy today - ending the day with a small twist around
7Y (30Y +3bps). VIX made new lows and closed there as the term
structure flattened further to its flattest in almost 4
months.
The S&P priced in Gold appears to have met and rejected resistance at around this level but of course this does nothing to slow the nominal equity rally that is now ignorant of anything but centrally planned rhetoric...
and ES (the S&P 500 e-mini futures contract) rallied right up to the long-run (March 2009) rally low up-trendline (and also its post-Thanksgiving Day rally up-trendline too)...
The equity market excitedly outperformed credit today (as stocks were led by Healthcare - Obamacare-related and then the typical high-beta Financials, Industrials, and Discretionary but everything was up today).
The day seemed to break into 4 segments in terms of correlated market action...
Given the pre-Bernanke pre-amble, it is evident just how big a 'beta' adjusted day Gold had. Treasuries were confused as the standard QE-on trade fell apart on some US-Open to EU-Close selling which appeare to translate directly into gold buying from the chart above. After Europe closed, the game was on and Vol was crushed, Stocks ramped, Gold soared and Treasuries rallied back to their best levels of the day (though the long-end underperformed the short-end from Friday's close).
VIX closed at its lowest since June 2007, unable to take out the intraday lows though from a week or so ago). What is most interesting is the start of a capitulation in the term structure - i.e. the premium for protection is coming down notably not just in the front-month but in later months where investors/traders have been keeping their hedges on. While painful, until this plays out to more normalized 'flatness' (which are actually approaching rapidly now) there is too much ammo to keep pushing higher as shorts cover or hedgers capitulate.
Charts: Bloomberg
The S&P priced in Gold appears to have met and rejected resistance at around this level but of course this does nothing to slow the nominal equity rally that is now ignorant of anything but centrally planned rhetoric...
and ES (the S&P 500 e-mini futures contract) rallied right up to the long-run (March 2009) rally low up-trendline (and also its post-Thanksgiving Day rally up-trendline too)...
The equity market excitedly outperformed credit today (as stocks were led by Healthcare - Obamacare-related and then the typical high-beta Financials, Industrials, and Discretionary but everything was up today).
The day seemed to break into 4 segments in terms of correlated market action...
Given the pre-Bernanke pre-amble, it is evident just how big a 'beta' adjusted day Gold had. Treasuries were confused as the standard QE-on trade fell apart on some US-Open to EU-Close selling which appeare to translate directly into gold buying from the chart above. After Europe closed, the game was on and Vol was crushed, Stocks ramped, Gold soared and Treasuries rallied back to their best levels of the day (though the long-end underperformed the short-end from Friday's close).
VIX closed at its lowest since June 2007, unable to take out the intraday lows though from a week or so ago). What is most interesting is the start of a capitulation in the term structure - i.e. the premium for protection is coming down notably not just in the front-month but in later months where investors/traders have been keeping their hedges on. While painful, until this plays out to more normalized 'flatness' (which are actually approaching rapidly now) there is too much ammo to keep pushing higher as shorts cover or hedgers capitulate.
Charts: Bloomberg
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