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Risk-Assets Collapse As Knife-Catchers Are Nowhere To Be Found
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Risk-Assets Collapse As Knife-Catchers Are Nowhere To Be Found

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Risk-Assets Collapse As Knife-Catchers Are Nowhere To Be Found

Unlike yesterday's close, which was led by stocks and not sustained by broad risk assets, today's notable dive in ES was fully backed and supported by credit, commodity, FX carry, rates, and spreads. Volumes dried up as the afternoon progressed as we suspect machines were turned off on the vol regime shifts and real 'value-investing' money was patently absent - now Bill Miller has left the building. HYG underperformed and was first to move as we sold off just after lunch (on what we suspect was the transparency of the USD funding difficulties we discussed). Liquidations, thanks to CME margin moves, did not help and dragged commodities hugely lower - even as the dollar (and EUR) ended almost unchanged from yesterday's afternoon close.

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CONTEXT provides a quick-and-dirty way to understand how a broad basket of risk assets is behaving relative to US equity markets. The orange oval from yesterday shows risk in general did not partake of the sell-off but as today wore on, broad risk assets were absolutely in line with the weakness in equities and suggest a far more widespread derisking sentiment.

[UPDATE: The last 2 or 3 minutes saw a modest pullback in TSY yields and the 2s10s30s butterfly which helped CONTEXT pull off the lows and ES quickly scrambled 7pts on heavy volume. ES is still a little expensive to CONTEXT though as ES closed]

Nowhere is that seemingly liquidation-driven angst more evident today than in commodities markets. Silver down almost 9% for the week (though off its intraday lows) as global-growth-indicator Oil has given up all the week's gains to end the day unch on the week (which is what we said was going to have to happen to sustain a correlation-driven sell-off in stocks). The dollar (DXY) is around 1.8% stringer on the week and so Oil now is the only commodity outperforming as Gold decoupled from it this afternoon.

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Credit and Equity markets have converged in the short-term - though we note that medium-term HY still infers an S&P around 1180 (given today's cross-asset levels).

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Financials did not lead this market lower - though several of the majors had awful days. Materials and Energy were the worst performers and a small late day cover rally helped some look a little better than otherwise.

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All-in-all, it appears equity markets are continuing to catch up (at the sector and index level) to credit's perspective and the correlation-monkeys were pulled by this weakness as every risk asset was under pressure. There is still more room for stocks to go to catch up to credit's view of the world and for once, little ex-equities to support it. The clarion call for the ECB's bazooka will be loud this evening.

Charts: Bloomberg



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