Submitted by Tyler Durden on 09/26/2011 02:03 -0400
While Friday’s dramatic skid lower in the precious metals was later blamed somewhat on a leaked margin hike (as well as the simultaneous and anti-empirical sell-off in 30Y), it seems the liquidations that were rumored (whether hedgie or central banker) are in play once again as both gold and silver (the latter very significantly!) are finding little support. After some early weakness (EUR strength), the China news we noted earlier and general lack of any actionable rescue plan or large-scale money-printing has markets in a decidedly risk-off mode for the last few hours as ES shifts into the red and very early credit runs show 2-3bps widening in the front-end of the European indices.
Its not only the precious metals but copper and oil are also dropping and the latest headline from Bloomberg is not helping:
*RUBBER IN TOKYO PLUMMETS 9.8% TO 308.8 YEN PER KILOGRAM
*CHINA’S SHANGHAI COMPOSITE INDEX FALLS 1.5%, EXTENDS DECLINE
UPDATE: Silver is now -16%!
Gold/Silver Ratio has smashed higher as Silver plummets (to Sep2010 highs) – is it too simple to see similar jarring patterns leading up to crises?
As Gold drops below $1600 for the first time since July and Silver is down a further 12% from Friday’s close, it seems the relative under-performance of Gold and Silver suggest this is still liquidation (and margin-exaggerated). The dollar dipped out of the gate but has recovered and is back at last week’s highs now with the EUR testing 1.34. Notably, JPY is rallying once again and while GBP is unch from Friday, JPY is stronger (vs USD) by around 0.5% as JPY crosses (carry pairs) all send a very risk-off signal.
TSYs are rallying modestly off the late Friday peaks in yields with 30Y -3bps as the whole curve flattens very slightly for now. Stocks are much more active than TSYs or FX for now having managed to get up to 1144.5 in early Sunday trading only to drop back into the red retracing 50% of the upswing from early Friday – hovering around Friday’s closing VWAP level for now.
Early credit index runs show modest 2-3bps decompression in CDS and in cash, we see flattening/inversion and higher yields across the board with IRE and ESP worst performers so far (though not all are open). PTE is 22bps wider vs Bunds in 2Y and 11bps wider in 10Y. UPDATE: XOver +16bps and Main +4bps – Senior FINLs +6bps
And finally, for some perspective, now all risk drivers are open we see ES pulling down towards its CONTEXT expected value:
Chart: Capital Context