Stocks Erase Trump-Trade-Tantrum Dump As Dollar Soars To New Record High

A Fed hint here, a Trump tweet there, and a well-timed China headline is all you need to bypass fun-durr-mentals and send stock-buying-algos into a frenzy on a low-liquidity week..."Never gonna let you down!!"

Another sideways day for Chinese stocks unable to bounce back from early weakness (closed before the China trade headlines sparked a buying panic)...

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Source: Bloomberg

Big positive day for Europe helped by the China headlines overnight...

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Source: Bloomberg

European markets did get a jolt of excitement in the afternoon as ECB's Knot suggested no need for more QE (but that didn't last long)...

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Source: Bloomberg

US equities ripped higher again (on another trade headline overnight, this time from China saying nothing new at all), erasing all of Trump's trade tantrum losses from last Friday...

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NOTE - Nasdaq and S&P unchanged from Thursday's close, Dow/Trans higher, Small Caps red.

Futures show the big spike overnight when the China headlines hit...

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Stocks rallied all the way up to a critical Fib 61.8% retrace of the early August plunge (erasing all of last Friday's Trump trade-tantrum losses...

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Another big short-squeeze started the day off well...

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Source: Bloomberg

Financials outperformed the market once again, decoupling from the yield curve...

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Source: Bloomberg

The timing of the China trade headlines was oddly perfectly-timed with the VIX opening, which punched lower, sparking panic-buying in the thin futures pre-market...

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30Y Treasury yields are once again "more attractive" than stock dividend yields...

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Source: Bloomberg

Bond yields and stocks entirely decoupled again this week (rebalancing?) as stocks shrugged off all of last week's worries but bonds did not...

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Source: Bloomberg

A really ugly 7Y auction sparked some pain in Treasuries and we suspect more rebalancing, but in the end yields were only marginally higher (except the long bond ended unch)... A late-daye bid for bonds took them all lower for the week...

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Source: Bloomberg

30Y Yields rose modestly, testing back above 2.00% intraday but each time a bid appeared...

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Source: Bloomberg

And in case you wondered why the bids - look at positioning in the Ultras...

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Source: Bloomberg

The yield curve steepened with 2s10s testing back toward 0 but quickly fell back in the afternoon...

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Source: Bloomberg

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Source: Bloomberg

Before we leave bond-land, we note that traders looking for a reason to bet against the epic run in Treasuries might want to consider that the rolling 30-day correlation between 10-year Treasury futures and the MOVE Index, a gauge of underlying volatility, rose to a record this week. As Bloomberg's Robert Fullem notes, market theorists say a surge in volatility may mark an end to a trend, suggesting it could be best to avoid Treasuries at these levels. The price-volatility correlation, which has generally been negative, rose above the prior peak seen in the run-up to the financial crisis of 2008.

The Dollar rallied once again...

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