I was unaware that machines took vacation, but that's what appeared to happen as we hearkened back to pre-quant driven markets of late summer when it appeared that paint would dry quicker than prices would change on my Quotron. Sure there were some notable exceptions and crude kept us on the edge of our seats — not really, it's sort of part of the fabric by now — but for the most part, the markets were so slow that television market commentary lost out to men's water polo and women's field hockey.
From a sector standpoint, energy was the clear winner as traders continued to reverse near record short exposure and add substantial long exposure in advance of OPEC's September meeting. In all, it was a down week for global markets, but it could have been worse as Fedspeak picked up a more hawkish tone and the uneventful FOMC minutes, stale at the time of release, gave little indication of change in commitment either way. Currency traders remain confused, active investors depressed, yield investors feeling the first signs of vulnerability and bond traders bored, having already shortened the duration of their entire portfolio.
The ECB minutes on Thursday were a clear disappointment to the markets as they sold off and followed down on Friday. It was reasonable to assume that there would be more actionable language, but after all, it is August in Europe and why not wait until they see what September brings and what the Fed does since any strengthening in the dollar and tightening in the US is a de facto easing in Europe.
Money, like water, finds its own level, shifting until achieving a state of equilibrium, usually defined as value. However, that has not been the case for some time as artificial forces, defined here as unusual and unprecedented global central bank policy, have driven valuations to levels that have, in prior cycles such as with HY spreads, clearly presaged trouble ahead. As with water flowing down a mountain side, temporarily detoured by a pile of leaves and branches, tributaries form until they eventually come together and the flow resumes its predestined normal path. That will happen with markets as well, but the timing remains unknown. This is not to say I would be short since it has been incredibly difficult to get paid, even when correct, and incredibly painful when wrong. The markets will grind higher, pending Friday of course (see below) but vol is so low there is no excuse for not owning protection.