Europe Goes Pear-Shaped

Tyler Durden's picture

We warned yesterday that European credit markets were sending very different signals to the equity markets and sure enough today saw a bloodbath across European equity, credit, and sovereign bond markets. Portugal and Spain 10Y spreads are now +46bps wider on the week (and Italy +30bps) with Spain back over 6% yield (460bps spread) and at more than three-week wides. While plenty will say 'but look where we came from' when today's dumpfest is put in context, but the critical aspect is the velocity and severity of today's 3-4% drop in Italy and Spain's equity markets and European banks now down over 9% from their post-FOMC peak (retraced more than 60% of the post-ECB rally). Europe's VIX jumped to over 22% as credit spreads (most notably subordinated financials - thanks to the 'AAA'nxiety over the banking union) were smashed wider. It seems Ben's all-in move was the catalyst to bring a realization that things may indeed be worse than we thought - as sovereigns have blown wider since.


European stocks (blue) vs credit...


European stocks have shaken off the post FOMC liquidity spike with Italy -6% and Spain -1.5% (but down over 3% today)...


and whether Ben's QEternity was the catalyst for a realization that things must be a lot worse than we know is unclear - however - European sovereigns have crushed wider since...


Charts: Bloomberg

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Quinvarius's picture

The real economy is sitting in a kiddie pool of liquidity...placed in the eye of a hurricane.

Theta_Burn's picture

...And the fact that being pear-shaped carries a 35% increased risk of heart attack

GetZeeGold's picture



Stick their asses on a tread machine.

BandGap's picture

Ah, the ex-wife syndrome....

Rapada's picture

. . . actually apple-shaped has the increased heart attack risk - pear-shaped just looks worse on the back of your Harley

slaughterer's picture

QE3 is really not working out.  It was supposed to make the price of EVERYTHING go up.  

RSloane's picture

You mean QEi? Wait, they're not done yet.

q99x2's picture

Does Europe have Globalists and Banksters running it? Well then they get what they deserve.

slaughterer's picture

"whether Ben's QEternity was the catalyst for a realization that things must be a lot worse than we know"--the Fed released upbeat forecasts for 2013 almost simultaneous with the announcement of QE3.  But nobody trusted those forecasts.  

tocointhephrase's picture

Cold potatos are not hot (sorry I could not resist)

Coast Watcher's picture

Ignore what they say, watch what they do. It's obvious Ben&Co are seeing analyses and projections that they aren't sharing with the public, and they're acting accordingly while mouthing the happy happy joy joy BS.

Cassandra Syndrome's picture

Pear Shaped Bitchez.....

Village Smithy's picture

Everytime a knuckle rapping like this occurs the motivation to BTFD's deteriorates a little more.

slaughterer's picture



slaughterer's picture

First time I think the Fed initiated a pre-emptive QE.  All of the other ones were reactive.  

tawse57's picture

Thank goodness the US economy is so healthy that the DOW and NASDAQ can brush off European markets crashing.



LULZBank's picture

BTFD Bitchezz!!!

Once in a quarter opportunity!!!!

slaughterer's picture

Bullish hedge fund managers are adding to their favorite positions today.  Look at charts for JCP, SCHN, WAG, MON, WLP, etc.  

slaughterer's picture

Intraday strength has faded away in financials for the last 3or 4 days.  They start out strong (comparatively)in the morning and then weaken.  Notice also the movement from the majors (JPM, et. al.) to the minors (CIT et. al.).

DaveyJones's picture

Asian or European?

Most likely Siberian

(you know the name of the fruit is ultimately semitic)

Dareconomics's picture

I think that Uncle Ben's actions were merely a coincidence. The same day that QEternity was announced was also the day that protest in Catalonia and the rest of Spain stepped up.

greenspanator's picture

Catalan protest were a smoke courtain. The true black swan is the occupy the parliament movement that took place yesterday

slaughterer's picture

All the traders who believe "every gap must be filled" must be gloating.  

Temporalist's picture

"every gap must be filled" wasn't that a Clinton administration policy?

Big Swinging Richard's picture

We're headed for an earnings recession in Q3.  No amount of liquidity will solve that problem.  Will be interesting to see how Mr. Mkt reacts to all of the misses and lower guidance.

ebworthen's picture

Time for $80 Billion a month into perpetuity FED purchase of ECB Bonds.

Nobody For President's picture

And the ECB can use the dollars to buy US Bonds, and ...

falak pema's picture

"blood bath?" 

The index moved up 5% in the last 2 weeks...

More a roller coaster ride! 

j8h9's picture

So why are PMs getting creamed given the big equity selloff? Thought PM's go up in times of trouble?  Also contributing to the drop is profit taking in the last few days of the quarter. 

grid-b-gone's picture

Hold only unsubordinatables to avoid being subordinated.

slaughterer's picture

Q; will the "blood bath" continue till EOW?  Will we be at 1400 then?

steve from virginia's picture


If Bernanke's and Draghi's ill-advised easing 'policies' didn't capsize the markets, Plosser's remarks yesterday certainly did.


Of course, Plosser was stating what any astute observer could determine for themselves: there is no value whatsoever in the current forms of economy, the markets are pricing goods and services properly -- despite the best efforts of the managers -- and that the current, inflated asset prices cannot be supported indefinitely.


There is no lender of last resort in Europe, it is every man for himself (women, too).


All the talk about rationalizing the ESM (using it as a leveraging vehicle for the ECB) was what tipped over the barge ... The ECB is without credibility and is now apparently insolvent.



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