Euro Schizophrenia Continues

Tyler Durden's picture

We warned yesterday that European equity's surge was not supported by credit and that truism is massively obvious in today's market moves. European stocks soared (especially Italy and Spain) to new cycle highs as corporate and financial credit capped in its recent range - actually widening from its opening gap tights. European sovereigns also gapped tighter on the open and then proceeded to bleed wider all day long - most notably in Spain, Italy, and Portugal. Spanish 2Y jumped over 25bps from low to high yield today (and we suspect Spain bond yields have bottomed in teh short-term). EURUSD remains practically unch on the week - having dropped from over 1.30 earlier when Van Hollen let some truth out on the US fiscal cliff deal. Oil recovered from its spike lows yesterday (as did Silver). GGBs were very quiet and stable at around 35 but Weidmann's comments into the close on transfer unions and not rewarding failure did spook some weakness into risk-assets. Europe's VIX, meanwhile, closed at 16.49% - its lowest since June 2007!


Spanish 2Y yields jumped notably today...


as did the rest of the sovereign complex after the initial snbap tighter at the open...


But we note that Spanish 10Y bond yields have reached back to the levels they started the year, and saw a long-tailed candle today - which in the past has signaled a trend change in the short-term - especially off the trendline below...

(h/t David H)


and while credit remained much more in line with sovereigns, equity markets just tripped over each other to buy and buy more...


and across the broad group of equity indices in Europe, Italy is the crazy winner in the last 36 hours...


With the EURUSD now unch on the week...


and Commodities recovered aggressively from yesterday's weakness...


Europe's stocks are catching up fast to US equity's YTD performance and both just passed above Gold for the year.


Charts: Bloomberg

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Boris Alatovkrap's picture

Boris is fond for pretty color graph. More, please! More color!

i root for that fat jersey governor's picture

republicans have no choice which means cliff will be avoided and Obama will get his wish. The market is gonna rally short-term, at least till year-end.

Reality will kick in probably early 2013. But for now, i am not fighting the tape.

HelluvaEngineer's picture

They obviously have no "Kevin".  He could get that VIX shit down to the 15's and keep it there!

Boris Alatovkrap's picture

But volatility is Viagra for market, no?!

Cognitive Dissonance's picture

"I can't hold her Captain Ben. She's breaking up."

<Last message from the Fed engine room.>

disabledvet's picture

"I didn't plan for us to do battle with Her, Captain" I think was Scotty's line. How do I monetize the debt instrument known as "oil" again?

I am Jobe's picture


Use of RFID Tracking Technology To Be Mandatory In US Food Stamp Program | Pakalert Press

Yen Cross's picture

 it's a debt LOVE FEST, across the pond!

LongSoupLine's picture


I am Jobe's picture

Western Nation are all swimming in the pool of clustefuck. Yeap, Greatest Minds of Clusterfucks now.


Qualitative Tightening's picture

"Weidmann's comments into the close on transfer unions and not rewarding failure did spook some weakness into risk-assets."


In a free market failure is NOT rewarded. I find it absolutely amazing that the in the current environment just the mention of "not rewarding failure" sends risk assets (read: have risk because they may fail!) lower. Even after the nonsense of the past 4 years does the market really still think that this whole charade can go on ad infinitum when failure is rewarded?

Me thinks not.

skydrake's picture

The Italian-German spread is 321,68 now, the minimum since March '12 and Italian 10Y bonds are at 2,23 %, the minimum since Nov '10 (!!!!). The debt is stable to 122% ( if we don't count the contributions for bailouts for other countries) and the deficit if below 3%. For 2016 debt and deficit will be better than in US. If we add Italian public debt and Italian private debt (Italians are the second savings-fanatic in the Word after Japaneeses), the total debt is much lower than US debt even now.

There is light at the end of the tunnel.

skydrake's picture

Today Ita-Ger spread closed at 311.18, ten less than yesterday.