Exposing A Bifurcated Europe

Tyler Durden's picture

While Chinese economic data seems designed to blow minds in its Schrodinger-like good/bad oscillation at the same time, it seems Europe's investors have now taken up the mantle. There is ammunition across every asset class to suggest all is well and things are progressing yet at the same time that risk is rearing its ugly head and momentum is fading. On the bright side, Swiss 2Y rates are at +4bps (having surged 25bps this year) and are back at 'normal' 10-month high rates; European stocks pushed 1-2% higher on the week; Europe's VIX dropped; and EURUSD gained over 1% (not necessarily a positive but seemingly signaling to the world that all is well) mostly in the last 24 hours. The LTRO repayment has pushed EONIA swaps up to six-month highs (liquidity needs remain high - though normalizing) but European credit markets are absolutely not playing along. European corporate and financial credit spreads pushed notably wider on the week and are grossly divergent from stocks now on the year. At the same time, European sovereign spreads ended the week practically unchanged - dislocated from EURUSD exuberance. Europe remains spellbound by the promise of OMT yet the very markets that benefit from that promise are losing their momentum...

 

European Sovereigns did nothing this week...

 

but stocks surged more...

 

But credit markets are telling a very different story...

 

and EURUSD is rallying BUT is that because banks need the EUR liquidity back home?