The Chart That Draghi Should Be Worried About
Europe is fixed from what we are told (though even Herr Schaeuble mutters under his breath that the crisis is not quite over). Given the increasingly tight coupling between European financials and their domestic sovereign credit - thanks to OMT promises and LTRO funding - one could be forgiven for thinking that the most important thing to watch in Europe is the financials. Indeed, year-to-date, European financial stocks have surged over 7% (driven mostly by a global pump in the first few days of January) while at the same time, European senior financial credits (the other 'safer' end of the spectrum in terms of capital structure support from stocks) are 1bps wider on the year... we suggest Mr. Draghi quickly come up with another solution to save the banks (cough Commerzbank cough) before stock markets catch on.
2013 has been a year of concern for European financials among credit traders - but the central bank spice must flow and equities ignored such silliness (for now)...