ECB 'Inaction' Succeeds In Doing What Nobody Has Achieved In Decades! Sending Risk Soaring

Tyler Durden's picture

Having seen the supposed smart money miss out on the October rally in US equities, the last few days have once again surprised many with US equity performing similarly each day and ramping to close at its highs - each time notably ahead of credit markets and broad risk markets. From the early October lows, we have seen the rotation from US to Europe reverse with the last few days see US equities dramatically outperform European. We wonder, somewhat prosaically, whether the relative inaction of the ECB with regard to BTP intervention since early Friday morning is what pushed Berlusconi over the edge and US-Europe divergence to extremes as Draghi flexes the ECB's considerable muscles.

Critically, we see low volume ramps in the afternoons which leave every other market trailing in the dust - only to leak back in the overnight sessions. Couple this extraordinary action in S&P futures with the MF Global SIPC news and we wonder what liquidation will impact next?

Initially we saw European equities outperforming US as we squeezed off the lows in early October. The last few days have seen recession fears rise and systemic risk explode in the Euro zone which appears to have forced rotation into the US equity market - which of course will remain unscathed.

However, it is the similarity of the performance of the last few days that is wonderful - presented with little comment except to say - with all the fund flows and the relative cheapness of HY as an asset class still, we are shocked it has not led this risk-on rally - or perhaps it provides just the right amount of reality to keep us from chasing tails.



And Today:

And to put the strength in ES into perspective - we note the difference between CONTEXT (the broad risk-asset based index) and ES grew very large this afternoon as FX, TSY, commodity, and credit markets golf-clapped while equities screamed...


Swissy rallied notably today, as did JPY but for much of the afternoon EUR tracked very flat and DXY went nowhere. TSYs were sold relatively hard and the 2s10s30s fly humped quite significantly from 71bps to 79bps - a major driver of risk today. Secondary bond markets saw notable net-selling though between the sell-off in TSYs and new issuance this is understandable.

Interestingly, Financials were the only sector that saw net buying today - we have been pointing to the underperformance of financials CDS relative to stocks for a few days now and while today's action was heavy, we suspect the basis traders were back in town - buying bonds against buying protection as the spread has opened up (and playing in sovereign basis has too much event risk). There was also clear duration-reduction across maturities.

The basis trade perspective on CDS vs bonds in financials could also help explain the very large divergence between equities and CDS for some major financials recently - for example Morgan Stanley:

Gold fell post-Berlusconi (after cracking $1800) and Oil spurted to $97 in the late trading.

Charts: Bloomberg

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mayhem_korner's picture



Funny how the tub, fills up?...when you pull the stopper out.

HedgeAccordingly's picture

Hot chicks and Range Rovers cure all.... 

eureka's picture

Nothing - repeat: NOTHING - CURES GREED.

Of course inaction brings back risk on.

Only the Moment Of Truth - i.e. imminent death - may arrest greed - here, specifically, the greed of the elite - AND - since the elite runs the fiat printing press, there will never, ever be a Moment Of Truth. Until the day the masses may rise & cut the heads off of the elite.

jdelano's picture

They're not gonna break me. I'm not going long this market and I'm not taking my puts off. I don't care if they go to zero.

chump666's picture

It's funds running on a momo suicide run.  No one should go long in this market.  EUR is sellling now, 10yr Italy will hit 7% in the next 48hrs

youngman's picture

If it was a stand alone market I would agree with you...but now we have the ECB to play with it whenever they want...they got their BADA BOOM they will buy it down I think...but it will go to 7 then 8 then 9...its broke too

chump666's picture

F*ck ECB, its run by a mad's probably running multi billion euro unrealized losses.  He keeps printing, Germany will leave the EU.  No doubt about that, or its Weimar Republic part 2.  The IMF will eventually bailout the ECB with it's own print job.

vast-dom's picture

Must be BULLISH then.

ACP's picture

What isn't bullish?

HD's picture

Reality.  Not that it matters...

PicassoInActions's picture

it seems like a serious coordinated actions.

Something is gaming the game.


A Man without Qualities's picture

Look at SocGen today - generally crap results and yet up 7%+, same with Lloyds in the UK.  What's the link - the global banking system is massively undercapitalized, so there is a desperation to juice the market.

As for Italy, half the street knows about various games the government has played to make their finances look better.  Perhaps the system needs strengthening for coming shocks?

I get the feeling the politicians are turning into daytraders - obsessively focusing on how they can control the markets, because they realize there is nothing else they can do..

BadKiTTy's picture

Must ....... hold ............. on........... to ............sanity....


max2205's picture

Meltdowns are horrifing, meltups are gazed upon in quote

FinalCollapse's picture

All news is bad, and the market goes up. Price discovery, bitchez!

Ruffcut's picture

Is this when asscroft was singing his eagles soar song?

Sorry, soaring down the shitter song by rat fuck and the cheese eaters, on the b side of their album ,"fist fuck me, at will".

Dr. Engali's picture

Smelly French Sogen banker on CNBC now.

youngman's picture

It is funny to me to watch the European Banks selling their soverign debt....and the ECB having to buy it up...or not.....Banker vs Big will it ever end...when will it ever end...

fonzanoon's picture

I will never have an understanding of how financial stocks could be doing anything other than tanking in these times. Even if they are backstopped all they amount to are zombies. Who the hell actually thinks they are going to be profitable anytime in the next 50 years?

RichardENixon's picture

The more apt question might be will they go up in price over the next 50 seconds.

NotApplicable's picture

Profit? That's sooooo last century.

fonzanoon's picture

That explains my mining stocks performance.....

Rainman's picture

need profit ?? just hire the accounting firm that thinks your way...the right way

fonzanoon's picture

I will never have an understanding of how financial stocks could be doing anything other than tanking in these times. Even if they are backstopped all they amount to are zombies. Who the hell actually thinks they are going to be profitable anytime in the next 50 years?

Panafrican Funktron Robot's picture

The sector is still trading about 60% below it's peak.  I agree that it's a zombie, but as you said, it's a massively propped zombie.  That, and people find it hard to resist catchig the falling knife.  That can prop shit up for a long time.

For comparison.  

fonzanoon's picture

Your points are completely correct. I figure if I get angry enough about it maybe that will change things. So far not so much...

Lady Heather...UNCLE's picture

It's been another  Lewis Carroll kinda day. Es have been chasing a white rabbit up, down then UP!

NOTW777's picture

the powers that be have the formula down - the weak leader resign dance. they can repeat it with the other leaders of each insolvent euro state - dow should be at 14k in a few months.

maybe they will try it with obama - I'll resign if (insert the conditions e.g. full government healthcare, every job a union job, etc etc)

Seasmoke's picture


TradingJoe's picture

Desperation folks! They know there is no money coming anytime soon so they do waht they can to keep the mirrage! It's funny because all they want is gov dough, in order to get it markets must plummet, yet they, wanting to be IN while it happens, send markets higher, on low volume though, hence FEDsters NOT GIVING AWAY THE PRIZE! Ergo, no money coming because greedy bancheros can't "figure it out" hehehe!

I still think a sell off before year end ramp up is in order! Say around 1178ish or so?!?! Well, I don't mind since physical is my game! And some puts/calls every now and then, otherwise this market is for algo-HFTs and suckers, at best!

Panafrican Funktron Robot's picture

I promise the floor is 1350 for year end.  Bank it.  No, I don't like this, but it's reality.  

alien-IQ's picture

Nothing says "merry Christmas" like $100 per barrel oil.

navy62802's picture

Nothing says "merry Christmas" and "happy Hannukah" like $200+ oil. Just wait until Israel strikes at Iran.

Savyindallas's picture

Iran may surprise and kick their ass.

Mike2756's picture

Need a silver bullet to kill this market.

navy62802's picture

If the potential bankruptcy of the European Union, with the political instability we are seeing now, cannot kill this market, then there is nothing that can kill it.

A Man without Qualities's picture

that's the perfect statement to illustrate the mindset of those who jump in near the end of a rally, only to see it drop 10 - 15% in a few days...

LawsofPhysics's picture

There it is.  Energy is the only thing that matters. If $100 per barrel oil is good then $150 per barrel should be outstanding.  Let's see if TPTB can get us there before the next election.

Lady Heather...UNCLE's picture

Impossible to short it and imprudent to long it (what's that? you have a stop loss...good luck with that when the SHTF.

Only way to win is not to play. A pity.


slaughterer's picture

So where is the David Rosenberg recession?  Where is the Bob Janjuah sell-off?  Where is the systemic CDS-led domino-series collapse of the EZ?  Where are these things?  Around me all I see are fat bulls charging with smiles on their faces.    

jcaz's picture

LOL- yeah, they're just killing it, aren't they?  They just went net-positive for the year two days ago- HUGE BULL MARKET!

jdelano's picture

Lol--my sentiments exactly. These stupid assholes gobbling up cramers new book--getting back to zero.

HD's picture

"Getting back to Zero"

  Good stuff mate. Green arrow for you.

lotusblue's picture

Yeah,Cramer will get you to Zero.

Little Red Rooter's picture

Chicken manure bitchez!

YesWeKahn's picture

Has the shorts given up yet? The market will be pumped until the next fed chairman appointed.