Eurocalypse Now: I Love The Smell Of Repatriation In The Afternoon

Tyler Durden's picture

Sniffing around the moves in today's market suggest one very strong trend - that of European bank repatriation flows gathering pace. We pointed this out during the day as it occurred but looking back now, and remembering our critical analysis of these same flow patterns back in October of last year as the crisis was surging to crescendo, brings back some concerning memories. Today's cross asset-class price action had five very clear phases with the period around the European close and the afternoon in the US day session most directly evident of the generalized selling of USD-based assets and repatriating EURs in whatever format can be found. A picture paints a thousand words (perhaps more if it's scratch'n'sniff) and this one smells like forced selling - which combined with ECB margin calls and the rapidly worsening EUR-USD basis swap (funding issues) paints a rather concerning picture for (already collateral starved) European banks. As Europe faces bank downgrades (collateral calls) and auctions (real-money needed to bid in the reach-around), we suspect we will see more repatriation of EUR and understanding the flows these movements may cause will help make sense of the markets' movements during the day

Today's market action in USD (DXY Inverted - green), TSY yields (red), S&P 500 futures (blue), and Gold (gold) broke into 5 specific phases...

Phase 1 - markets were drifting until the release of the major US macro data (retail sales beat and empire manufacturing missed). The better-than-expected retail sales data spurred risk-on and Treasuries were sold and Stocks bought as the USD was reflexively sold (on correlations) and gold rallied (a little odd but looked like modest high USD beta move). Consistent

Phase 2 - US markets opened and started to slide, only helped by a notable miss on NAHB and commentary - risk-off. This Long USD, Short Stocks, Long Treasuries, Short Gold move all fit as bad news is bad news (no longer good enough to prompt a pre-emptive QE3 hope trade). The move was nicely in sync and these risk-off flows petered out after the first hour or so of the day-session. Consistent

Phase 3 - From mid-morning to the European close, markets generally drifted sideways but the sniff of USD selling was apparent and picking up. Consistent

Phase 4 - From the close of Europe's equity markets to shortly after their FX market closed (and notably market sweeps and funding needs are comprehended), the USD was sold hard and aggressively. The reflexive move of this forced USD selling / EUR repatriation flow was to push risk-assets up (as correlation algos reacted). The significant thing is that stocks moved on little volume (algos not flow) and the selling in FX was heavy and rapid (we need these EUR now). Inconsistent

Phase 5 - After the European markets had closed is when the effect of the real asset selling and repatriation flows hits the US markets. The need to bring EURs home in a hurry likely meant European banks traded away their US stocks and US Treasuries but this selling pressure was held back by the algos reacting to USD weakness. As soon as the FX trades were done and the USD stabilized the buying pressure disappeared at the margin and so Treasuries and equities sold off as the marginal algo buyer had gone and all was left was the flow of the EUR-based sellers left with dealers trying to unwind their positions. Also note that there was no flow back to Gold or the USD safety as USD-assets sold off (as they had already been shifted and were now being reracked by dealers offloading). Inconsistent


The selling of US equities and US Treasuries simultaneously and on a pick up in volume (and block size) even after the USD selling had abated strongly suggests US dealers had soaked up some of the selling pressure (knowing full well stocks would get a lift in the USD-correlation-sense) and then sold into that strength.

We will be watching for similar flows this week and keeping a close eye on the EUR-USD basis swap - especially ahead of auctions and possible downgrades (both of which need real money to make a difference - bids at auction for Spanish banks and higher collateral calls on downgrades). Is that the smell of napalm in the morning repatriation in the afternoon?

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Rainman's picture

Fear not....this escape of capital is merely transitory

Mr Lennon Hendrix's picture

Transitory has a broad definition.

GetZeeGold's picture



Again.....didn't see that coming.


max2205's picture

Fuck I can barely pull the trigger on one stock much less do this math

Thx anyway TD

GetZeeGold's picture



Pull the trigger on them all.......sort it out later.


Bill D. Cat's picture

Faster , please . Options are up Thursday .

Auburn's picture

Opinions anyone?  How do we, the TLTS (too little too succeed), jump all over this with a leveraged bet?  Where would one expect SPY to head tomorrow? 

bnbdnb's picture

Aussie Bank RBA minutes coming out tonight, if they indicated possible rate drop, commodities could sell, pulling other assets with it.


edit: as a side note, thats a possibility only, you never know with central banks now...they could fight the sell off, cuz they suck.

CvlDobd's picture

When in doubt buy PCLN.

Kidding of course.

SKY85hawk's picture

Why not follow "the trend is your friend"?

By that i mean, put some 401-k money in a Roth-Ira every year.

If you're not working, you'd be surprised how much can be transferred each year.  Conversion Taxes get consumed by Deductibles & other stuff.  


THEN study 4 ETFs.  ERX (long energy) ERY (short energy)

                    AND   FAS (long finance) FAZ (short finance)

                              move in opposite directions!

Now, ERY & FAZ are trending up.


Use Economic Order Quantities & Take short term profits, frequently.

When you're over 59.5 you COULD have lots of tax free income!

At 59.5+ you can put in 6,000 also!


There are many other leveraged ETFs, I just like the way these things flow.  


DeadFred's picture

Who or what is forcing this selloff? Things aren't great but this indicates more problems than I'm aware of. Could this be a front running move? Maybe the ratings agencies have just sent their proposed downgrades to various banks or countries for comments so a number of institutions now know they will need much more collateral really soon. I wouldn't bet on tomorrow but Monday looks interesting. Maybe the announcement will be during market hours Friday which could also be interesting. WAG

Goldilocks's picture

Wagner - RIDE OF THE VALKYRIES - Furtwangler (5:09)

GetZeeGold's picture



Deletion order : LOCKED IN


Do you want that at market or would you like a limit?


ACP's picture

Fiat going up in flames + rush to PMs = METALOCALYPSE!

dcb's picture

I disagree with almost everthing said in this article. You are looking for logic in an hft algo run system. I don't know the volume of trades done by algo's in currency, plus you add theat the vast majority of these tradesers don't keep overight, and don't hage to fact gap in mpring because of 24 hour trading.


what I see is the two sides of this site. you often say things that contradct each other. cuase there is one multiple tyler durdens.

If I could have the ability to make a post, and place graphics, etc. what happened today shows an even bigger rise of the algos non human trading. I am rather certain if you look up the nubmbers there are more alog's doing fx now than before, because I can easily say I see the difference. I used to like to trade fx because it was clearly less algo driven. that is faading away rapidly.

LongBalls's picture

The system will not collapse in the "mad max" sense that a lot predict it will. It has already collapsed in my opinion. The Central Planners have already taken over. It is now in a controlled, tyrannical, freedom killing decent. Metals will go higher but eventually they will be out of reach for the average investor. Gold is arguably already there. Why? Printing will resume but wages will not increase as the money goes to the eliete via endless bailouts. The sheep will continue to get fleeced and team government banker will continue to be victorious. Eventually a cashless society will ensue to force the people to repay for team governmnet banker's money printing inheritance. The cashless society will be hell on earth for many, many, many people. Dropping a duece will cost us.

Get ready to get creative.



fonzannoon's picture

I don't know longballs...keep showing Hillary getting hammered and doing karaoke while the secret service have a blast on these trips and people are going to start to point their overflowing discontent in their direction. It's one thing to laugh at someone behind their back. It's another to laugh in their face.

LongBalls's picture

I honestly hope your right. If, as a people, Americans are going to go down, then I hope we do it as we had risen. Throwing punches. But I don't know if I see it in my fellows.

Prometheus418's picture

Not going to happen.

I held out hope for a really, really long time- always expecting to see some indication that Liberty still had her sons.  She doesn't, and we're fucked.  

Get those long balls of yours ready, and make a move when the time comes to protect your own local area.  Federal government has to collapse, and if we play it right, local communities might be able to keep things rolling slowly along.  World is going to get much smaller soon- maybe just the town or county you live in.

Good news is that there are always opportunities for a man who is willing to adapt and produce.  Every ZH'r should be making plans to build local economies that do not depend on the rest of the country, and menally prepare for the same.  While that may sound defeatist, I don't know that it is- the only way to clear the books is to allow a near total collapse, and doing something proactive like organizing the locals for mutual protection and production is a very useful concept.   There are a lot of people who are going to be afraid and hurting- and a voice of reason in that time might be the difference between a scaled-back life and a prematurely ended one.

Mitzibitzi's picture

I concur. The hard bit is going to be in dealing with the 'zombie horde'; those usually stupid, uneducated, government welfare dependent, drug and booze addled losers that are now a factor of every major town in the western world. Wouldn't want to live in the heart of a major city in a years time.

The people outside the big towns that want to work and actually have some useful skills will make out just fine, if properly organised and led by someone who doesn't have his / her head up their arse.

There is, unfortunately, the 'major war' option to add spice to this particular tamale... anyone think the elite will be able to NOT start one?

earleflorida's picture

three quarters of JFk's 'secret service escort' were out getting fucked-up the night before the infamous dallas [forbidden path taken - known as a red-flag to safe routes, but ignored?] assassination.

this is the third time, that we know of publicly by the WH briefs, regarding extreme security breeches concerning the president.  how many others incidents have occurred without the public's knowledge.

somethings amiss?

lolmao500's picture

Bullish for the dollar and Bernanke.

AldoHux_IV's picture

The eur-usd basis swap is nothing short of how powerful an illusion can impact real outcomes.  One currency is not necessarily safer than the other (perhaps a rant for a later time).

ECB margin calls seem to me like a tool of 'price stability' in that at the end of the day, GER would be very upset that inflation is the price they have to pay for maintaining the ponzi that is the EU.

Tight correlations will exist until the global banking sector is redesigned and central planning agencies get their grimy algos out of the market (aka free market) and until that day more shenanigans and unintended consequences will destroy even more capital (speculative or otherwise).

Confundido's picture

Fuck the algos....they are destroying the cap mkts. All there will be left to stick your hard earned bucks will be real estate or physical gold. We are slowly becoming fucking medieval...

Confundido's picture

I am not so sure about the fucking ECB margin calls. After all, the collateral there is marked TO MODEL, not to market. So, what could possibly go wrong?

chump666's picture

I'd be watching China...

Forget Europe it's a financial zombie.  PBoC are doing some crazy stuff to their FX trading band, sounds panicky and out of whack.  Just means the EUR will be sold, USD bid.  It may have something to do with trying to get massive USD buys and push up UST rates and drop the oil price.  But then they get huge Yuan outflows. 

Anyone's guess.

tim73's picture

Europe is a financial zombie?! And then you drive BMWs and Audis and fly using Airbuses there in your paradise called USA. You are so fucked up that  if you take all the industrial products produced in a year in USA, it would not even cover yearly IMPORTS! Only thing preventing collapsing is the reserve currency status. Without it you would be already suffering worse than Greeks.

DeadFred's picture

Without the reserve currency status the US would be in fine shape. The country got in this position because the politicians knew they held a no-limit credit card in their hands and did what fools will always do.

junkyardjack's picture

That's the only way AAPL can go down is if people are forced to sell.  Bullish

buzzsaw99's picture

Too bad the eurobanks haven't wrested total control of the gubbermint yet like they have in the usa. Oh wait, that sux bad for usa...

slewie the pi-rat's picture

those algos are divine

q99x2's picture

Where's the beef?

Mario55's picture

Please explain this repatriation story! European banks are not stupid enough to fund their USD assets with euros !

I see these spurts in the €/USD more like massive orders from  a heavy hand...maybe the Swiss National Bank? When the € is about to collapse, quickly a couple of huge orders that then go the Bund position at rock bottom yield.


Canucklehead's picture

Thanks for the well written article.