Europe Back To Abnormal As Spanish Selling Resumes

Tyler Durden's picture

A funny thing happened in European peripheral bond markets: they sold off - Spain is wider across the board, with the 2 Year back over 4%, and the 10 Year threatening to blow out above 7% for the first time since the market was re-re-fooled by Draghi. Same in Italy, where the 2s10s is once again in flattening mode. In other words after getting Draghi right for one day, then flipping and confusing what he said for the next week, the market is back to being right in itis initial kneejerk reaction to the ECB head's words. One reason (among many) - a Rabobank report by Richard McGuire and Lyn Graham-Taylor which states that Spain won’t ask for more aid if more conditions are attached add to likelihood "crisis must worsen before it improves." Hmm, where have we seen an identical turn of the phrase before. Oh yes, here. Rabobank also adds that the ECB will have to show willingness to buy across the curve (not just in tenors of less than one year) when it does intervene. Of course, for that to happen, things must get far, far worse. Just as we explained to the five-year olds in charge of the market this past weekend.

In other more fundamental news, Spain's June workday adjusted Industrial Output dropped -6.3% more than the -6.2% estimate. Worse, Spain is now targeting a deficit of 4.5% of GDP in 2012 for central government vs 3.5% in the previous plan sent to European officials in April. By the time the year is over expect this number to be a "shocking" 8% or more. Additionally, Italian banks’ bad loans rose 15.8% in June according to the Bank of Italy. Perhaps Draghi should tell balance sheets to 'Believe him" that all shall be well too. Finally, Germany is falling ever deeper into recession, as confirmed by the latest economic print - June Germany industrial production which dropped -0.9% M/M, vs an estimateed -0.8%, and a previous change of +1.7%. Remember: the worse Germany gets, the less leverage the periphery has of "dragging it to the bottom"... especially if it is already there.

German Industrial Production.

Bottom line: the selling sabbatical in Europe is over.

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cossack55's picture

Are they really five now.  Man, how time flies.

GetZeeGold's picture



Snap a you can relive this special moment forever.


lewy14's picture

The shorts have to give up and go home.

Then we can crash.

Then Robo has to give up and go home.

Then we can rally again.

CrashisOptimistic's picture

Who is we?  There is no market.

LongSoupLine's picture

damn it...who possibly could have seen this coming?

bank guy in Brussels's picture

Quite right as said above

« ... the ECB will have to show willingness to buy across the curve (not just in tenors of less than one year) when it does intervene. Of course, for that to happen, things must get far, far worse ... »

The EU greater-integration plans require crisis to take hold

So crisis it will be ...

The euro currency 'Will definitely survive!' ...

Perhaps mostly here in Belgium after the other EU countries leave it

And Jean-Claude Juncker will keep it for Luxembourg too

XXL66's picture

Greater EU integration plans terrify me... i'm thinking of leaving BE and retire within a nice climat. My motivation to enterpreneur has been killed. But the shit is everywhere, even Mars won't be save.

disabledvet's picture

well...there goes the billion i blew on my Colony Martian Plan. Back to Amazon folks!

GetZeeGold's picture



No worries....there's always room for you on Newt's moon colony.


That crazy bastard didn't get the nomination......not really sure why. Heaven knows it wasn't for a lack of free money.



CrashisOptimistic's picture

Retire?  Surely you aren't still expecting a pension?

Ghordius's picture

BGIB, the "greater EU integration plans" are mostly being shilled by the MegaBanks (according to their books) and the Brussels crowd.

Meanwhile, you are, IMHO, also misunderstanding the "Draghi anti-put": he warned the MegaBanks that concerted/organized bearish inroads on the bonds markets are going to face "unlimited firepower". As per now, this seems to be the concession that the ECB council made to him. Unfortunate, yes. It mostly depends on how he is going to play this card. Fact is, this in theory hampers the MegaBanks' hand in creating churn (and of course profit) by having prices seesawing up and down as currently the norm in some other financial markets.

You are reading too much AEP, IMO.

ArkansasAngie's picture

Fiat money.  Faux recovery.Forked tongues.


Moral hazard and the peter principal -- all we need now is for Murphy's law to raise its ugly head.


They will have to personally come get my money cause it ain't in their dad gum ponzi scheme

Nachdenken's picture

Spain has just released statistics to show May exports dropped 6,3% as against the same month last year, and the economy has not shown any growth since 2011.

Blamed it on the Eurocisis.  All other Eurocrisis candidates have been bailed out.  Perhaps bailout does not equate with economic growth.  the analysis of Spanish unemployment is already on ZH.

German GDP grew only 0.2% in May and june, down from the creeping 0.5% in the months before.  Expectations range to -1.7% for the rest of the year. The recent post from Testosterone Pit was spot on.

Bailouts and ECB debt management will get things on track.  Krugman is already celebrating the economic revival. 

LawsofPhysics's picture

Wake me when the selling in U.S. Treasuries resumes. Bloody sheep.

magpie's picture

The finale should be falling dollar, equities and bonds.

LawsofPhysics's picture

Falling dollar and equities? Show me a trading period where that has happened before. Seems like that would be rather unprecedented. Hhhmmmm.

magpie's picture

You can't really trade the Apocalypse.

The scenario though isn't that far fetched; equities are crippled so 'investors' pile into the AAA Eurozone debt.

Biosci's picture

What AAA Eurozone debt?  I don't think the Netherlands will offer enough debt for the whole world to buy, even at negative rates.  (Wait a minute...might be onto something here...)

Landrew's picture

I think that would be the infllationary depression that has never happened yet. Can it happen is the real question?

malikai's picture

"They love our paper. They can't get enough of it." - A. Laffer

His name is most suitable.

Sudden Debt's picture

Maybe if they blow and puff the numbers will go up?

Haager's picture

That much negativity...

Spain will pay all the loans, like greece does,

Export is soaring, bonds are safe investments,

Rates are too high due to speculators,

Workforce is increased, foreign workers needed,

Stockmarkets soar, people should invest now,

Inflation is low, prices turned negative in some areas


At least thats told by mass media/politicians in the northern part of Europe.


LawsofPhysics's picture

Yes, quite right. Don't forget my personal favorite- "the laws of Nature have been suspended and gravity no longer applies, central banks can do anything.". Well, maybe they are right, there is no rule of law anymore.

disabledvet's picture

"Economic Anshluss." Best quote ever on Zero Hedge. "Proceeds apace" i might add. Obviously it doesn't take much to "imagine the blowback"....on the other hand "imagine is all we do." The dominant position of the German economy in the EZ is such that i have a hard time imagining the imbalance ever being anything other than magnified going forward. Given the negative yields i still find owning anything euro-denominated at the individual investor level a non-starter. For big corporate players and certain large institutional players/government types however investing over there can make all too much sense.

schatzi's picture

A month ago I thought Germany could in part decouple from the Euro debacle, as exports to Asia and Americas boomed and more than compensated for the market loss in Europe. Well... I thought wrong. Germany is sliding into a recession, especially with BRICs slowing down and US still needing to face that fiscal cliff. No markets, no exports. Not a pretty picture.

magpie's picture

There used to be talk of increasing domestic consumption..but i believe even the SPD has given up on it to pay for the Eurobonds.

Nachdenken's picture

The Green Party of Germany has helped ruin the internal market.  High taxes on energy, whether for transport, commercial or private heating, and through their alternative energy schemes which are state subsidised, have cut in to dispensable income of the average taxpayer.

The Green Party pushed internal demand briefly, and continues to push for government regulations for so-called environmentally beneficial changes in house building, motor exhaust emissions, to forcibly create demand by law.

The SPD and the left oriented Union leaders have kept German wages low over the past decade, allowed (instituted) part time jobs and wage equivalent grants to top low wages or insufficient social benefits. The high unemployment benefits as a form of deficit spending to encourage spending has absorbed funding intended for  incentive credits for business starts and the expansion of small businesses.

The short and long term policies of the ruling CDU/CSU/FDP parties has been not to encourage small and middle enterprises, who are going bankrupt, or at best cutting back on employees.

These are all signs of internal slowdown that began in 2007.


Apeman's picture

Abnormal is the new normal. All aboard the wtftrain. Choo choo.

Dareconomics's picture

The most interesting part of this post is that we finally learn that Spain has upped its "official" budget deficit for 2012 to 4.5% of GDP. That is about a 29% rise over the previous forecast. In this post

I said to expect this, and I agree with Mr. Durden here. The final number will be much higher. How could it not be? The Spanish economy is much weaker this year than projected, and it is still getting worse.

The bond spreads will continue to contract and expand with vagaries of the markets, but now a lot of money will be required by the end of the year to keep Spain afloat. Europe does not have the money for this, which means either a Spanish default or money printing.