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Europe Closes Weak After Hopeful Start
Following yesterday's extravaganza in European credit markets, which saw XOver (European high-yield credit) surge to highs year-to-date (wiping out a week's worth of leaking wider in one fell swoop), today's open suggested some follow-through but as macro data combined with France downgrade rumors (denied rapidly) sovereign and corporate credit markets sold off quite rapidly into the close. Interestingly, financials (senior and sub debt) managed to hold gains from yesterday's close as XOver and Main (Europe's investment grade credit index) along with the broad stock market lost ground to close near their lows (though well off yesterday's open still). EURUSD (holding under 1.27 at the EUR close) weakened fairly consistently after Spanish industrial output and German GDP did nothing to inspire and while sovereign spreads (Spanish and Italian mostly) were outperforming, as the French rumors hit, they sold off rapidly (France and Italy back to unchanged). As usual into the close there was a modest risk rally and sovereign spreads leaked modestly tighter (by around 6-9bps) with France underperforming but we did not see that bounce in corporate credit. The weakness in 'cheap-hedge' investment grade credit suggests risk appetite is not returning and decompression trades are back in vogue after yesterday's snap and perhaps a growing realization that no PSI agreement is looming anytime soon.
Investment grade credit underperformed and as a cheap hedge suggests some derisking though we note that the Main index remains notably rich to intrinsics (i.e. trades at a significantly tight spread to its underlying component-based fair-value). XOver's move yesterday was also not accompanied by a dramatic move in the underlying names and it looks like today's widening was to some extent index arbitrage to push the index closer to its fair-value. The amount of sell-side propositions to place credit option straddles - to 'monetize a muddle-through sideways market' - may also be to blame here (especially yesterday) as the negative gamma (selling into weakness and buying into strength to manage hedges) has likely built up (and we hate to say it but 'capitulated' yesterday on such a large gappy move). This would explain the index-only moves to more extent as the US-EU relative-value trades and XOver-Main relative value trades moved rapidly also but underlying names did not so much.
European sovereigns did well out of the gate - extending yesterday's moves but ran out of steam quickly. They began to leak back on weak data and selling accelerated as US markets opened and French downgrade rumors hit. France underperformed but all managed small gains on the day (some gappiness suggests non-economical buyers of last resort were in action today also).
EURUSD moved back into the red (USD stronger on the week) as cable (GBP) notably underperformed. EURUSD touched the week's low print from Sunday night and bounced a little at the Europe close but is holding under 1.27 for now as AUD and CAD are outperforming USD on the week.
EUR selling and US Treasury buying are coinciding significantly so far this morning.
Charts: Bloomberg
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Yesterday's gap down on VIX futures is now closed. VIX bid imminent?
As for the US equity market, you know...if we could just get volume/participation down to zero, we might be able to get a real rally going. /sarc
**additionally, absolute garbage stocks in rally mode. Housing, GM, banks. Tail end of the move to be sure**
It boggles my mind how s*it stocks like PHM can double in a few months back to its August highs. Their earnings are like -1$ per share on a 7 dollar stock (which was a 3.5$ stock). Wtf.
LuLu...from $47.50 to $60.35...in two weeks. Wall Street...long American vanity queens.
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"The market can stay irrational longer than you can stay solvent"
These posts are fantastic. Not many commenters but the data is great. Keep em coming!
Thanks.
I'm farting blood
Can I get a 1.25? 1.25 anyone?
With Germany competing with the US and Japan in the Debt Demolition Derby, are we surprised?
http://confoundedinterest.wordpress.com/2012/01/11/german-auction-double...
We should ponder the unthinkable - A truly black swan event: Could Stolper finally have a winning trade for the Vampire Squid and see the Euro drop from here? I know, I know, please sit down and remain calm when contemplating this.
http://vegasxau.blogspot.com
will someone end this charade of a market this hft piece of crap that keeps being forced up, beyond any good entry point. happy to let things ride, but this is silly and it should have boken. we are in hft play land now where the ascending triangle gets more and more narrow so the end drop is in fact bigger, instead of going back to baselind and relaoding. How the us markets were allowed to become this god only knows.
now it looks like 1/25 for a top, but it'scrap trading now for little gain as far as i can tell.
in slewienomics, too much gappy can become flashy crashy
some day we'll all get together and reminisce about how we usta blog about europa's "risk appetite" viewed at leverage-like magnifications
that's rem0niss to sinatra fans, of course...
Slewie - bit early for your bong hit don't you think?
Seriously though - what kind of pressure are we building up for the future?
a bit early?
what the hell has happened to "ucsb"?
what future? [sob] future pressure? i find that w/ enuf "slime"TM in my bike tires, i walk home less often...
speaking of tires and pressure, do you have a hand-operated air pump? i saw a cheap one @ harborFreight, full-sized w/ a pressure guage for under $12, but didn't have time to check it out, yet. i picked up a small hand-held pump there last year for under $2 and it works great for riding!
Shocker that oil/gas consumption is down now that everyone has received their holiday credit card bills.
and on RanSquawk....French PM Sarkozy says France is exasperated by the rating agencies....
Europe closes week after 'hopeful start'....oh well nevermind all that, time to pump the US Ponzi!