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Europe Treads Water Awaiting UK's Return To Reality

Tyler Durden's picture




 

For the second day-in-a-row, European volumes are light with stocks and credit generally trading sideways in a tight range. European credit spreads are illiquid (and mostly just reracked by skeleton desks in mainland Europe) as sovereign CDS are generally closed completely (we've seen very few runs). Optically, much is being made of the 4th day in a row of compression in Spanish and Italian bond yields - which is ironic given the Spanish comments on being shut-out of the markets and their pending auction this week - but as we pointed out last week, the lack of CDS discipline being enforced (with London shut) as basis traders and financials-versus-sovereign trades become the marginal drivers of demand for sovereign debt. Do not believe that the markets of the last two days in Europe represent anything but marginal flow - tomorrow's return of the credit market will be the test of where reality is really perceived by market participants. EURUSD weakness today, reverting to unch from Friday and the deterioration in EUR-USD basis swaps is all you need to know on where liquidity is. Clearly the LTRO3 trade is being placed in financials-sovereigns-land, we only hope they are not disappointed.

Stocks and corporate credit going nowhere fast this week (while sub financials are outperforming as we suspect the senior-sub COMpression trade is active on the back of expectations for more encumbrance crushing recovery expectations for senior debt)...

but pivot sovereigns appear to be improving - hoorah...

but a quick look at the CDS-Bond basis tells the story - look at the blue and black lines revert higher (as CDS markets are closed) - bringing the basis back...

and also - the flows into short financials credit, long domestic sovereign are picking up as expectations of any ECB save will come with encumbrance are hitting home...

This is clearly the LTRO3 trade writ large if we look longer-term - Short senior financial credit vs long domestioc sovereigns - ECB provides suport for banks via LTRO program, this encumbers Senior credit even more but provdes channel top fund sovereigns... We hope everyone isn't disappointed...

 

 

Meanwhile EURUSD has round-tripped to unch from Friday...

Charts: Bloomberg

 

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Tue, 06/05/2012 - 12:04 | 2496146 mrktwtch2
mrktwtch2's picture

we will see..should be interesting tomorrow..

Tue, 06/05/2012 - 12:22 | 2496151 BlandJoe24
BlandJoe24's picture

Tyler, looks like Weds EURUSD and equities may fall, but do you expect another EURUSD short squeeze and equity rally sometime between then and when ECB plans announced/are realized to be insufficient this Thursday? (fueled by the hopium that ECB can do something to help)

Then I'm guessing you're expecting EURUSD to tank next week on pre-Greece vote anxiety - right?

And what do you expect for EURUSD post Fed extended Twist 6/20?

Tue, 06/05/2012 - 12:08 | 2496155 eclectic syncretist
eclectic syncretist's picture

They'll declare a holiday before they declare a default.

Tue, 06/05/2012 - 12:16 | 2496185 knukles
knukles's picture

Yeah, that'll fuckin' show 'em.
Then we don't have to write down the debt.

(maniacial laughter)

 

Please, do not let the banking "regulators" hear about this idea. 
It's guaranteed to end badly.

Tue, 06/05/2012 - 12:11 | 2496166 carbonmutant
carbonmutant's picture

Well the Brits could always come back from their Jubilee with a new found sense of sovereignty and demand a referendum...

Tue, 06/05/2012 - 12:19 | 2496197 LetThemEatRand
LetThemEatRand's picture

Why do so many people actually like the idea of Royalty?   These are literally people who took wealth and property by force hundreds of years ago, and who are allowed not only to keep it for eternity, but to parade around (literally) year after year and do absolutely nothing useful while a giddy population follows their self-absorbed lives.  You would think that the vast majority of people would find this repugnant, and yet....

Tue, 06/05/2012 - 12:27 | 2496226 Nobody For President
Nobody For President's picture

They are more interesting and colorful than those damn bankers in their boring suits and ties who are now taking the people's money by stealth, instead of force.

Tue, 06/05/2012 - 12:44 | 2496275 Paul Atreides
Paul Atreides's picture

Fuck the Queen and her inbred family, time for some land repatriation.

Tue, 06/05/2012 - 13:17 | 2496377 hedgeless_horseman
hedgeless_horseman's picture

 

 

...and English food is ugly and their woman taste badly.

Tue, 06/05/2012 - 13:18 | 2496378 Paul Atreides
Paul Atreides's picture

I guess the downvoters have no clue that she also sits on the committe of 300, sits at the same table as the Rothschilds, Rockefellers and has direct influence over the western financial system and Obama...serfdom never went away it was just hidden in the form of central banking, debt and taxes.

Tue, 06/05/2012 - 12:38 | 2496257 fuu
fuu's picture

Needs more Cromwell.

Tue, 06/05/2012 - 13:02 | 2496337 Treeplanter
Treeplanter's picture

The Queen is fine.  Abu Charles may be a problem.  But did you notice they stole "My Country Tis of Thee?"  And they talk funny. 

Tue, 06/05/2012 - 13:50 | 2496499 murdomcsponge
murdomcsponge's picture

LetThemEatRand. You don't understand do you!

Better to have someone to head the Nation, who has some style and a track record of committment that leaves every politician grovelling, than to have some individual who has generally lied, or bribed, to get into the job of President, or Chancellor, or whatever you want to call them.

Most of our Royal Family work their buts off - visiting, supporting, encouraging, thanking, all corners of the Nation, of every colour and creed,all of which is EXTREMELY "useful" ( The Queen does over 400 - more than one a day on average - public engagements a year, and some of the other Royals do even more. And that's besides carrying on traditions that in some cases are many hundreds, neraly thousands, of years old and are the very backbone of what we Brits are.

You keep your system, and we'll keep ours. Between 80% and 85% of Brits support the Monarchy - and see it as doing a very good job. Oh yes, and everything they have is basically owned by the Nation, so don't come the "rich and privilidged" response either.

Tue, 06/05/2012 - 14:08 | 2496599 LetThemEatRand
LetThemEatRand's picture

Your pauper Queen is personally worth half a billion dollars, give or take, not counting probably $100 million per year spent on the Royal family by the British taxpayer.    Some estimate her wealth in the many billions (but of course it's not public so no one knows for sure).  So you put up with the vestiges of a brutal feudal society because she has ... style?  Now I understand.  

P.S.  I don't want to keep my system.  It is corrupt and run by oligarchs.   Unfortunately, people who are obsessed by the wealth and style of others are content to maintain the status quo.  

Tue, 06/05/2012 - 15:39 | 2497085 murdomcsponge
murdomcsponge's picture

Bollocks!

Tue, 06/05/2012 - 16:11 | 2497228 EhKnowKneeMass
EhKnowKneeMass's picture

It is like, you know, you have a famous cousin or a very rich nephew. They don't know you, they don't like you, and once in a while when their path crosses yours they wave at you and mumble some nice words. And you jump for joy saying "I know him; I know him; he is my relative". You are always boasting about them to your friends. Those relatives of yours couldn't care less if you were dead or alive, but at your end you are proud of them and think that they are out there looking out for you. Even when they ignore you, you give them the benefit of the doubt saying "they must be busy" or "it is my fault".

That right there is monarchy for you. The King and the Queen are busy with their "they can eat cake" mentality, whereas the plebes are showering them with praises and getting nothing in return. And if you point out this idiocy, you are a villain. That's why a few rule and most allow being ruled. We are hardwired to genuflect in front of the the altar of fake-ness.

Tue, 06/05/2012 - 12:16 | 2496186 TrainWreck1
TrainWreck1's picture

The Olympics will save the UK economy.

 

 

LOL

Tue, 06/05/2012 - 12:22 | 2496209 Matt
Matt's picture

When is the last time a country actually benefitted form the Olympics? I bet prior to Munich.

Tue, 06/05/2012 - 12:32 | 2496241 ronaldawg
ronaldawg's picture

Los Angeles 1984, Salt Lake City - LA made out big - they got all the prostitutes off of Sunset and Hollywood Boulevards. 

Tue, 06/05/2012 - 12:26 | 2496222 Steroid
Steroid's picture

The timing was perfect during the last Olympics. The Chinese deer couldn't do anything caught in the Olympics` headlights while the whole world watching.

The Britts will do the same!

Tue, 06/05/2012 - 12:23 | 2496213 CrashisOptimistic
CrashisOptimistic's picture

What we really need is an emergency phone call.

Tue, 06/05/2012 - 12:37 | 2496254 Lucius Corneliu...
Lucius Cornelius Sulla's picture

Joe Friday

Tue, 06/05/2012 - 12:35 | 2496250 Cupid Stunt
Tue, 06/05/2012 - 12:36 | 2496252 junkyardjack
junkyardjack's picture

The US equities are ramping so everything must be fine....

Tue, 06/05/2012 - 13:04 | 2496342 LongSoupLine
LongSoupLine's picture

Don't worry, Steve Liesman said the US should bail out Europe.

 

What a total asshole.

Tue, 06/05/2012 - 13:09 | 2496355 Sandmann
Sandmann's picture
UK's Return To Reality

 

HELL Freezes over !

Tue, 06/05/2012 - 13:12 | 2496367 orangegeek
orangegeek's picture

US dollar should continue to climb - or so says elliott wave.

 

http://bullandbearmash.com/index/usd/daily/

Tue, 06/05/2012 - 14:46 | 2496833 loftgroovv
loftgroovv's picture

The British secretly run the world... the Americans just think they do.

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