Europe Weak As Equities Stall On 'Safety' Bid

Tyler Durden's picture

Some late-day covering as traders flattened out added a little lipstick to a pig-like day for European equities and sovereign credit as non-sovereign credit outperformed (but hides a few under-currents). Markets opened gap-up with credit notably ahead of equities - another ugly jump tighter in everything for all those option traders - but that was the best of the day as XOver (high-yield European corporate debt) and senior & subordinated financial credit tumbled all day. Main (investment grade credit in Europe) outperformed as investors sought the safety of this up-in-quality trade but most notably we suspect was the decompression trades in XOver-Main (i.e. traders positioning for a bearish spread widening between investment grade and high yield spreads). Financials ended wider, following their sovereign's very notable deterioration today, as the banks swung very notably from high to low. Liquidity measures improved but that seems very clearly driven by the Fed swap lines as opposed to improved conditions and we note that as Europe closed, ES managed to scramble back up to VWAP - and is trading a little ahead of broad risk assets.


Equities (the dark blue line) show clear underperformance on the day. Credit was more 'capitulative' at the open and we note that financials (red and light blue) closed wider (lower in the chart) on the day - well off the day's tights. XOver (black) sold off all the way to unch and bounced a little into the close but Main (orange line) outperformed handily (even despite its huge richness to its intrinsic value). This smells suspiciously like a combination of a notable non-financial up-in-quality bid (i.e. hardly a risk hungry perspective) and pressing on XOver-Main decompression trades (notably bearish position).



To illustrate the XOver-Main decompression, using a 4.5x delta for Main vs Xover, as we rallied Main (the quality end of credit in Europe) has outperformed very significantly. The lower pane shows an adjusted differential to get a better sense for this disconnect. If risk appetite was high we would expect the higher beta XOver to have compressed relatively more. This points to much less risk appetite than optics might suggest.

European sovereign spreads were ugly today (with bonds notably underperforming CDS - fitting with our theme from yesterday of basis traders starting to step away). Chatter of ECB intervention stabilized the sell-off in the last hour or two, and spreads remain notably tighter for the most risky names on the week, but today's movement was very significant - especially given our earlier discussion of the dissonance between expectations of a solution and the clear non-expectations in risk positioning.

Gilts (and cable - GBP) rallied notably on the day as risk shifted to the safety of Blighty and EURGBP was in play even as EURUSD ended almost unch on the day.

Commodities slid notably overnight with oil testing under $100 briefly but Gold bucked the trend and rallied on the day - though still modestly lower on the week.

Broadly, risk assets were in sync with ES as we sold off and as we rally back here after the European close, CONTEXT (the broad risk asset basket) is now less supportive of this upswing.


All-in-all, it was definitely a risk-off day Europe and any optimism from the strength in IG credit is misplaced as this is akin to the bid for Gilts and simply a rotation to safety as opposed to an active risk-seeking position.

Charts: Bloomberg

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homersimpson's picture

Congrats to the PPT folks - only they can save the bulltards from 100 point losses in the DJI based on rumors and simply utter crap.

SheepDog-One's picture

Bulltards should carry around a little Bernank troll doll in their pockets, pay homage to who is preventing them from massive losses daily by stroking his green hair.

redpill's picture

OT: Did the Russian ugly duckling just become a Black Swan?

Gorbie calls for new elections, emboldening anti-Putin protests



Prairie Fire's picture

Off topic but I just wanted to ask you a question Sheep...

Do you have a job? I read ZH a lot, and you're always on here. Either you're at work pretending to work while you're FBing or ZHing, or you're at home--which one is it?

All your comments are typically about the end of the world, hang the banksters, etc. I'm just thinking that you've become a little jaded because you were laid off perhaps?

And before you point it out--it's my day off, that's why I'm here today.

SheepDog-One's picture

Well Ive had 3 jobs, retired from 2 of them, and sold the other one which is a company I started. My 'job' now is managing my own assets, and warning people what is coming, which actually I have been doing for 20+ years, of course only recently being taken seriously about it at all, before 2007 was just 'consipracy kook'.

So anyway you seem to be worried about me punching a time card or something, like a good worker drone should? No I dont do that, I dont need to do that. The insinuated message in your comment seems to be 'I must be 'laid off' since I talk about 'doom and gloom' implying that if I was a good worker drone, then I wouldnt be warning about very bad things coming, and already here, if I only 'had a job'. 

Well thats just silly.

topcallingtroll's picture

Oops! I guess u answered in the middle of my dark rant.

I will be your agent for free. Hehe.

Prairie Fire's picture

Fair enough. I didn't mean to single you out.

Sometimes it's better to disconnect from this stuff, you know? You'll give yourself a heart attack trying to educate the stupid, and in the end what does anything matter anyway? We're nothing but rotting flesh, rich and poor alike.

Time to pack up my truck and go ice fishing, take care.


topcallingtroll's picture

Ok if sheep wont answer I will but in.

I retired from my "job" or business mentally a year ago. I have to show my face and go through the motions almost seven days a week without a break to keep up a mid six figure income, but I dont have to care or be engaged or put any quality into it except to make sure the money comes in. I hate what I do. And I dont do much of anything anymore but fill out some paperwork and pretend. I would be out of this joke of an industry except that i cant find anything to put me in the mid six figure range. Last year was my best year ever but I hate it and I no longer put any real work even though it looks like it because i show my face chat to people and fill out a little paperwork.

I am here as an escape and because my true love is finance and economics.

I bet sheep has a similar reason to be here even though we often disagree. What say you sheep?

Prairie Fire's picture

Thanks for being honest, I wonder how many other people out there act as you--not caring about quality, trying not to be engaged, getting the most cash for the least performance necessary.

I think that's part of the bigger problem here--there's lots of tradesmen out there, but too few craftsmen.

Good luck to you and your parasitic approach to your career.

topcallingtroll's picture

Anonymity breeds honesty.
Without an honest assessment of all the issues there can be no solutions.

I am looking for a way to downscale and maybe care again, but in my turbulent business you cant be part time or cut back, but you dont have to do anyrhing but fill out forms and go through the motions.

I am not sure anyone who finally made it into the one percent, the absolute bottom of the one percent though, woyld be willing to give it up even if he thinks it is a big joke.

So I am not concerned if there are criticisms. Hell I am the only honest guy in my business. At least I recognize it is a joke that provides no value but is entirely rent extracting.

Those who might criticise my choices ought to put themselves in my shoes, run my business for a while, and see if they would do different than me.

topcallingtroll's picture

And the epiphany i produced nothing of real value ocurred only a year ago, that i benefit from a highly specialized knowledge in a complexly rwgulated area of consultation. I didnt start out thinking i wanted extract rents due to huge barriers and complex regulations, but that is where i ended up. For a while I thought I produced something of value.

Instant Wealth's picture

Damn' hopium rallies ...

Why not have a "Zerohedge Bernanke Voodoo Doll Set" ?

Triple A's picture

I'm tired of gold and silver following whatever the market is doing. We now see the market creeping back up again. The recovery is on the way!!

SheepDog-One's picture

Silver and gold, manipulated like mad...thats why Im an investor in other metals like guns and ammo, those arent swinging wildly or controlled by bankster ass hats.

Not saying I DONT own gold and silver, just sick of looking at their total hands-on manipulation.

ZeroPower's picture

Saw tons of flow this morning in XOver as there were bids at 700 and just under. Nothing like scooping up a super liquid (not to mention lower b/a compared to the 10bp a piece you would pay in the last weeks) for this great hedge.

XOver back over 800 as per friday's flop seems not at all unlikely.

vegas's picture

ES, XAUUSD, and WTI Oil have started to decouple from the previous weeks. At least for this week, the tick-for-tick up/down action has been much different.

SheepDog-One's picture

No problem, Robo will be along shortly after finding some stock that is up and will post it here all giddy and giggling like a little girl pretending he owns it.

CvlDobd's picture

What are the odds it is First Solar?

topcallingtroll's picture

Aww. Be nice to robo.

You know we would all miss him if he went away.

I still miss satansanus. He was one smart and smartass jewboy.

razorthin's picture

Overbought bichez.  Beware.

Eally Ucked's picture

Who are the investors?

junkyardjack's picture

Taxpayers, they are the ones taking the risk

firstdivision's picture

Just a couple more points til we're green.  This market is just plain retard.  Not a single fundamental to support these levels. 

vegas's picture

You could be right. But.........

Is the market [US stocks] overvalued if B. Hussein Soetero is a one-term Prez W/Repub Congress that does something?

Is the market overvalued if the banksta's W/politicos find any credible solution to Euro Crisis?

Is the market overvalued if PM's get shellacked in the coming months and sell off?

I could go on, and I'm not saying I have any clue to the above, but I do know one thing; I have no idea what encompasses "fundamentals" for the market.

SheepDog-One's picture

What happened to OUR 'dire emergency need for QE3' that was all over the frantic headlines only a few weeks ago? Now all is well? Why?

Yet they will not, or cannot, allow even a BIT of equity market dip, to show ANY need at all for any QE. Its all-out market pumping anytime they can, now clownishly reduced to 'Europe closes, US rises' utter bullshit correlation...many puzzle pieces are just not fitting at all here. This whole thing stinks so bad I need to hang little green tree air fresheners on my monitor.

firstdivision's picture

HYG and the 10Y seem to be calling ES bullshit.

RobotTrader's picture




I know you are still long FAZ, TZA, and TRX

and you bought guns and ammo instead of retail stocks

So sorry to hear that

Lost opportunity is a bitch

homersimpson's picture

I'm sure I speak for all of ZH - minus the bulltard trolls that come by from time to time: You're extremely arrogant for a guy whose reputation here basically consists of posting hot chicks, showing after-the-fact charts, and always typing out after-the-fact predictions.

Yes, I'm long FAZ.. but if the only hope of the US stock market rising is some eediot PhD coming to the rescue and print money making the USD worthless - I'll be buying FAZ for a while. I guess 2008 was just a distant memory for you every time the market gets artificially spiked for 100 points each day.

Your words of "lost opportunity is a bitch" will be well remembered at the next market crash around the corner.

SheepDog-One's picture

Not only that, but Robo's last firm market call where he was all-in at DOW 12,700 for that 'debt ceiling resolution' runnup to the still 500 points underwater.

SheepDog-One's picture

Huh....thats weird, I've never 'been long' any of those things...I dont know what youre talking about. I never claimed to own any of those things ever, try to find a post of mine that says otherwise? Go ahead.

BTW...hows your big 'oil plunge' call from this morning doing? You put money on that call I'm sure, right?


Snakeeyes's picture

Look at Germany, the powerhouse. Even their numbers are declining. And Italy and Belgium's number stunk this morning.


Rumble on The Rhine – Uncertainty About The Eurozone Treaty (Italy, Spain and Belgium Yields UP)


Georgesblog's picture

Treading on thin ice, in the dark, is always unnerving. I have always seen market sentiment as being more ignorant than brave. There is no more insecure footing than borrowed debt. That fear surfaces every day, in the markets.

ebworthen's picture

J.P. Morgue asset manager on CNBC this morning:

"The U.S. stock market is back to even for 2010, it's amazing, time to buy stocks."



The biggest central bank in the world props equities with $15 Trillion + and it is "amazing" that the market is up 0% on the year, and still behind 2008?

Please send me whatever you are smoking!

No wait...I prefer to not be delusional...or a liar.

SheepDog-One's picture

He left out the context, that is while stocks may be back to even for 2010....big deal....stocks are also back to mid 1990's levels as well. So 'time to buy stocks' based on that? Pure cheerleading lunacy.