European Funding Stress Worst In Over 3 Months

Tyler Durden's picture

Despite this week's largest allotment to the ECB's 7-day tender in over 2 months, ECB collateral changes, a flat LIBOR, and endless game-changing summit conclusions, the market's most accessible source of term USD financing (the EUR-USD basis swap) has collapsed to its worst level in over three months. Even as the sovereign and bank spreads have compressed in the last few days, demand for this short-term financing has soared (i.e. banks are willing to pay quite a penalty for that access). Whether this is a cleaner signal than Lie-bor is unclear </sarc> but for sure between this and the fact that 2Y Swiss rates are reverting lower once again, all is clearly not well in Europe (despite what every talking head tells you) and these remain the two most critical stress indicators for now.

While the 3-Month EUR-USD basis swap is at 3-month worst levels, it is still notably off of peak-crisis mode levels - but the trend is disconcerting when all is supposed to be fixed...

and 2Y Swiss rates have reverted back lower and safety bids remain very active...

Charts: Bloomberg

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Stoploss's picture

Waiting on the GS long call.

Popo's picture

All kidding aside, how does one even begin to conduct a stress-test in the wake of the revelations that Libor isn't actually a calculated metric?

It would seem that the entire practice of risk assessment for banks is now utterly meaningless, as the root metric of all banking risk is the rate at which institutions can borrow.

Now we're supposed to pay attention to an even more complex set of risk-analyses which in turn are derived from a meaningless statistic?  These "stress tests" would seem to suffer from exponential meaninglessness.

And given that we do know for a fact that Libor is fudged to give the appearance of reduced interbank risk -- one MUST then logically assume that the stress tests are likewise under-representative of bank viability.

So no matter how bad it looks:  A logical deduction is that it is in fact, significantly worse.

The Monkey's picture

You want to know why this is bullish?

Even more desparate acts will be required to move the needle. Don't get sucked into any of these bear traps. Markets are moving decidedly higher before giving up the ghost.

- ultra low interest rates
- low inflation
- central bank put / ECB action
- negative headine sentiment
- earning's season up next

LowProfile's picture

Bullish for bullion, ammunition and MREs, that is...

mudduck's picture

But, they hinted that they were gonna infer that they were really gonna report the correct numbers, and they had the main dudes responsible step down and.... ah fukit. Exponential meaninglessness, good one.

AbelCatalyst's picture

We've past the point of no return. Things will devolve as the foundation for the entire banking system is built on sand (corruption, dishonesty, love of money, etc).

What we are going to see is more and more desperation. Each move will have more risk. Each action will have less impact. Each decision will be more difficult. The serpent is completely wrapped around the financial system and is slowly squeezing the life out of it.

Central Bankers have two choices:
1) Let the financial system collapse quickly leading to anarchy
2) Print as much as possible and let the financial system collapse slowly leading to anarchy.

Honestly, I just don't see any way out when the gap between what has been promised and expected revenue is $200 Trillion in today's dollars. And this is just in the United States!! We are talking about a historic contraction - not historic as in the past 150 years of history but as in Biblical proportions....

This endgame is not some 100 year storm - this is the ultimate unwinding of the lies of the talking serpent who has grown into the Great Red Dragon.

This is 6,000 years of lies and deception coming home to roost. Ouch!!

crawl's picture

Wait for the rate cut on Thursday.  All will be fixed (yeah, right).

The Monkey's picture

Nothing will be fixed, but asset prices will move north. That is quite a proposition if you are a very patient bear and can wait until all the shorts have covered and every bull has bought.

No one can take away the bulls days in the sun: earnings season. Let the bulls do the heavy lifting for you.

gjp's picture

Vapour volume close on the high again leaves Americans (at least the elite) happy as they indulge in an excess of consumption and self-love for 'independence day'.  I sincerely hope that by next year's July 4th, Americans are forced to be a little more reflective of their role in the world and the concept of living within one's means.  Dare to dream ...

max2205's picture

Panic...... Really

Rates are all time lows and stocks are hitting all time highs everyday

Xlp xlv. All fucking time highs.

If they are worried its about any flying pins near their bubble

Yen Cross's picture

I think it's priced in. I would probably sell the fact on a "no-cut" and a "cut under 50bps". Even if the eur spikes it will be short lived.

 I wish more people, were in tune with the magnitude of this debt situation in Europe. We are talking "3 Trillion €" between southern europe. The ESM & EFSF have just under 200 billion €, in the coffers. There is nothing concrete to address expanding this pool of money! Just ( mini summits) & promises to get  along together!

The Monkey's picture

Don't kid yourself. 50 bps is NOT priced in at all. This will be one massive short squeeze.

The EU has telegraphed that it will attempt to get ahead of the markets. 25 bps is just pissing in the wind and they know it.

falak pema's picture

Stress is contagious as it moves from JPM to Barclays to RBS to EUribor bankstas. They are all in the shit cake. And tests are like exams, you have to cheat to pass them, especially if you are a grotty nosepicking trader from whale city. 

So how do we pass a test? Easy, we go and see the boss of ECB and Super Mario says its all fine like aged wine. Test over! Anyway the squid network doesn't believe in tests anymore than they believed in Abacus. Didn't stop them from selling Abac to the shills. Won't stop them from selling tests to their own club members who have the jitters. When you are a squid, you want to win on the straights and on the round-abouts. Its in your blood. 

Boris of London has the same spirit, he is prepared to sell the whole of London to the highest bidder. You can come and buy the Shard from him and take it to Tomboctou where they need new shrines. They are burning their old ones at a rate that defies time. New home for the Shard : Tomboctou masoleum row. New home for the Millenium Eye : North pole. You can watch those oil rigs drill for oil before the icecap finally totally dissolves and leaves you deep in oily spill territory.

Boris should make a killing on that! Unbelievable view from the top as that oil gushers out! Pop goes the champagne and it doesn't have to be Bollinger of Barclays.

RobotTrader's picture

Market is short term overbought, I say after a brief consolidation period we blow out to new highs soon.


All this bad news, ranging from "Arab Spring" to Fukishima to the "Eurozone Crisis" has been totally and completely shucked off by the tape.

Hands down, the strongest and most resilient market I've ever seen.

Yen Cross's picture

 Robo you truly are an ass clown! Blow out to new highs? Do you even know the definition of a "pop off top"? Which I think is the technical term you're looking for!  That crap is old news, in this tape driven  low volume trade.

Savyindallas's picture

Robo  -take down that picture. We know you are some pencil nosed dickhead. Quit trying to deceive people.

akak's picture

You fail again, RobotLemming, even as a troll.

I have read MillionDollarBonus, I have responded to MillionDollarBonus, and you, sir, are no MillionDollarBonus.

The Monkey's picture

New highs would be pretty bad-ass, but earnings are too much of a problem to reach that far.

1415 - 1420

humblepie's picture

Markets to new highs on hot air. Mother Nature says after hot air comes cold air.

Silversem's picture

Hot air or cold air, it's al good fror me. I can trade either way using cfd's

Yen Cross's picture

  Your P/L looks the same either way. I would recommend learning how to stay in the money, as opposed to hedging out of the money trades gone bad. Use stop loss, and realize you will win 33% of the time if you're lucky!

Grand Supercycle's picture

Rally Warning Confirmed...

As mentioned earlier, further equity strength and USDX weakness expected this year according to my analysis.