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European Stocks End Green; Sovereigns And Credit Not So Much

Tyler Durden's picture


It's happening again. The euphoria is fading in the critical fulcrum security markets but stocks remain oblivious in their momentum-heavy liquidity-less way. Spanish and Italian sovereign bonds ended weaker - quite notably weaker in the case of Spain with the curve flattening significantly as the much-heralded front-end started to give some back and 10Y spain leaked back up towards 7% yields. Compared to post Draghi-'believe' (and post-Draghi 'reality') the Spanish and Italian stock markets are cock-a-hoop - massively outperforming. European equity markets in general are now the Usain Bolt compared with the Derek Redmond of European credit markets as once again stock holders are either last to get the joke or first to be ignorant enough to play the ECB's game of chicken. Spain's IBEX is now +13% from Thursday's close, followed by Italy +10% - but Italy and Spain 10Y bonds are still wide of the pre-Draghi 'reality' trough in spreads. German and Swiss rates increased modestly today but the latter remains negative out to 6Y.

European stocks 'decoupling' from European credits' less sanguine reality...


Deja Vu for Spain? as stocks surge while the critical bonds DO NOT!


and ITA/SPA bounced off the pre-Draghi reality press conference levels...leaking wider today...

and the Spanish (below) and Italian curves bear flattened quite notably...


Charts: Bloomberg


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Tue, 08/07/2012 - 12:19 | Link to Comment vinu02
vinu02's picture

Half of the euro zone is in recession and so it make sense that euro is in green. (bad news is good news)

Tue, 08/07/2012 - 12:39 | Link to Comment magpie
magpie's picture

I predict it will drop a few cents, without any news of course.

Tue, 08/07/2012 - 12:50 | Link to Comment French Frog
French Frog's picture

How strange that today you're not showing the 'context' model with ES actually looking cheap (for once) compared to your risk model by quite a few points

Tue, 08/07/2012 - 12:58 | Link to Comment magpie
magpie's picture

Who me ? I have never disclosed my gambling system; only that my position right now is to provoke people into taking the opposing trade. (Still short)

Tue, 08/07/2012 - 13:06 | Link to Comment French Frog
French Frog's picture

Sorry ... not you Magpie, I meant the author of the article


Tue, 08/07/2012 - 14:19 | Link to Comment magpie
magpie's picture

No problem French Frog. And i positively invite people to frontrun my trades if they have not already.

Tue, 08/07/2012 - 12:19 | Link to Comment LMAOLORI
LMAOLORI's picture



For what it's worth

Head Fake: Don't Trust The Euro

Tue, 08/07/2012 - 12:23 | Link to Comment slaughterer
slaughterer's picture

Why are the critical bonds not surging?  Because they are being sold to raise cash to buy equities.  

Tue, 08/07/2012 - 12:25 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

I see the Spanish 10 year bond at 6.86% this moment, up 0.1% on the day.

There was considerable pumping of fists in the air that Germany/Merkel had agreed to ECB bond purchases.  I went looking for the relevant quote.

It didn't happen.

A German government spokesman said something very oblique and obscure, almost clearly intended to BE oblique and obscure and it left the door open to interpreting it as "agreed to ECB bond purchases".

She didn't.  Nothing has changed.  There is rampant lying and bullshit going on.

Tue, 08/07/2012 - 12:23 | Link to Comment LongSoupLine
LongSoupLine's picture

"I'm sure this will all end just fine" - Hindenberg Capt.

Tue, 08/07/2012 - 12:23 | Link to Comment scatterbrains
scatterbrains's picture

UGA always slow to get going on the day up over 2%+ I suspect it will hit new highs before /es.  Meanwhile gold is telling you all this bullshit is coming off right in here. Catching a capitulation vibe in the ZH peanut gallery...smells like a top to me.

Tue, 08/07/2012 - 12:24 | Link to Comment HaroldWang
HaroldWang's picture

How long have we heard 7% on Spanish bonds = danger. Well, we've been there done that time and time again and what happened? Nothing but stocks going higher. 

It's really time to stop questioning what's sending the best signal stocks or bonds? Throw out the old school thinking about bonds, stocks are dictating action. Follow stocks higher - we've seen the bond market "danger level" is all BS.

Tue, 08/07/2012 - 12:28 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Suppose you stopped trading.  Just stop.  Now look at what 7% means (and Spanish 10 year is 6.86% this moment).

It means that's what they have to pay to fund their socialist spending.  You know perfectly well that can't happen.

"Danger" means something rather more relevant than trading.  

Stop trading.  There is no market.  Now sit back and consider what 7% means and don't worry what some media guy who got a degree in journalism says.

Tue, 08/07/2012 - 12:32 | Link to Comment HaroldWang
HaroldWang's picture

Why would I stop trading? I'm making money. 7% means ECB steps in with bond buying program so the "danger" is non existent as long as that put is in place. I really don't understand why people don't get this??

Tue, 08/07/2012 - 12:36 | Link to Comment iProtocol
iProtocol's picture

Im with this guy.

Tue, 08/07/2012 - 12:45 | Link to Comment magpie
magpie's picture

Certainly you are right to a degree.

Yet the vigilante caravan moves on to the next yield target.

Tue, 08/07/2012 - 12:57 | Link to Comment allbetsoff
allbetsoff's picture


Tue, 08/07/2012 - 12:57 | Link to Comment walidsassia
walidsassia's picture

you have a point , but for the ECB to step in you have to convince the only country with cash to pay for that intervention the germans but untill now as i know they are saying NO.

Tue, 08/07/2012 - 13:34 | Link to Comment Jefferson
Jefferson's picture

How did that strategy work out for buyers of greek sovereigns at 7%?

Tue, 08/07/2012 - 14:57 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

But suppose they don't?  Suppose the ECB is not allowed to act?

Could there be a more expected time for them to act than last week?  Draghi SAID he was going to act, and immediately, and he didn't.  The Germans said no.

If you're trading, you lose it all either milliseconds or overnight.  If you instead bought farmland, it's still there, waiting to grow things you can sell.

The bond yield has bee north of 7% a few times recently and the ECB bought 0, repeat, 0 bonds.  They didn't buy a single bond.  

You're not investing, or trading.  You're betting.  

Wed, 08/08/2012 - 01:00 | Link to Comment HaroldWang
HaroldWang's picture

Nope, I'm trading - and doing quite well. As a trader, I really don't care if they act or not, it's just the "impression" that they will. It's worked to 1400 SPX and will continue to work. If they change their tune or the Germans, who BTW are on board with this nonsense, reverse course, then so will I. It's not betting, it's listening to the words that move the market in one direction or the other and acting in accordance.

Tue, 08/07/2012 - 12:27 | Link to Comment Flounder
Flounder's picture

The consensus is that all is fixed until Sept so go out and enjoy the Aug vacation.  Smooth sailing all through August.  So relax...Ahhh... Well consensus usually leads to max pain.  Helmets on.

Tue, 08/07/2012 - 14:11 | Link to Comment debtor of last ...
debtor of last resort's picture

OT, from nanex, HFT from 2007 till now, from trading to fireworks.

Tue, 08/07/2012 - 14:14 | Link to Comment MachuPicchu
MachuPicchu's picture

Actually there is some sentiment that european crisis be fixed with Draghi´s magic...

Stocks are rising in Europe and even Bankia stocks have risen 100% in last 3 weeks..

Maybe, some air before the crash.. or all continue in the same trend..


Tue, 08/07/2012 - 14:36 | Link to Comment GoldbugVariation
GoldbugVariation's picture

Italy is so high beta.  Low on 24 July was a multi-year low going back 15 years.  But not sufficiently "V-shaped" to be the bottom (compared 9 March 2009).  Now up 20% in 8 days.  So I'm expecting plenty more volatility, it could touch 15,000, but sub 11,000 by year end and a new low in the 10,000 area some time in the next 12 months...

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