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European Stocks Surge As Sovereigns Slump
Something strange is happening in European risk markets this week. While that sentence is entirely 'normal' for what has become a diverging/converging flip-flopping correlation microstructure but the clear trend this week has been European Sovereign derisking and European Stock rerisking. The Bloomberg 500 index (that tracks a broad swathe of European stocks) is up 0.75% from Christmas Eve (and 1.6% from yesterday's lows) while 10Y sovereign spreads are wider by 10 to 30bps in the same period. France stands out as one of the worst performers - more than 25bps wider this week alone. Only Spain is notably improved on the week (-17bps) but all 10Y sovereigns are well off their best levels as stocks make new highs. Whether this is a front-run on asset rotation into the new year or expectations of the same risk-on ramp-job we saw on the first trading of this year is unclear - we do remind those front-runners that mutual fund cash levels are significantly lower this year than last. It is clear that yet another 'sensible' correlation (such as BTPs to equities) has broken but when volumes return and the reality of the huge supply calendar we face in the next month alone sinks in, perhaps equity ebullience will pull to bond bereavement. If stocks are reacting to a quasi-QE from the ECB, why wouldn't sovereigns who are the direct beneficiaries in that surreal LTRO-driven-carry trade.
The highly correlated relationship between European stocks and sovereign risk has decoupled in the last week or so - and not in a good LTRO-carry-trade-driven way.
Stocks are up nicely this week...
but sovereigns are all (except Spain for now) wider on the week post Christmas. The French 10Y is the stand-out to us though - quietly widening almost 26bps this week (from 105bps to 131bps) or 25%...and BTPs are 36bps wide of their tights from Wednesday. Hardly a reassuring signal from the markets - even with the ECB rumored to have been buying this week.
Charts: Bloomberg
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Broken.
Could it just be more repatration of euros combined with profit taking now the yields are at all time lows??
Well Gene, cracked at any rate, like HumpT.
More and more like what we are going to see coming up in 2012. Fast moving liquidity chasing any tiny arbitrage, staying one step ahead of regulations and parking in the safe, warm arms of the mother CBs when the outside world refuses to play ball.
Stocks surge. It's really quite painful to watch!
ori
/world/
Spains deficit is 8% instead of the 6% that they first said it would be.
Why the market isn't crashing totally, I just don't understand.
Inflation is dropping bigtime allover europe and deflation now seems to be a good thing... Because less money is chasing more goods it mean the. Economy is... Doing better?
We're fucked. It's pretty clear now. 2012 will be so much fun when every european country will raise taxes instead of actually cutting the costs they promised in doing.
I am out of my shorts and turn long for 2012 due to this: http://qeurope.blogspot.com/2011/12/solution-to-europe-debt-crisis.html
Brilliant! Fixed. All it took was a paragraph. Cash parked at ECB would signal otherwise.
Good read. Why not do a 50 year LTRO? Eliminate any doubt.
Thanks for the link but it seems to me that if the 'solution' were so simple it would have been the policy going in. The operators of this ponzi may be evil, but not entirely stupid.
Copied this here, too:
One interesting thing that happened yesterday, just before US markets opened. EUR/JPY pair printed 100.01 - there might be huge options that trigger when/if 100 is broken (will be...) and a far bigger plunge. So, some kind of a PPT rushed in and lifted every possible assets.
Now, it's still stubbornly inching closer, again, 100.13 now...soo, let's see. In my screen there's one observation of a breach of 100 today, but I'm not sure...
Also, take a look at what has happened to European stocks every month end since August. During the last week of every month, they are up at least by 5%, even more. And now it's even the year's end, so no wonder...
This has efficiently destroyed my monthly MTM performance, but hey, they give it back every first week of the following month.
QE is coming again.
I agree. Gold and silver are starting to scream upward again. Hope people bought the dip!
yes... but every single time I go shopping for precious metals, I lose everything in an unfortunate boating accident.
maybe I shouldn't take the boat for PM shopping anymore?
I had the very same thing!
I was on my little boat on lake Log Ness whille suddenly! A green beast came out of the watter and ate my silver!!!!
I was very lucky to have made it out alive...
"This will only succeed *IF* European countries maintain their rigorous budget tightening process while at the same time enacting growth initiatives."
That's a big fail right there... but any tips on how to get long the riots ?
You hit the red button
We'll always have "next time"
Precious metal prices are way down.
That why money is flowing into the EU stocks..??
George Soros the most eveil man (filth) on the planet says that Gold is in a Bear Market? Sure, we believe that scumbag!! Buying now George or trying to get back in cheaper? Turd!