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Europe's VIX At 7-Month Lows As EURUSD Nears 1.35

Tyler Durden's picture




 

The decoupling/recoupling we discussed earlier in the EURUSD pair seemed the biggest deal in Europe this week as the 2.5% gain is thge most in a month and takes the cross back to near 3-month highs. Not to be outdone, the VSTOXX (Europe's VIX equivalent) dropped notably and now stands at its lowest in 7 months - dramatically outperforming equity and credit markets on its way as selling vol appears the easiest trade ever (until of course your arms and legs are ripped off by a risk flare). Credit markets outperformed this week as equity underperformed - bringing the two asset classes closer into sync after last week's plunge in credit. Sovereign credit markets were mixed but clearly the high-beta compression trend has stalled as Portugal underperformed dramatically followed by Belgium with the rest generally tracking sideways (and Spain outperforming modestly).

 

Just like in the US, vol has dropped notably since the pumps of the world money pipe were turned on. Credit has rallied, there is no doubt, but as is clear the relative risk premia for downside protection (equity vol vs credit protection) is quite notably different as VSTOXX reaches 7-month lows.

Interestingly, vol dropped as stock prices (blue above) dropped this week in Europe. Credit markets rebounded off the mid-last-week plunge as it seems like there is more of a convergence trade than a broad risk-on sentiment here - as credit 'over-reacted' short-term.

EURUSD has surged higher this week - up around 2.5% against the USD alone with SEK and CHF following suit. JPY's weakness -1.65% has kept the USD in relative balance as it has only lost 1.35% of its relative purchasing power this week as Oil has exploded over 5%.

 

Sovereign credit spreads went sideways to wider this week. The ubiquitous, supposedly LTRO-sponsored curve compression trade has stalled now for a week or two. Perhaps next week's LTRO will provide more ammo but we suspect that 1) there will be less demand for the carry trade since the economics are far less attractive now; and 2) the stigma will ward off the biggest players leaving the smaller more risky, least systemically protected banks soaking it up.

Charts: Bloomberg

 

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Fri, 02/24/2012 - 13:06 | 2193104 mayhem_korner
mayhem_korner's picture

 

 

Somehow "Europe's Pulse at 7-Month Low" has a better ring...

 

Fri, 02/24/2012 - 13:09 | 2193118 Ghordius
Ghordius's picture

perhaps sleeping? just a thought ;-)

Fri, 02/24/2012 - 13:23 | 2193177 battle axe
battle axe's picture

Sleeping? in a coma...

Fri, 02/24/2012 - 13:46 | 2193266 disabledvet
disabledvet's picture

You could have a bank nationalization in the USA. I would agree with that.

Fri, 02/24/2012 - 23:40 | 2194971 boogerbently
boogerbently's picture

I guess the smart ones knew that was coming. Just like with the dollar. Printing the HELL out of it somehow made it stronger!?!?!?

Fri, 02/24/2012 - 13:10 | 2193122 Dr. Engali
Dr. Engali's picture

Why pay for a volatility hedge when the Fed has guaranteed a no risk return?

Fri, 02/24/2012 - 13:47 | 2193279 disabledvet
disabledvet's picture

That's an easy one: "yield hungry investors."

Fri, 02/24/2012 - 14:04 | 2193339 Fnordian
Fnordian's picture

No need for a volatility hedge when all the volume is algo-driven.

Fri, 02/24/2012 - 13:16 | 2193151 slaughterer
slaughterer's picture

Hedge funds have been losing alot of money on hedging costs of all kinds.  It seems that hedging will be put on last-minute for the next month or so.    

Fri, 02/24/2012 - 13:26 | 2193176 SheepDog-One
SheepDog-One's picture

What did the Europeans all get tired of playing with their weenies?

Slap Shot - Terrible Masturbator - YouTube

Fri, 02/24/2012 - 13:24 | 2193180 rupeshpatel
rupeshpatel's picture

The markets are truly dead.

I have traded markets for around 11 years now and trading has been the main focus in my life, however, today i finally realised that there is no point carrying on with this farce. the game has been rigged by politicans and central banks as the markets continue plodding on without any real life. what is the point of trading if the market does not reflect fundamentals but is solely controlled by politicians & central bankers pulling the strings.

analysts talk about macro data but this is a pointless exercise as the markets have been decoupled from reality. the markets are now not free to move according to the laws of demand and supply but the whims of politicians. all asset classes including commodities which i traded are responding to one thing .. credit creation.        

Fri, 02/24/2012 - 13:28 | 2193199 SheepDog-One
SheepDog-One's picture

Best to just buy stuff youll need, imagine how a farmer in the 1800's had to live and stuff he needed and go that route. These idiots are going to put us all back in the 1800's pretty damn quick. Anyone with their lives built on this paper claptrap will be shit out of luck one of these mornings.

Fri, 02/24/2012 - 13:32 | 2193218 scatterbrains
scatterbrains's picture

and on that note..  Sunchokes in the mail bitchez!

 

Fri, 02/24/2012 - 13:43 | 2193255 poor fella
poor fella's picture

I'm looking to those to run through a still - got stiffed on an order of manzanita pods for the same purposes. What's your plan? Edibles? Fuel?

Fri, 02/24/2012 - 13:46 | 2193273 scatterbrains
scatterbrains's picture

Very interesting there poor fella.  Guy on youtube planted a few tubers in like a 3 gallon nursery pot and at the end of the season the pot was splitting open.. must have been 20lb of chokes packed in there. just edibles for me and since they are indigenous and grow like weeds less work for me. Are you making fuel or hootch ?

Fri, 02/24/2012 - 14:01 | 2193332 poor fella
poor fella's picture

Choke-'fuel' (as well as nopales/manzanita) being the plan ;) Other feedstocks for hooch. Might even try some brandy after watching "Distilleries" on History Channel yesterday! Was waiting for sunchokes at the farmer's market or Whole Foods but should bite the bullet and internets me some. Good luck with your endeavors. I've also heard they are PROLIFIC (mostly a good thing!)

Fri, 02/24/2012 - 13:50 | 2193295 satan2liberals
satan2liberals's picture

No shit, I had a nice profit until they decided to unilaterally change the rules as they went , now I'm down 50%.

Fri, 02/24/2012 - 14:34 | 2193489 Howdan
Howdan's picture

Yup I feel your pain sir. Similar kind of situation over here - As "rupeshpatel" said above, the markets have totally decoupled from reality and any sense of normality. They're insane and I've found it extremely difficult to trade recently.

 

 

Fri, 02/24/2012 - 13:28 | 2193197 scatterbrains
scatterbrains's picture

BNO + UGA starting to have that parabolic feel to it... are we slipping  into the abyss? Has Berstanky lost control of this mofo ?

Fri, 02/24/2012 - 13:38 | 2193242 whatsinaname
whatsinaname's picture

Its all transitory..

Fri, 02/24/2012 - 13:44 | 2193260 reutersanalyst
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try these guys out if you would like real good real time fx news at cheapest rate...

http://fnn24.com/

 

 

Fri, 02/24/2012 - 22:12 | 2194766 espirit
espirit's picture

Talk about cheap, the ChairSatan needs to take a number.

North Korea is in the game.

http://finance.yahoo.com/news/u-could-pressure-north-korea-tomorrow-quit-100-094000585.html

Fri, 02/24/2012 - 14:05 | 2193347 adr
adr's picture

Retail sales in the US are tanking. The gift of a more valuable Euro keeps giving to US based firms. Extra profit even if they sell less. How much of this increase is merely an excuse to goose earnings once again?

Fri, 02/24/2012 - 14:11 | 2193372 wrs1
wrs1's picture

Time to give Stolper at least a golf clap.

Fri, 02/24/2012 - 14:16 | 2193399 q99x2
q99x2's picture

I've seen 60 ton iron ingots with more life in them.

Fri, 02/24/2012 - 14:58 | 2193587 Mike Jones
Mike Jones's picture

Wtf no more tvix shares

Fri, 02/24/2012 - 15:33 | 2193764 bob resurrected
bob resurrected's picture

Since the stigma of the LTRO will ward off the biggest players, maybe they, the biggest players, are increasing the pace of selling $ assets and repatriating €?

Fri, 02/24/2012 - 23:43 | 2194984 boogerbently
boogerbently's picture

Govt's give interest free money to banks so they will buy the govt's debt, with interest. It's a "Win-Win", right?

 

Right?

Sun, 02/26/2012 - 06:20 | 2197336 jpm7
jpm7's picture

a lot of sad people commenting here.. a lot of $ lost, i guess :) that's the essence of trading as a profession - it's a zero-sum game

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