The G7/20 Spent Trillions On Its Latest Global Bailout And All I Got Was This Lousy 2 Hour Jump In Futures
Following the latest global bailout/intervention/rescue by the G-7/20/Earth+1, in which the ECB mostly bought bonds of yet two more insolvent European nations, futures did indeed spike from overnight lows... for about 3 hours. As the chart below shows, the nearly 30 point ES jump coincided with the moment the ECB started buying up billions in Italian and Spanish bonds, only to be prompted and very aggressively faded away. Yes, Italian and Spanish spreads and CDS all tightened substantially, but at the expense of Bunds, Gilts and French bonds, so the whole exercise is nothing but yet another risk transfer, not elimination. It took an increasingly more sophisticated market about two hours to fade the entire run up of futures into the overnight highs. And unfortunately, the G-7 has just used up yet another "get out of jail" card. So as we predicted, the latest ECB intervention will merely buy Italian and Spanish spreads at most a week if not a few short days before the push wider resumes, only this time with a new and improved wider baseline in the risk-free Bunds. But first: we prepare for the imminent downgrade of up to 7,000 muni entities, as S&P warned on Friday night. Somehow we get the feeling this move will be anything but market positive.
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