Market Reaction To Global Bailout, Sovereigns Disappoint

Tyler Durden's picture

Risk markets are tearing higher globally with equities, commodities, and credit all considerably higher. Equities and CONTEXT are back in line as this is a very systemic shift up as the dollar tanks and TSY yield surge. US equities are back to 11/18 levels but are stalling out a little here as the initial spike wears off - whether this liquidity surge fixes the insolvency crisis is the question it seems markets are considering now that they have had some time to think (and squeeze). We do note that while sovereign spreads in Europe are narrower, the moves are not dramatic and in some cases are actually deteriorating still.

Broad risk assets and ES (e-mini S&P futures) are back in sync after CONTEXT pulled back to equity's slow drip weaker overnight. Now the central banks have dumped liquidity, risk-on was evident but the move is perhaps notably small if this really is a solution - albeit extremely painful for shorts. The initial jump earlier on China's RRR shift was then taken on as the rest of the central banks joined in the party.

The dollar immediately dropped like a stone -1.5% on the week with AUD (carry and China driven) smashing over 5% higher against the USD. The EUR is (as usual) tracking with DXY as its main driver and we note that JPY did strengthen against the USD but is only marginally better on the week now.

Of course, the dollar shift and risk-on sentiment has surged commodities with Copper the major outperformer. Silver and Gold also jumped notably (with the former much more than the latter as is its higher beta case) and Oil now over $101 which has to help spending and demand in the real economy right?

Equity and credit have come back together as it seems equity had the sniff of this earlier in the week while credit remained less sanguine until now. The move admittedly is only back to levels from 10 trading days back and credit spreads remain hugely wider relative to any sense of normality.

Sovereign spreads over the last couple of days are not exactly responding in a hugely positive manner. Portugal still leaking wider and Italy not really much better at all.

And while TSY yields spiked higher, they are pulling back now off those spike highs and 2s10s30s also dragged higher - helping to drive the broad risk asset basket.

All-in-all, it is too early to judge this as anything other than a knee-jerk reaction. The reaction of bank spreads is positive but only modestly - not a solution. The reaction in sovereign spreads is minimal - not a solution. Of course equities are tearing as they only know one thing. Gold and Silver are up on fiat worries as liquidity surges, but Copper's surge seems a little overdone given the demand drag of Oil and the uncertainty of liquidity transmission to any real economy growth that AUD and Copper seem to be implying.

Charts: Bloomberg

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
bnbdnb's picture

Shouldn't this strengthen the dollar?

dbells32's picture

Agreed...One would think long term this should good for the dollar as it makes it easier to access USD.  I am assuming right now it is all just people that were positioned the other way and are now unwinding their trades.

Leopold B. Scotch's picture

Well, it would seem the Euro is now safe. 

F the dollar (for the next 15 minutes, at least....)

Peter K's picture

Yes. Now we will be looking at the ECB to lower rates. But that will be factored in tomorrow. Now we are all celebrating that the FED saved the world:)

HoofHearted's picture

Really? Cheaper dollar lending makes the dollar stronger? Seriously?

Gold and silver, bitchez. We now know why there was such a concerted smackdown of prices. It's much easier to start from this base than from what we had at $48 or even $40. Luckily some of us have stacked for a long time...and continued doing so when they put silver on sale at $30 an ounce...

ucsbcanuck's picture

No - I think it increases the supply of USDs which are then converted into other currencies, so demand for other currencies relative to the USD goes up. Which means the USD drops.

holdbuysell's picture

Very helpful data and color provided by these CONTEXT articles, Tyler.

GeneMarchbanks's picture

'Silver and Gold also jumped notably (with the former much more than the latter as is its higher beta case) and Oil now over $101 which has to help spending and demand in the real economy right?'

Uhm yes. I, for one, certainly am 'spending' more ... ... on silver.

newstreet's picture

Range trading now, so go back to bed.

LawsofPhysics's picture

BRICs are laughing their asses off.

firstdivision's picture

Since adding copious amounts of liquidity to a problem solves everything, why not elect Peter North as Fed Chairman?

dcb's picture


Yamaha's picture

Manipulation has always been their goal!

gmak's picture

In this universe, at least since 1980.

scratch_en_sniff's picture

I bet that IMF jibber-jabber at the weekend was just cover to get exposed to this move, an excuse to buy risk, thats probably why the market kept its bid, even after the rumors were rubbished. There is no fucking way anyone would have bought yards of euro on a weekend on such a pathetic rumor.

ucsbcanuck's picture

Will be taking some money off the table today for sure. This is a crazy market to do anything in.

Irish66's picture

Exact history repeat

dermus's picture

Random question - What does ES stand for? I'm guessing equity sector based on the context I've always seen it in, but I've never seen an actual definition.

The Fonz's picture

It's the S&P futures index that is manipulated to set morning prices. By manipulating ES the big boys can move price up 30 points like tonight on a fraction of the money required during the day and then collect all the money from day time sellers. So in spite of having a 30 pt move tonight most people will see little to none of it, and have no ability to react intelligently to the shifts except to panic. Also allows bypassing of pools of supply or demand that would work against those that can trade at night.

Intrepid's picture


expect stimulus

employment substitute

easing sponge


SwingForce's picture

Funny how this news comes out 1 day after Obama's approval rating dropped to an all-time low for ANY  US president. Obie's re-election campaign in full swing now.

ucsbcanuck's picture

It figures - thought they'd wait for a few more days, but the S&P downgrade of the Squid + Obama's re-election made this a good time.

Normalcy Bias's picture

Bammy gets a two-fer from a CTRL+P European bailout:

1. This will further weaken the US and the Dollar, and;

2. It will keep this bukkake theatre of a global economy going until the 2012 elections.

sabra1's picture

this is a signal for all insiders to sell into the rally! war starts overnight!

adr's picture

Obama's re-election chances go to 0 when gasoline goes to $5 a gallon. Of course the fucker will just come out and say this all happened because my jobs bill wasn't passed.