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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

 

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Wed, 11/30/2011 - 09:36 | 1929445 bnbdnb
bnbdnb's picture

Shouldn't this strengthen the dollar?

Wed, 11/30/2011 - 09:39 | 1929466 dbells32
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.

Wed, 11/30/2011 - 10:15 | 1929699 Leopold B. Scotch
Leopold B. Scotch's picture

Well, it would seem the Euro is now safe. 

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

Wed, 11/30/2011 - 09:42 | 1929481 Peter K
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:)

Wed, 11/30/2011 - 09:44 | 1929493 HoofHearted
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...

Wed, 11/30/2011 - 09:44 | 1929494 ucsbcanuck
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.

Wed, 11/30/2011 - 09:37 | 1929451 holdbuysell
holdbuysell's picture

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

Wed, 11/30/2011 - 09:37 | 1929454 GeneMarchbanks
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.

Wed, 11/30/2011 - 09:45 | 1929506 ucsbcanuck
ucsbcanuck's picture

Oil to $110 now?

Wed, 11/30/2011 - 09:38 | 1929456 newstreet
newstreet's picture

Range trading now, so go back to bed.

Wed, 11/30/2011 - 09:38 | 1929461 LawsofPhysics
LawsofPhysics's picture

BRICs are laughing their asses off.

Wed, 11/30/2011 - 09:42 | 1929480 firstdivision
firstdivision's picture

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

Wed, 11/30/2011 - 09:43 | 1929482 dcb
dcb's picture

YOU GOTTA LAUGH IF YOU ARE A CHART PERSON BECAUSE THIS INTERVENTION AT THIS TIME IS BASED ON ONE THING AND THAT IS THE CHARTS AND TECHNICALS.  WHEN DID THE FUNCTION OF A CENTRAL BANK BECOME TO MANIPULATE THE MARKETS.

Wed, 11/30/2011 - 10:04 | 1929628 Yamaha
Yamaha's picture

Manipulation has always been their goal!

Wed, 11/30/2011 - 10:07 | 1929640 gmak
gmak's picture

In this universe, at least since 1980.

Wed, 11/30/2011 - 09:43 | 1929485 scratch_en_sniff
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.

Wed, 11/30/2011 - 09:47 | 1929521 ucsbcanuck
ucsbcanuck's picture

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

Wed, 11/30/2011 - 09:46 | 1929513 Irish66
Irish66's picture

Exact history repeat

Wed, 11/30/2011 - 09:46 | 1929514 dermus
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.

Wed, 11/30/2011 - 10:04 | 1929622 The Fonz
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.

Wed, 11/30/2011 - 10:19 | 1929742 Intrepid
Intrepid's picture

ES=

expect stimulus

employment substitute

easing sponge

 

Wed, 11/30/2011 - 09:47 | 1929520 SwingForce
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.

Wed, 11/30/2011 - 09:48 | 1929528 ucsbcanuck
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.

Wed, 11/30/2011 - 10:52 | 1929720 Normalcy Bias
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.

Wed, 11/30/2011 - 09:48 | 1929527 sabra1
sabra1's picture

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

Wed, 11/30/2011 - 09:52 | 1929552 adr
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.

Wed, 11/30/2011 - 09:54 | 1929563 kralizec
kralizec's picture

Mmm, more of our liquidity for Eurobanks, markets respond...DANCE MONKEY DANCE!

http://www.bloomberg.com/news/2011-11-30/fed-five-central-banks-lower-interest-rate-on-dollar-swaps.html

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