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Market Snapshot: Credit Outperforming In Europe But Mostly Catching Up

Tyler Durden's picture




 

A green day in Europe as last night's superfluous strength in US equities caused reracks in every major European risk class out of the gate. The early strength in Europe was faded quite quickly but the bias was up - even as no new news/plans/clarity was announced and in fact was modestly worse with a lack of capital injection for Dexia noted. Credit and stocks ratcheted higher in three lurches with covering clearly evident in credit as even Belgium and France sovereigns managed small compressions (which makes little sense) though the former remains notably wider on the week (rightly so).

We also note that while credit indices (above) do indeed look better on the
week, underlying single-names are notably wider which coupled with US
corporate bonds suggests many are using strength to cover longs in
'riskier' credits. ITRX Main (Europe's investment grade credit index which includes financials) is 3.5bps tighter from Friday while its underlying single-name fair-value has widened 8bps and XOver (Europe's high yield index) is 4bps wider from Friday while its intrinsic value is 31bps wider...suddenly doesn't seem so positive eh (and Senior financials -9bps from Friday with underlyings +10bps!!).

FX traded in a narrow range (light blue oval) from the US close but the USD was at the stronger-end of the channel as Europe closed (IMF - ECB easing potential comments) but commodities were mixed with lackluster moves overnight though silver and copper sold off the most - not enjoying the excitement in equities - but since the pre-market, all PMs and commodities have pushed higher with silver and gold outperforming on the week now.

TSY yields leaked higher but the curve flattened but we see HY net-selling against IG net-buying (but several major financial bonds being net-sold including MS, GS, and C).

ES has re-coupled with a longer-term context reducing some of the urgency in equity's bounce - though we note on a medium-term basis equities remain significantly expensive to credit still.

All-in-all, it seems like we can bleed higher inch by inch as retail gets sucked into another 'recovery/bailout' but under the surface, the 'things' that should be benefiting are simply not as professionals use this strength to rotate hedges or more simply unwind at better marks. We will be watching for issuance windows in credit to re-open today/tomorrow and what level of concession we see to get an idea of reality to this rally.

Charts: Bloomberg

 

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Wed, 10/05/2011 - 12:31 | 1741775 LookingWithAmazement
LookingWithAmazement's picture

All going well.

Wed, 10/05/2011 - 12:31 | 1741778 Dr. Engali
Dr. Engali's picture

Just gives me a better short entry point.

Wed, 10/05/2011 - 12:32 | 1741787 SheepDog-One
SheepDog-One's picture

OK so now for a couple days we'll get the 'Europe was up because US was up on false rumors followed by Europe up again' rally mode, until something in a different area unwinds and they have to regroup and spin rumors about that. All very sane, world markets based upon strategic rumor dumps.

Wed, 10/05/2011 - 12:34 | 1741793 LookingWithAmazement
LookingWithAmazement's picture

Banking crisis looms, Dexia in troubles. Markets rise. Better explanation: Dexia saved. Situation improved. Told you so.

Wed, 10/05/2011 - 12:49 | 1741868 SheepDog-One
SheepDog-One's picture

Derp?

Wed, 10/05/2011 - 12:36 | 1741805 GeneMarchbanks
GeneMarchbanks's picture

Schism complete good-bye reality!

Wed, 10/05/2011 - 12:38 | 1741808 hedgeless_horseman
hedgeless_horseman's picture

FINs looking ugly, again.  Calamari starting to stink.

Wed, 10/05/2011 - 12:40 | 1741812 SheepDog-One
SheepDog-One's picture

Just in- Citi announces fee hike on checking, $20/month fee (fine) if you carry a balance less than $15,000. 

Citi announces new fees on checking accounts - Oct. 4, 2011

Wed, 10/05/2011 - 12:43 | 1741837 GeneMarchbanks
GeneMarchbanks's picture

It's like they want you to take out your money and buy physical silver.

Wed, 10/05/2011 - 12:47 | 1741854 SheepDog-One
SheepDog-One's picture

'Mmmm Thurston it looks simply DREADFUL for the peasantry! Be a dear and pass the caviar and another spot of Lafite to wash it down! Yes Lovey *chortle chortle*' etc etc...

Wed, 10/05/2011 - 12:55 | 1741900 GeneMarchbanks
GeneMarchbanks's picture

The working class is completely out of control. Agreed.

Wed, 10/05/2011 - 12:48 | 1741861 SheepDog-One
SheepDog-One's picture

'We're Bank of America, and we're screwing you!'

Bank of America Ad (Parody) by Mark Dice - $5 monthly fee for debit cards - YouTube

But nowhere near as bad as Citi's screwing you!

Wed, 10/05/2011 - 12:58 | 1741910 AnteUp93
AnteUp93's picture

LOL headlines are so rediculous. Bloomberg credits today's equities market rise with Europe problems ameliorating...

 

http://thelegitinvestor.com/archives/230

Wed, 10/05/2011 - 14:14 | 1742135 dvsteenk
dvsteenk's picture

"as professionals use this strength to rotate hedges or more simply unwind at better marks"

Ok, but I don't get who is stupid enough to be sucker in this unwind?

 

Wed, 10/05/2011 - 16:06 | 1742605 ivars
ivars's picture

Long term dollar index (USDX) prediction chart 2012-2018 with description and zoom options ( click on chart, then click on left upper corner zoom symbol) is posted here:

http://saposjoint.net/Forum/viewtopic.php?f=14&t=2626&p=34401#p34401

Key points:

1) That is very important one to understand why there will be no inflation for another 4 years till 2016, why gold will not move up much in 2011-2013, and how USA will finance its needs by issuing even MORE unsustainable debt (held hostage to USD reserve currency status ) even in recession with approval of creditors (held hostage by USD reserves they have and need to continue trade imbalances with reserve currency issuing nation) . USD will deflate (gain in value) during 2012-2014. Recession will continue all this time, debt deflationary one.

2) Then, in 2014 the defaulting process will begin, lasting from 2014-2016, 2 years, with everyone scrambling around to try to position itself best ( if that is possible ) with all means available for the imminent default.

3) Nevertheless, I still stick with silver showing unexplained upside even during deflation period, as shown many times already in silver  graph from 35 in Q1 2012 up to 100+-20 USD in October 2012.

4) My thinking is, increase in silver USD price that has to be related not to inflation, but demand/supply issues. I favour explanation that demand will soar NOT because of some sudden new use of silver, but increased OLD use, perhaps very old use. I have only two options-either military buildup, or monetary policy of some sovereign based on silver (NOT the USA).

Wed, 10/12/2011 - 11:40 | 1765932 karmete
karmete's picture

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