A turbulent session in Europe ended on an ugly note as broad equity markets closed near their lows, credit spreads near their wides, and financials gave up all their rumor-driven gains. EURUSD, however, managed a spikey end to the day, popping its head back above 1.37 after trending generally weaker all day.
French banks seemed to be as good a proxy for the general sentiment in Europe as they rallied on rumors of mergers and recapitalizations only to see that strength sold into - remember, the short-sale ban remains in place so this was reducing exposure not outright shorting (eh hem).
Senior financials extending their widening from earlier in the day to get back to almost unchanged - around a 10bps decompression off intraday tights.
But the EUR continues to strengthen, now into the green for the day against the USD, as perhaps hope that Bernanke print-print-prints is priced in? Is this EUR being repatriated or simply a reflection of the end-game for the USD?
But Gold is unimpressed (UPDATE: Gold just broke back above $1800 lending some credibility to this move in EUR being a systemically weak-USD play) though oil has managed a decent rally this morning so far. Copper remains lower and silver follows its new friend oil higher.
US equities broke overnight lows and are trading at support from Monday/early-Tuesday but EUR strength (USD weakness) is providing some energy for a rally - even as TSY yields plummet. 10Y and 30Y down 14-15bps on the week now, 5Y -9bps and 2Y -1bps as 2s10s30s surges lower (it seems expectations of Twist are being set into the long-end overall with no consideration for the 10s30s curve or 2s10s needing some adjustment for bank carry trades - perhaps explains why Financials are underperforming in the US today so far).
Stocks look modestly expensive relative to CONTEXT and credit today as this minor rally off the lows continues and we note HY bonds seeing net-selling (relatively unusual recently but perhaps firms feel comfortable with their macro hedges and are unwinding cash now).
All-in-all, seems rather odd price action (but that is nothing new) as EUR rips, TSYs rip, and stocks are down while gold limps along - can 215ET come soon enough? Feels like correlations are breaking down today.