Market Snapshot: Europe Down Large But End-Tone Better In Credit

Tyler Durden's picture

Credit markets opened extremely weak last night in Europe, underperforming equities, and continued to slide lower for most of the day. The interesting divergence that appeared was equities underperforming credit all day long which provided some modest bid to credit as we closed and reflects what we have been discussing recently - that equities had yet to catch up to credit's perspective of the world.

Notice in the chart the blue line (broad European equity index) closes at its lows while credit (Main, XOver, and Senior Financials) all pulled off their wides. While still a very ugly day overall (with multiple standard deviation moves everywhere), chatter was that some Senior-sub arb was in play and credit vs equity trades were active towards the end (both of which will tend to put technical buying pressure into credit). Notably, it was not just financials hurting the broad indices - we saw non-financials widen considerably as the macro data and credit transmission channels team up to slow growth expectations.

FX markets just kept going with USD strength and EUR weakness dominating but we note that JPY is strengthening once again against the USD throughout the European day - more carry unwind/repatriation? And remember we pointed out overnight that Japan's sovereign CDS jumped significantly overnight (as did much of Asia).

The USD's gain of over 1% overnight did nothing for commodities and PMs which just kept on dropping and with weak manufacturing data in China and Europe, oil and copper got some extra juice to drop. Copper is now -12% this week alone and while gold is down over 4%, it is outperforming and in the face of a 2.5% rise in the USD.

Markets in the US are pushing at their lows as Europe closes with credit dramatically wider, net-selling in HY bonds, and single-name CDS getting squeezed wider in financials (as we see curves flatten even as bond managers shorten duration net-buying far more short-end than long-end debt).

All-in-all things feel very weak out there with sovereigns cracking their all-time wides and even IG credit in Europe as wide as it was at the peak of the financial crisis in 2008/9. Equities remain well above levels appropriate to the credit market's perspective and downside risk remains the bigger threat in a vicious circle of capital reduction, counterparty risk management, and illiquidity.

Charts: Bloomberg


UPDATE: We hate to say we told you so - but we told you so (here and here)...Dexia -11.4% today! Another stock that is wakning up to where it's credit is trading.

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GeneMarchbanks's picture

Puts! Get your puts here!

Edward Fiatski's picture

illiquidity, bitchez.


If you're in bullshit stocks, you deserve what is coming; let me introduce you to my friend - Mr. 1931.

ReactionToClosedMinds's picture

thks for the catch & post


Aden Sisters (some of the orginal gold bulls light years away now) sound like they are straining to portray 'rational ' comments in this environment

ReactionToClosedMinds's picture

read up on the Credtistaldt collapse ....... initially no one foresaw the dynamci that started with that 'deposit withdarawal' bank collapse in Austria in August 1931 ... would domino efffect its way through all of Europe then NY banks then all US banks as everyone had to jump off the gold standard etc.



This sure looks like history 'rhyming' if not repeating

toady's picture

Loading the weapons, running the bug-out checklist.

Good luck everyone!

Edward Fiatski's picture

I wish I could take all of you great people to my hideout, but then again - survival of the fittest, bitchez. EVERY MANLY MAN FOR THEMSELVES!

fuu's picture

We'll just meet you there.

Edward Fiatski's picture

Aha! But then that makes you a ZOMBIE in my threat classification system in the event of societal collapse.

rambler6421's picture

Deflation Bitchez!

BrocilyBeef's picture

If that is a strengthening US Dollar, then, yes, D.B.!

...but honestly I want to see MORE US Dollar strength. This just isn't enough yet.

rajat_bhatia's picture

Deflation is great for Indian Consumers

Robslob's picture

Deflation is great for ALL Consumers



Edward Fiatski's picture

Economic situation coupled with TRADE WARS,


"US Senator Brown says new bill aimed at China would treat currency manipulation as an unfair subsidy" ,


and a new world war is being fermented - all too predictable, all too ignored. Enjoy

Calculo Ergo Sum's picture


The French press yesterday reported the bank's exposure to French municipal entities, and it did not look nice.

Dick Darlington's picture

And ECB manipulating the gubbmint bond market. Big size today, 50M clips throughout the day to give one more day of illusion Italy and Spain will be all good. Of course that's false and will end up in tears. Tears of the taxpayers all over Europe since ECB's purchases will be "handed over" to the balance sheets of national central banks according to their capital keys. Finnish opposition is starting to raise hell abt this. ECB is overruling the sovereigns, no questions asked. Except in Germany (Weber, Stark) and Finland (Soini).

Peter K's picture

The key is the wordsmithing of the Euroland communiques. If they could just get the wording right, they could defuse this whole solvency crisis:)

OK and the right message in the strategic leaks. It's actually a messaging issue when you drill down. Yea, yea...that's the ticket.