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Market Snapshot: Financials Underperform As Europe Closes

Tyler Durden's picture


We noted earlier the initial positive reaction to Trichet's comments followed by a more reasoned down-draft. Subordinated financial credit underperformed in that sell-off and remained that way for the rest of the day even as the EUR managed to rip-snorting rally back above 1.34 on confusing comments from Juncker on EFSF leveraging (contra his earlier in the week comments) and Merkel's noting bank recaps may be necessary. Three main things stand out from the Europe session: senior and more-so subordinated financial credit underperformed, EUR dipped-and-ripped as anti-POMO started in the US, and gold remains subdued while silver, oil, and copper hold and extend gains. Back in the real-world, Dexia (-44% in the last few days) will remain halted til 10/10 and Belgian spreads and yield curve are increasing and flattening rapidly.

The light blue line is sub debt on EU financials (inverted) suggesting senior-sub decompression trades starting to laid back out - as recaps (of whatever sort) may force problems down the capital structure (but why are equities so happy? - take a look at Dexia to know what a recap really means - not a loan!!).

FX markets were very excitable in all the majors except JPY as AUD has a strong showing along with the EUR but cable loses ground as QExxx chatter is reignited. Silver is holding on to 5.5% gains this week with copper back from the dead +3% from Friday as oil and gold fight it out around 1.5% higher on the week - even as the USD has only lost 0.25%.

In the US, the anti-POMO came and went and the 2s10s30s butterfly rose notably as the 7-10Y buckets of the TSY curve have significantly underperformed this week. Net buying resumed in IG and HY corporate bonds but HY is lagging equity's performance a little so far. Once again MS, BAC, GS, and JPM top the most actives with GS and JPM most notably active in dealer-to-dealer trades as MS and GS see marginally more net-selling from managers.

On a short-term basis, CONTEXT is implying that broad risk assets are not following the excitement in stocks as aggressively today. To provide some more conviction for that view, on a longer term basis, this last leg up in ES has pushed it well beyond broad risk asset's CONTEXT. On the way down, ES was leading risk - which is unusual though not unique - but during rallies we very seldom see ES stay above and hold above CONTEXT for long - we will watch today for reactions in TSY 2s10s30s and FX carry as to next steps and conviction but for now it feels like ES is a little overdone (as if 82pts in 48 hours is not enough of a signal).

Charts: Bloomberg


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Thu, 10/06/2011 - 12:53 | 1746300 rocker
rocker's picture

DB, GS, C, jpm, all rallied today.  Huh.

Not that I would buy any. But Huh.   Just who the hell runs the HFTs ?

Thu, 10/06/2011 - 13:36 | 1746488 slewie the pi-rat
slewie the pi-rat's picture

ok, looks like time to buy the inexpensive puts and get ready for risk off friday where the scores can really change, and the bonds and USD may look better going into the week-end with the europeons on cruise control;  but they ain't cheap right now, are they?

dow 11K hats!  L0L!!! 

who on earth decided these ponzi-zombies were candidates for re-capitaliZation?  the fuking tooth fairy? 

LetThemFail, BiChez!

Thu, 10/06/2011 - 15:09 | 1746960 slaughterer
slaughterer's picture

ES re-took MA 20, which is the current resistance.  Need some bad news, otherwise the next target is MA 50.  C'mon Tyler, give the world a nice tape bomb.   

Thu, 10/06/2011 - 12:53 | 1746303 redpill
redpill's picture

Finally, those silly Euro markets finally closed.  Now we can get back to our illusory S&P 500 meltup undistracted!

Thu, 10/06/2011 - 13:03 | 1746337 HD
HD's picture

Bullish on hopium.

The "new" S&P target is now 1325 EOY...the BS just never stops.

Thu, 10/06/2011 - 13:09 | 1746362 walküre
walküre's picture

It will get there or higher. Who cares? The money is worth less by the day.

Gas prices are high. Feed prices are high. Meat prices are high.

You can protect your wealth with equities in a casino market or you can buy gold, silver, land, livestock and so on and have something tangible.

The banks can't steal your tangible assets but they WILL raid your equity portfolio. That's what they're designed to do.

Thu, 10/06/2011 - 13:37 | 1746490 SheepDog-One
SheepDog-One's picture

Irrelevant where the S&P is. Thats why we're in the trouble we're in, stupid stockcentric american people...if stocks up, then all is well. You cant have a more stupid society than what we have,

Thu, 10/06/2011 - 13:42 | 1746508 redpill
redpill's picture

If I didn't know better I would have thought you just inferred that the stock market isn't the same as the economy, but that's not what Jim Cramer told me!


Thu, 10/06/2011 - 13:01 | 1746329 thunderchief
thunderchief's picture

Go Silver!

40 50 60

New Years Party!

Thu, 10/06/2011 - 13:02 | 1746331 Dingleberry
Dingleberry's picture

HFT trading is one thing, investing another. These banks are goin' down, but not soon enough!!!! BEsides, all anyone cares about today is the Messiah passing last nite.

Thu, 10/06/2011 - 13:03 | 1746333 walküre
walküre's picture

None of the ECB talk matters. Germany is NOT going to fund the ECB unless it helps German banks first. I said this before, there is not one single politician who is willing to sign on the dotted line to authorize these transfer payments. I would suspect that every other European nation is in a similar predicament. All the EU unity talk is CHEAP. Literally.

From my layman's perspective as a farmer.. they can dump all the toxic assets into one gigantic pit, they can buy all the bonds of the European nations with ECB commitments and with money that doesn't exist.. eventually the pit will be filled and a new pit will have to be created.

Then there's spillage and contamination of the ground and the fact that cattle doesn't live off shit, they produce it. Something of nutritional value has to go into the livestock or they will die. How are Europeans supposed to eat when their banks have contaminated the entire farm?

But don't listen to me. I'm just a farmer. What do I know? FWIW farmers have been around longer than bankers.

Thu, 10/06/2011 - 13:09 | 1746361 Harlequin001
Harlequin001's picture

You're just pissed off 'cos you can't print corn...

Thu, 10/06/2011 - 13:11 | 1746378 walküre
walküre's picture


I get more paper for the corn every year. Can't see it coming down when central bankers are in a race to the bottom.

One day I might not accept paper but will sell you a quarter or half steer for some gold.

Thu, 10/06/2011 - 13:03 | 1746336 Belarus
Belarus's picture

i exoect there will be a lower high in the ES. If it doesn't end much higher from here I expect to see a sharp reversal and breaking support of 1120 fairly quickly and dramatically again. 

Everyone seems to forget beyond the systmatic risk Europe illicits is that the U.S. economy is in shambles and is contracting toward a negative GDP print, as we transfer record unfunded spending into the ecoomy. Once the focus shifts back to whats happening right now in the economy, we'll see the deflationary spiral to take hold. Which only means the out-of-the-money calls on the Bernanke put gets that much closer.


Thu, 10/06/2011 - 13:19 | 1746410 reload
reload's picture

I agree - but what a day for the European Indicies - Viciously choppy interspersed with manic spikes up. Short squeeze?, `investors` flocking to the call of more BOE printing? Who knows, but some bears will be nursing deep wounds tonight. FTSE has now broken (very convincingly) the downtreand from early July and could easily gain another 110 points before rubbing into any proper resistance at 5400 - today felt like the shorts below that level were throwing in the towel.

When Mervin says printing and currency debasement are my only tools to get the ecconomy going it is time to get out of the way. Meanwhile main street is in a full blown depression. When he says the weak pound will boost demand its hard to know what he means - most of what we consume is imported and getting more expensive and we dont export much at all. Perhaps he meant demand for stocks?

Article on here last night re the `short interest` kept me out of trouble today - thanks Tylers.

Thu, 10/06/2011 - 13:35 | 1746480 SheepDog-One
SheepDog-One's picture

If the shorts are throwing in the towel as you say, then the only way is down.

Thu, 10/06/2011 - 13:08 | 1746353 Zonker
Zonker's picture

V bottom is in, financials done going down (that is really all we need).  This move has legs to continue trading to the upside.  One more rally on Bad news, and I'm calling it done and over for a "collapse"


Good Trading People!


Thu, 10/06/2011 - 13:12 | 1746380 AldousHuxley
AldousHuxley's picture

Europe needs another revolution otherwise socialism will turn into communism to keep the elite royalty in power.

Thu, 10/06/2011 - 13:35 | 1746484 SheepDog-One
SheepDog-One's picture

So same as in the US then?

Thu, 10/06/2011 - 13:38 | 1746493 lix333
lix333's picture

Germany ordered the new currency and asked that the printers to hurry up.

Thu, 10/06/2011 - 13:38 | 1746496 lix333
lix333's picture


Germany ordered the new currency and asked that the printers to hurry up.


Thu, 10/06/2011 - 14:44 | 1746803 spongeBOB
spongeBOB's picture

Financials underperformed the market on the way down and they will outperform on the way up. You cannot engineer a lasting rally without the financials leading. Shorting banks at this point is not in your favor from a risk/reward point of view.

Fri, 10/07/2011 - 05:15 | 1748899 lemarche
lemarche's picture

Tyler your comments are hilarious !!! haha... "not a loan" ! Seems the FT forgot to mention that...

Wed, 10/12/2011 - 09:46 | 1765297 karmete
karmete's picture

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