Market Snapshot: Financials Weak As Europe Closes

Tyler Durden's picture

From significant outperformance early in the European trading day, Financials lost considerable ground as the US opened and bank funding problems were admitted. Obviously, Europe had some catch up to do to the afternoon session in the US Friday, but it went beyond that with Senior Financials closing near the day's wides even as the broader equity market in Europe was only down around 1.3%.

The underperformance (against their intrinsic value and peer asset classes) of both Main (the investment grade credit index) and Senior Financials (which are both the lowest cost liquid indices to 'hedge' with in European credit suggest significant macro protection is still being added here. EUR making new multi-month lows below 1.33 as EURJPY tanks and CEEMEA sovereigns widening dramatically also does not help restore confidence as Gold gets a safety bid and USD strengthens.

UPDATE: BAC just broke back into the $5 handle, XLF is now underperforming -1.2%, and MS is -1% at day's lows after being up around 5% early on (but CDS/bonds were weaker all morning).


Credit swung from outperformer to underperformer on the day with financials closing near their wides (red line inverted scale) as investors sought lower cost liquid protection. All the major indices (and massively broad and weak breadth across single-names) were wider but sovereigns were a little mixed. Mostly wider but a few (IA, ESP, SWE) managed to eke out a very small compression. Belgium (+14 to 275bps) was major underperformer as our much beloved DEXIA looks in more and more trouble (we are just waiting for 'Belgium is not Ireland' comments and we will know for sure). CEEMEA nations were all significantly wider with Romania and Czech Republic worst relative performers (and South Africa interestingly also weaker).

In FX, the EUR was the worst performer of the majors relative to the USD, breaking to a 1.32 handle and notably divergent with JPY strength. EURJPY continues to make decade lows as it seems carry unwinds must be exaggerating some of that pressure.

Precious metals and commodities are all up from Friday's close with oil and copper just in the green while Silver is +2.8% and Gold is +1.9% - even with a stronger USD.

On a medium-term basis, broad risk assets (CONTEXT) are pulling south to meet equity's perspective as stocks have led them down in this last pull to the magical 1120 line. It seems we need more broad-based selling in carry FX, oil, and 2s10s30s compression to really extend this sell-off - even as TSYs are near day's low yields with 30Y -9bps from Friday's close.


Charts: Bloomberg

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GeneMarchbanks's picture

You really have to be deadly stupid to believe that we are not one natural disaster/credit event/'rogue' trader away from an all out global schism. At your own risk peoples...

Don Birnam's picture

Speaking of bank runs and Government efforts to stem same, currently on Cafe Americain...


03 OCTOBER 2011
Restricting Gold and Silver Sales in France

A few people have asked me about the recent story concerning France banning cash sales of gold and silver. The story originated here but was picked up by quite a few other sites last week. I was waiting to get some additional information before I posted it as well.

This is different from the reports of limits specifically on gold and silver sales in Austria.

"According to the bank representatives and manager we spoke with, Austrian banks have now been ordered to restrict the sale of gold and silver bullion purchases and are limiting personal acquisitions of precious metals to 15,000€ (approximately $20,700 USD) at a time, or 11 ounces of gold at today’s prices."

Here is a link to the French law that has caused this latest discussion.

Tightening the Noose: France Bans Cash Sales of Gold/Silver over $600
By Mac Slavo
September 23rd, 2011

"...It looks like this trend of restricting the peoples’ ability to acquire assets of real monetary value is expanding. If a recent report from France is accurate, and based on the French governments official web site it looks like it is, then as of September 1, 2011, anyone attempting to sell or purchase ferrous or non-ferrous metals, which includes gold and silver, will be required to pay for their purchase via a credit card or bank wire transfer if it exceeds 450€ (~ $600 USD)...

...According to independent reports the law was passed to curb the illegal sale of stolen metals like copper, steel, etc. Given the rampant rise in thefts of these metals from telephone poles, construction sites and businesses here in the United States, we can certainly see this as a reasonable assessment for why the French passed this law.

However, the fact that no exception was made for gold and silver simply cannot be ignored. The new law effectively makes it illegal to purchase even a single Troy ounce of gold or around 18 ounces of silver in cash."

So I asked an aficionado of the metals in France what the straight story is on this, and here is the reply:

This law is basically saying that retail “metal” transaction OF ANY AMOUNT cannot be paid in cash. It further says that there is a limit to how much metals can be transacted via retail up to a limit set by decree (not yet specified).

Any retail transaction above 450EUR must be paid via bank transfer (ACH). This is encompassing all goods and services, not just metals.

I called a gold coin & bar dealer whom I know in Paris.

They told me that their legal counsel is awaiting for the final interpretation of this new law sometimes this week.

In the mean time, they still sell gold to retail customers and accept cash payments without requiring an ID for transactions up to 3000 EUR per day per person.

She warned me that it may change any time.

And so there you have it. If you wish to buy gold and silver unobtrusively in France you may wish to do so now. Otherwise be prepared to start using bank transfers including credit cards for all transactions in any metal, and all large transactions for anything it seems.

It is hard to accurately judge official motives in this sort of action. It *could be* to restrict activity in stolen copper as some have said.

But it could also be to limit the incentive for a run on the banks by making cash less useful to hold. It also helps to channel more transactions through the fee-taking banks, which is a tax on the real economy. 

And it might very well be designed to restrict a run on the metals if the western currencies are devalued. I have heard elsewhere that this is tied to the revaluation of gold relative to other currencies which will be included in the new composition of the SDR. I have also heard that one or two countries will include gold in their official reserves and tie it to their currency at some official rate that is substantially higher than the current spot prices, setting up an interesting change in market structure.

In other words, this law has the flavor of currency controls to prevent a bank run in preparation for a devaluation. And given the current nature of their trade deficit, I think it is a bit naive to assume that the US will stand idly by and not participate in this coordinated devaluation as well.  Even that stalwart of hard assets Switzerland had to give way and weaken its currency to preserve its exports.

Restricting and manipulating short term prices can only go so far. At some point it appears they must also try to regulate and restrict access by private individuals if there is a market dislocation and a change in status quo. I fully expect that all exchange defaults will be force settled in cash at an official rate.  And the retail bullion inventory would likely disappear from the shelves overnight except at the most outrageous prices.

With Asia moving to more widely encourage private ownership of gold and silver, the international dynamics may become most interesting.

This reminds me somewhat of restrictions and laws regarding foreign currency in Moscow and other eastern European countries in the 1990's. There was a state dictated exchange rate, and all currency was to be done in an official exchange office.

The practical effect was that no one wanted roubles except grudgingly, and most non-official transactions were made at street rates in hard currencies like Swiss francs, Deutsche marks, or Dollars. And there were official shortages of many staples as the markets moved 'underground.' My, how times have changed.

They'll never learn.

GeneMarchbanks's picture

Word. This 'Jesse' character is very good, doesn't write much though, I kinda like that.

SilverRhino's picture

Lot of deadly stupid out there.  

slewie the pi-rat's picture

Belgium is not Ireland, BiCheZ!!!

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