Plunging German Investor Confidence Sends European Bank Risk To Record

Tyler Durden's picture

Just like yesterday we have the makings of a perfectly schizophrenic day. While stock futures are rapidly higher to begin with, as on Monday, on news of a slightly better than expected PMI out of China, we are very concerned whether this algo induced ramp can be sustained. The reason is that earlier today we got an absolutely abysmal German ZEW investor confidence number which dropped to -37.6 from -26, a doubling of the previous -15.1, and the lowest since December 2008. This epic collapse can only be compared with the stunner out of the Philly Fed last week. The biggest component of the ZEW, the current situation, imploded from 90.6 to 53.5, trouncing (to the downside) expectations of 85.0. Additionally, the eurozone economic sentiment dropped to -40 from -7.0. So what is the immediate impact? Well, as we said equity futures are completely ignoring that Europe's growth dynamo is now confirmed to be in a double dip recession. However, not debt: as Bloomberg reports, "the cost of insuring European bank debt against default rose to a record as German investor confidence fell to the lowest 2 1/2 yrs+ on concern the region’s debt crisis will curb growth." Specifically, iTraxx Fin soared to record 255 bps, +5 overnight, while SovX (the sovereign CDS index) was 5 bps wider to 302, just off the record 206 form July 18. We give stocks, which are once again soaring on renewed expectations of a QE3, a few hours before they realize that the news is actually i) very bad and ii) as has been said countless times, stocks have to drop far more, before LSAP resumes for the third time.

h/t John Lohman

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Ivanovich's picture

No worries!  EUR/USD jumped 100 pips this morning, up to recent range highs.  It's all good.  Somehow.

entendance's picture

<No, absolutely not. Euro bonds are not the solution. You cannot end a debt crisis by introducing a new form of debt.
Euro bonds remove every incentive for ailing countries to return to sensible fiscal and economic policies. Since they offer lower interest rates than their previous government bonds, they induce governments to run up more debt instead of saving. I call that perverse.>

Dismal Scientist's picture

You haven't understood whats going on here. The game is about the Germans taking control over Europe, as the other countries cede fiscal sovereignty to them, in exchange for bailout in the form of Eurobonds, which can then be written down over many, many years.

Surely you don't think the Germans are going to give up now ? If they opt out of helping and go back to the Deutschmark, the country's manufacturing sector will implode and unemployment will skyrocket. That will definitely not get Frau Merkel reelected. If she guarantees the Eurozone in exchange for control, the population will have to wear it, and she will get a bigger role on the world stage. The only thing left to discuss is how best to sell it to the electorate.

scratch_and_sniff's picture

The ZEW is highly correlated with moves in equities, for some reason. The rally started on the PMI's, which weren't as bad as expected. Frankly I thought the German ZEW would have took the Euro down, not to be, its only sentiment after all...and can you blame them for picking up on all the doom in the air?

malikai's picture

I haven't seen RobotTrader here in a while. Where is he to push LULU et al? Did he go broke a couple weeks ago? I really miss his contraindications. I'd like to find the bridge he's now living under and give him a couple ounces of silver.

gwar5's picture

I enjoyed him. Maybe he hurt his back finally picking up a gold delivery.



Cdad's picture

What an amazingly stupid market...or...what a nonmarket market.  

Thank you criminals on Wall Street...for the second collapse due in hours...or maybe days.  What...maybe 100 S&P handles by the close on Friday? 

I never thought I would live to see the day that our supposed financial geniuses would betray the nation all the way to its collapse.   More pink slips in the financial services industry, please.

Sell the stupidity.  

DormRoom's picture

The markets are rallying in the hopes of QE3 on Friday, from Jackson Hole.  If not, they tank Friday, and we witness the next leg down next week. 

Cdad's picture

The US market is rising on the inverse of gold [and other safe havens] effect.  I think it is algorithmic and short lived.

The Fed might put a bid to the market, but any rational person already realizes that there is nothing the Fed can do substantively to hold off the market's date with destiny.

And there is nothing the Fed can do about the fact that Europe is insolvent. can play that strategy if you like.  I suspect it has all been front run anyway. 

Snidley Whipsnae's picture

Eurobonds are off the table for now according to Merkle and Sarkozy. QE3 is off the table now because QE2 was a flop and QE3 has become a political football.

Out on a limb I go, offering up 2 possibilities that Ben may present on Friday...

Operation Twist 2: Fed buys 7-10 yr Ts with maturing Ts of shorter duration... This lowers interest rates further out the curve...

Repo operations: Fed uses bank excess reserves and levers them up. This will provide funding for ongoing Treasury operations... until it doesn't...

Of course there is always the possibility that Ben will do the right thing... gold to doughnuts says he doesn't...

ZeroPower's picture

lol why would they buy short duration?

My money, as well as the markets, is that the fed will attack the longer end of the curve, 10s and 30s, to put an artificial cieling on those thereby dropping yields.

Snidley Whipsnae's picture

Can you read? Fed buys 7-10 year with MATURING SHORT DURATION Ts that the Fed holds now...

Dismal Scientist's picture

QE3 will target the asset backed securities market. No point in buying Treasuries, yields have already moved.

max2205's picture

So TPTB front ran these reports on insider info. Rally ?

gwar5's picture

I just don't see Germany having the stomach to wrangle the entire EU through the EFSF by agreeing to back stop everything. Tenuous at best, even if the other countries agreed to their terms. Germany will be hated when they tighten the screws. Their historical resume is not a plus. And maybe their economic position isn't so hot either.


Snidley Whipsnae's picture

Germany isn't going to backstop the remainder of the EU for 2 reasons...

They don't want to...

It is economically impossible...

A whole lotta jawboning about bonds was simply... jawboning! Believe what they do, not what they say!

whirlybird rules's picture

China’s Peoples Daily as saying that “the black death-like spread of the euro zone’s sovereign debt crisis endangered China’s exports to the euro zone.”


Moody’s warns that euro zone states reconsider seeking collateral for aid to Greece if they had any desire for the bailout to stay on track.


just gets spookier and spookier....

hugovanderbubble's picture


Look French,Italian,Spanish 5yr CDS


Societe Generale Kaput


DefiantSurf's picture

Yawn.....PIIGS have been in the ditch forever, this shit will last longer than your design

IMA5U's picture

The market does not care in front of the upcoming Fed market manipulation

Europe is ripping

Futures are ripping


Clearly Uncle Ben is ready to pull some levers on "Operation Twist" or some other gimmik he has in his tool kit

Conchy Joe's picture

Mr. Buffett specifically called to raise tax rates on Americans making more than $1 million and proposed an additional increase on taxpayers whose income exceeds $10 million and all Germans.

PY-129-20's picture

Did someone read this Spiegel-Interview with the Chinese foreign minister? Just steroids... Translated in German it sounds even more aggressive...

"I think the most important thing is the question of whether China and the US are enemies. Are we going to be in a war? Are we preparing for a war against each other?",1518,781597,00.html

PulauHantu29's picture

China is just jealous that Barry won the Nobel Peace Prize.

mrkolice's picture

i urge you to notice one thing: german way of handling the crisis so far was 1. talk something 2. do the opposite. it went like this since the first greece bailout.

imo, from this perspective the only possible scenario is that 1. germany is heading towards the european fiscal union like a tank, 2. eurobonds are their final target.

the trickier part of the question is how and with what means they want to achieve this.

RobotTrader's picture



I'm still here.

Still alive, but bleeding profusely from every orifice.

Getting pole-axed on my XOM, COP, VZ, T, etc., but thankfully I'm still clutching on to my gold stocks which have saved my ass.

I expected a bear market rally back up to the 200-day where I expected to get out, but the market keeps getting blowtorched day in, day out.

Gold has also been good to me, since I still have plenty of coins left, but the chart of GLD is looking more and more like FOSL before it crashed 45% in a matter of two weeks, so I'm tempted to sell some of my coins.

Hats off to the bears who resolutely held their TZA, FAZ, VXX, etc., as they are now knee deep in booze and foreign hookers.


rubearish10's picture

No one gives a shit about how you're investment strategy is doing bro. Yeah, I know, it's cool to see your success displayed in front of all the onlookers....Stick with your pompous market calls and enjoy yourself.

fiddler_on_the_roof's picture

Hang on there.

play money only - I sold my Gold calls riding all the way from $1530 to $1890 making a big profit.

I am planning to re-enter on this if I can get it back for 1/2 the price for same duration.

I am also putting a very small play money in COH calls.


All my rest in in physical Gold(not even silver), silver may zoom next year spring I guess.

if Gold zooms back to $2100, I plan to buy puts  protect my physical Gold.

youngman's picture

"Clearly Uncle Ben is ready to pull some levers on "Operation Twist" or some other gimmik he has in his tool kit"

What we have found out is that the Fed has the "public" deals.....What they will announce on Friday...and then they also have the "secret" deals that I think right now are going full speed ahead....we won´t find out what they are for two years if ever....but I bet they are printing, loaning, buying as we wait for Friday...its business as usual for the Fed.....obscurity...

Gibu The Great's picture

Looks as though the floor might be falling out from under the CAC 40 (don't have RT Dax data at the moment).  If that holds and futures come off their highs in the next hour and a half it definitely looks as though Tyler is right... it takes a while for stocks to figure it out. 

PulauHantu29's picture

I guess the Euro will not replace the dollar after all. Since many analysts predict the continued fall of the dollar we need a new international currency in theh wings. Maybe....Maybe....The better idea is to have a world currency linked to gold + a basket of currencies maybe? Any thoughts?

puck's picture

Second post of mine:

Austria is not so bad a place, It will just depend on weather they enforce border control before I can get thier.....

FlatEric's picture

So what? Now that even the last of the MBA crowd in Germany learned that everything is fucked up in the EU they shit their pants. China and Germany are only vehicles for the Big Money, no 4th Reich or whatever.

Big Money in the US decided that once that there need to be more profits in order to keep the stock investors happy. When China entered the ring it was heaven sent. They made Joe Sixpack believe it is in his best interest to go to China in order to sell US products in this huge market. Anwyay they knew that this was only a one way ticket: the idea has always been to meet the US domestic demands by shifting manufacturing to where labor is cheap and the people are subject to every capitalists wet dreams which we call a dictatorship.

Apple is the protagonist of what I call "the vacuum cleaner economic model". You basicall ruin the working class by shifting production abroad. Then you focus on the middle class and suck off their remaining wealth by selling cheaply manufactured I-Shit devices for the highest possible price. When finally the middle class realizes that without people in domestic manufaturing nobody's left to sponsor their jobs in finance or governemt it's too late. The money has been entirley sucked in a the remaining international and domestic financial clusters will not return the money in circulation unless you accept being a serf.