This page has been archived and commenting is disabled.
Risk Leaking Off As Europe Closes
European credit and equity markets rallied today but there was considerable relative underperformance by the former (especially in financials). Sovereign spreads leaked wider all day and started to lose it more rapidly into the close. It looks like Senior versus Subordinated decompression trades were placed in the European afternoon (a bearish trade ion financials) and even with the ECB in the market, BTPs closed above 500bps over Bunds (just shy of 7% all-in yields). Broad risk assets also lost ground as Europe's bid eased off as Oil eased back off its best levels and FX carry came off its highs of the day. US Treasuries are rallying after trying to converge earlier and 2s10s30s is also dragging risk lower for now.
European financials underperformed (though were tighter close to close) with subordinated spreads notably disconnecting weaker in the afternoon. The senior-sub decompression trade is a low vol way to express a notably negative perspective on European financials. Equities (dark blue) significantly outperformed credit on the day also as the US day session helped extend the excitement in stocks but did nothing for credit.
European sovereign bond spreads widened all day with some help from the ECB in BTPs holding them slightly better than most. Spain and Portugal were worst and France keeps going wider - a trend we noted last week. SovX was the only liquid credit derivative index that decompressed today.
Broadly speaking, risk was leaking lower in the European afternoon and at the European close, ES (the e-mini S&P 500 futures contract) compressed rapidly to CONTEXT (the broad risk asset proxy for ES) and is following risk lower - though admittedly marginally for now.
Silver and Oil are losing some of their enthusiasm as Europe closes but Gold is holding gains for now.
Charts: Bloomberg and Capital Context
»
- 5108 reads
- Printer-friendly version
- Send to friend
- advertisements -
Unicredit
The title should've been "Risk Off Until the Next Central Bank Intervention," which, of course, will be tomorrow.
The artificial erection is rapidly deflating. How sad.
Hope Iowa helps re-inflate the hysteria in time for tomorrow morning's open.
I doubt it CD.
Look at volume and action. All of today's action accurred in pre-market and the first five or ten minutes, then we've drifted sideways and down for the whole session. There is no more organic traders anymore.....it's all computers fighting over widows nickels.
Sorry. Should have used the -sarc- tag on the comment. :>)
I agree with the computers fighting computers for the widow's nickels point of view.
HFT has got us to 2 second, 10 second and 30 second treasuries? Nothing surprises no more.
Lol
What was with the capitalcontext.com website today? It showed a 16+ pt gap between CONTEXT and ES all morning, then suddenly the graph was redrawn as if it never happened. The spread was revised to nearly zero.
Hi Biggvs, that was simple recalibration post holiday week trading. The gappiness of data and drops in correlation meant a normal recalibration was necessary (normally this is done early in the morning but given the lack of ES data we had to hold a little later in the day). Given the late open on ES, it will take a little time for our correlation chart to start showing reality again though the CONTEXT chart is live and up-to-date.
OK, thanks for the explanation. It would be valuable for your website graphs to indicate when recalibration is imminent, so as not to take users by surprise. Cheers.
Even on Bberg TV this am, it was said that given that this is an election year, the economic numbers HAVE to look better. Hmmm...I wonder how that might happen?? Anyone seen BEEEKS?
Well, I just saw this crate go by with a mighty funny looking gorilla inside. I'd swear the eyes peering out reminded me of ...Sarkozy.
And when Iran is attacked will it be risk on or risk off? BTW, there's rumors going around that the attack is planned before the end of the week, possibly tomorrow.
Normally the initial conflict is risk off ... followed by risk on. No difference in volitility than any trading day now though.
This is all monumental bullshit.
Brent is at $111 and WTI at $102.
Are they all fucking crazy? How do they expect society to function with that much money draining out of countries to pay for it.
Oil is gutting everything. These Eurosewer countries like Greece and Portugal and Italy have no oil and are buying it from someone else. They are borrowing money to pay for it and this is lethal and there is no cure.
The rest is handwaving.
"How do you expect society to function..."
I've been asking this question for years. America was built to use cheap energy. High gas prices were the straw that broke the consumers back in 07'/08'. Oil should be $50 a barrel.
Wow, the revision game sure is getting played in the Construction Spending numbers. Prior release: 0.8%, Prior Revised: -0.2%
Leaking off? I'd expect it to be pouring out of every drain hole. Martin Feldstein's comment (see (paywall) Alphaville today) that the Euro is finished is rather strongly stated. Joined together with Dalio's description, I have to ask why there isn't more laughter each time France, Spain, or Italy makes a CB announcement. I suppose people are more polite than I thought. Has pity already overwhelmed our sense of the ridiculous?
Today's rally is courtesy of the RPPT. The Ron Paul Protection Team.
Wouldn't want any Republicans in Iowa to doubt that the FED is doing a good job....
Anyone else shorting MTN? Business plan don't work without snow. I don't see the news that would have this one down 6% on an otherwise up day. Must be a couple Wall Streeters back from New Years vacation realized these places are ghost towns when they should be packed.
Had a look at Ben's IPod, and his number one played song was http://www.youtube.com/watch?v=cAMLa5ZC-B4
http://cumgranosalisdossetto.blogspot.com/2012/01/off-to-races-in-2011.html
A little Auld Lang Syne fun on the blog today:
Should debt repayment be forgotWe’ll have the urge to buy
Every form of stock and fiat
For Bernanke
For Bernanke, my dear,
For Bernanke
We’ll bid up asset classes
For Bernanke
And surely you’ll buy financials
Treasury’s stress audit
Shows global banks are good and well
For Buffett ...
What does it all mean???
Will stocks RALLY or FALL in Jan?
No one knows - and I don't want to predict.
and so frustrating...what the hell is going on!?!?