Visualizing European Stock Hope And Prayer

Tyler Durden's picture

It's been six weeks since the EU Summit that apparently laid the foundation for all that is good in Europe to evolve. Between the EU Summit's euphoria-to-dysphoria flip-flop and Draghi's believe-to-deceive-to-promise roller-coaster, bond prices/yields and stock prices have had a wild ride - but there is a very clear disconnect now. Since 6/28, Spanish and Italian 10Y spreads are unchanged - yes the very instrument that is supposed to benefit from all this chin-wagging and jawboning has done nothing! Meanwhile - the previously synced at the hip equity markets of these two nations have soared - both now above immediate knee-jerk highs of the EU Summit. This leaves Italy's FTSEMIB almost 7% over-valued relative to its credit risk and Spain's IBEX around 6%; whether this is due to the short-sale ban or simply an irrational willful ignorance of fact over hope - we suggest the convergence offers some better hope (especially as Rajoy sees his party support waning).

Italy Bonds vs Stocks...


and Spain Bonds vs Stocks...



The Socialist opposition rejected an earlier agreement for a 100-billion-euros European rescue for Spanish banks and is also against a sovereign bailout, and there are now even voices against it within Rajoy's ruling People's Party (PP).


Privately, senior party members have begun to blame Rajoy - an unlikely crisis manager with a cautious demeanour - as Spain is dragged deeper into the 2-1/2-year-old euro zone debt debacle.


While Rajoy has an ample majority in Parliament that has not shown signs of breaking, PP leaders in the country's 17 autonomous regions have begun to rebel against tight spending controls that have forced them to cut back on hospitals and schools and face political backlash.


"We're united behind him but it is not wrong to say that there is a diversity of opinions which are now being expressed," a senior PP member told Reuters.


"In order to make it politically digestible, the request for EFSF/ESM aid might come together with a cabinet reshuffle," Citigroup said in a note to clients


Charts: Bloomberg

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vinu02's picture

Let see Italy is still praying to get $10 B on August 15th. 

At the same time U.S. banks told to make plans for preventing collapse $BAC$JPM$GS $MS $JEF $FAS. Its time check $FAZ

Eireann go Brach's picture

Rajoy must be handing out free copies of Obamas hope and change book to all those market participants! Obama, ruining the world one TelePrompTer speech at a time!

Jlmadyson's picture

That 25% going to be looking like 30% unemployment in Spain real soon.

Keep on keeping on.

HarryM's picture

Blah, blah, blah, blah... Rally!!!

malikai's picture

EURUSD cross:

And remember folks, every Friday is Dislocation Friday over at Worldwide Capital Markets! Be sure to bring the kids!

govttrader's picture

Buying Italian and Spanish bonds in this environment feels like playing chicken with a cruise ship



Dr. Engali's picture

Sooooo.....I guess the take away  is that the robots aren't as adept at churning bonds as they are stocks

Vegetius's picture

This is the end
Beautiful friend
This is the end
My only friend, the end
Of our elaborate plans, the end
Of everything that stands, the end
No safety or surprise, the end
I'll never look into your eyes...again
Can you picture what will be
So limitless and free
Desperately in need...of some...stranger's hand
In a...desperate land
Lost in a Roman...wilderness of pain

The End - The Doors

dcb's picture

I am going to write a bit on why you are wrong. if you look at the delay tactics of the past three days, and compare to udn the market should be much lower right now. so they have spent four days trading sideways un the us, and when udn goes up, sotcks will also go up again. it is now time to enter udn, from udn we should have already lost the majority of the gains this week the algo's are in buy every dip mode, so each opening they buy, and tehy have hit higher highs. this is why a market is completely destroyed when 80% of it doesn't hold over night, a lower open is a buy, it so fucked up, but they will never fix our capitial markets

dcb's picture

look at teh bull shit from 7/30 to 8/2 same sideways movement, with a hint of one down day than ramp up. sorry you haven't seen this pattern enough to trade it. I hate it because we aren't even hitting the entry spots I want to hit, but this is a fucked up game

dcb's picture

you may get a tiny dip monday, but I think that's it. of course I have my computer set so it doesn't matter to me,  you may see some better down action on about september 10th when udn hits the top of it's real down trend line

dcb's picture

a good comparison is udn and crude, and associateions with tbt also fell apart this week. it kept me thinking for about 4 hours yesterday

Bahamas's picture

Italy's FTSEMIB is up 7% from being down 80%

Dareconomics's picture

The disparity we observe between the credit and stock markets can be explained by too much money in the system and momentum-trading computer algorithms.

Some of the money being placed into the financial system by the central banks eventually finds its way to the stock markets. The markets are now driven by machines, which find trends and exploit them. A little extra money raises stock prices. The machines note this and buy into the momentum which causes other machines to join in and so on.

In the thin August markets, this effect is exaggerated.

I am aware that this scenario begs the question, "What happens when liquidity disappears and the process begins to work in reverse?"

Stupid German Money's picture

Hi Folks,


here is a interview in german language with Professor Hankel. Mr. Hankel is one of the biggest enemy of the Euro and a big defender of the D-Mark


In the Interview he says: The Euro is a german self -fraud


here is Mr. Hankels Facebookpage