European corporate and financial credit markets are opening weak this morning - ignoring the exuberance in overnight ES futures (11,000 contracts in seconds on rumor of China for 10pt jump?) which is also leaking back rapidly to VWAP (even as European equity markets continue to levitate). Financials especially are now beyond yesterday's wides with subordinated spreads the underperformer for now. This extends from our comments yesterday that were picked up on CNBC with regard to the 'stigma-trade' in LTRO-encumbered banks (which is widening further this morning) as well as broad divergence between stocks and credit. Concerns over Ireland's fiscal consolidation plans balanced with a very slight beat on German GDP (though still negative) are seeing EURUSD leak back off its best levels of the night after it bounced off 1.31 in late US trading (on Samaras rumors then extended by this China chatter). Gold and Silver are pushing higher while Copper and Oil are stable for now (though notably up from yesterday's European close). European sovereigns are quiet for now while US Treasuries are slightly better bid.
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Perhaps a quick refresher on the current state of affairs in the US, Europe, and Japan is in order: the financial sectors in all these regions are over-leveraged and almost entirely opaque; on a medium- to long-term basis the regions' balance sheets are insolvent - with no hope of paying expected entitlements/benefits/moneys-owed no matter what level of growth, despair of austerity, or taxing-the-rich is put in place; Fiscal, tax, and regulatory policies are unsound and in no way designed to spark growth or efficiency; and monetary policy is entirely extreme and experimental.
As was noted to us by several readers today from an uncited hedge fund manager: "If global stock markets rise sharply, the increase might not be caused by savvy investors’ shrewd optimistic assessment of the prospects of solid fixes to these problems, but may merely be a symptom of the monetary radicalism and reflect a flight from “paper” to something real or a lack of good alternatives."
Chart: Bloomberg