On this first day of the second quarter, and especially since the US open (and the ISM print) European equities decided all was well and rallied broadly back to their highs of last week. In the meantime, credit markets (sovereigns, financials, and non-financials) sold off quite notably from a positive start and despite a small rally into the close (which sovereigns did not participate in) closed practically unchanged. It seems Schrodinger's cat is indeed present not just in Chinese PMI, US jobs data and regional surveys, but also in the risk asset markets as credit market participants are dramatically different in their views (and flows we suppose) going into this quarter. We also note that Europe's VIX has collapsed in the last few days to a more normalized level relative to US VIX.
European equities (blue) staged a remarkable rally following the US equity open (and ISM data) but credit markets did not - at all...
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The fact that investment grade (brown) outperformed on the day (and financials underperformed) further underpins the un-reality of this divergence as if risk was really on (as stocks would suggest) then the higher-beta XOver or SUBFIN should have exploded.
And sovereign bond markets limped weaker all day long after a positive open...
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Spain and Italy underperformed from the opening gap positive - and Portugal was the worst performer overall on the day as basis traders stop buying.
European VIX has collapsed 5 vols in the last two days as we said it would after reaching record wides relative to US VIX...
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Charts: Bloomberg