A sea of red is flowing from European equity markets and it seems they are unable to stem the flow as IBEX (the Italian Spanish equity index) nears March 2009 lows (down 18% YTD) but dispersion across European indices is very high from the DAX +14% YTD to Italy, Greece, and Spain very much in the red YTD. However, for the second week in a row, European equity markets (as tracked by the narrow Dow-equivalent Euro Stoxx 50) close with a negative return year-to-date -0.3%. The broader BE500 index is still up around 5% (compared to over 10% YTD gains in the S&P 500). European high yield credit is back at 3-month lows and investment grade credit at 2-month lows. This week, however, followed the exact same path as last week with equity and credit trading in a wide range but notably this week credit markets dramatically underperformed the ever-hopeful equity market with financials underperforming the heaviest. European sovereigns are generally wider close-to-close on the week but just like corporate credit and equity, they generally followed a similar path to last week with a broad range trade - though a clear trend generally wider overall. Italy underperformed Spain on the week and Portugal, as we noted earlier was the big winner on what looked like basis trade-driven flows as opposed to whole new world of relief. Ahead of the G-20 meetings, it did not seem like there was much hope in sovereign credit - even as financials and corporates did lift a little off their multi-month lows and having seen the headlines of the G-20 draft, it appears there is no magic bullet there anyway - no matter how big they think their bazooka is.
Since just after LTRO2, European equities have been sliding broadly. As can be seen here, the Stoxx 50 (Dow-equivalent) has now closed red for the year 2 weeks in a row...
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But dispersion is high across the various individual nations markets...(and note today saw some bounce in stocks broadly)...
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Credit markets underperformed equity markets notably on the week but remain in a broad range post-NFP. From the ugly close last Friday, stocks are up handsomely (the broader BE500 being tracked here - dark green arrow) with today's rally lifting IG and HY (XOVER) credit back near unch (modestly wider/weaker on the week - orange arrow) but financials (senior and sub) remain weak (red arrow)...
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And finally sovereigns continue to leak wider - admittedly in a range also but Italy has pulled wider to catch up to Spain's post-NFP weakness this week (orange arrow - oval to oval)...
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Charts: Bloomberg