Equity and credit markets in Europe followed the same-old-same-old path of a successful short-dated auction means buy-buy-buy and ended the day in the green today. A few things of note however stand out to us. First, the ramp in stocks/credit this time around is much less than last week's post-auction bliss which was also less than the prior week's post-auction squeeze higher. Second, there was a very notable dispersion between senior financials and subordinated financials credit today - with the spread between the two at almost 3 month wides. Third, Italy notably underperformed Spain today - by the largest in six weeks as the spread between these two is now back at 18bps, six-week tights and dramatically lower than the almost 50bps just a week ago. So while all may look rosy at the surface, we remain wider in spreads on the week and lower in stocks with all the real event risk ahead of us still.
Indicated by the 1-2-3 on the chart below, today's 'successful' Spanish bill-auction had less 'juice' to push stocks higher than the previous 2 auctions...
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and we remain notably weaker from Friday's close - though notice the growing dispersion between senior (red) and subordinated (light blue) financial credit today...
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Which leaves the spread between senior and subordinated credit at almost three-month wides...
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and perhaps most importantly, Italy is starting to underperform Spain once again - quietly but surely drifting from nearly 50bps tighter to now only 18bps tighter in the last week or so - with today's underperformance (lower pane) the largest in six weeks...
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Charts: Bloomberg