Between Hilsenrath's humoring, Draghi's 'ready-to-act', and Merkel's 'fold', it appears all-is-well once again in the world. European banks are soaring - especially the most recently devastated as the broad European bank index jumps its most in 5 months. Italian and Spanish sovereign bond spreads compress notably, perhaps on hope of a renewed SMP - even as LTRO3 seems to have lost favor with the ECB (effectiveness?). Basis-swaps popped higher (better), Bund yields rose, Swiss 2Y was flat (but low) and Crossover spreads (high-beta credit) are outperforming. It seems that markets are pricing in a best-case scenario. EURUSD is oscillating higher but stocks remain notable underperformers over the last few weeks and frankly this feels more like a short-squeeze bounce than a renewed rally as we know all too well that nothing has been solved (even if Germany is caving on Spanish banks). With the long-weekend and lack of liquidity, it seems markets have simply round-tripped to pre-NFP levels and now it gets interesting - context, as always, is critical.
European banks have best day in 5 months (on what?)...
Crossover credit remains bid, stocks underperforming and the rest of credit modestly better in the last week or two...
European Sovereign spreads are dropping (improving) and Italy and Spain are now unchanged from 5/27...
Charts: Bloomberg



