Exuberance rules and it seems everyone and their mum believes that something significant just happened in Europe in terms of a 'game-changer'. We suspect this is anchoring bias writ large - we've been down so long that any up feels great. While every asset class jumped dramatically on the day - EURUSD 4-sigma surge, stocks up 3 to 4%, Credit snapping tighter, Europe's VIX plunging, and Sovereign bond yields gapping down - the truth of the matter is that if this were truly a 'game-changer' then would it not be likely that risk assets would be higher than they were just a week ago? Between the total uncertainty of the actual plan's implementation and Merkel still pouring cold water timelines on things; we note that Spanish and Italian bond spreads end the week practically unchanged; Corporate and financial credit spreads are at 6/21 high levels (but not beyond); Europe's VIX has compressed dramatically in our favor for relative to US VIX but remains at 6/21 levels; and only stocks are above those 6/21 highs in their typical high beta excited hopeful manner. Into a thinly traded weekend ahead of July 4th, we would have expected a little more from this nouveau-deal.
Stocks look well ahead of credit's move once again. Most of credit in unch to 6/21 levels but we note that the usually high beta XOver is actually underperforming...
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Across all European indices we rallied but only Spain and Italy managed to get solidly above the 6/21 levels...
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but sovereign stress is clearly still elevated as all we did was roundtrip on the week (and Portugal is actually notably wider still)...
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and finally our VIX-V2X compression trade idea has done extremely well as Europe's VIX has dropped - from over 14 vols rich to under 7 vols rich now...European VIX is though only back to 6/21 levels and so is lagging equity's exuberance also...
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Charts: Bloomberg