European credit markets - sovereign, financial, and corporate - have all slumped dramatically in the last two days - massivley underperforming the ever-hopeful equity markets. Even though broadly European stocks (the BE500 or STOXX) are only retraced by around 25% off their post-summit highs, individual markets (and especially financials) have retraced almost 100% of the gains with Spain's IBEX seeing its biggest 2-day drop in 7 months and closing unch anged from pre-Summit levels. EURUSD is the story though as it plunges to two-year lows at 1.2266 - over 400pips from its post-summit euphoria highs as QE3 hopes are dashed by muddling through US data. The disconnect between US and European equity indices and the rest of the world's more idiosyncratic risk markets remains unsustainable and as we have said before again and again "credit anticipates and equity confirms".
EURUSD at 2 year lows... plunging over 400 pips in the last few days - as NEW QE chances drop to under 25%
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and equity and credit remain massively disconnected...
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Spanish and Italian equity indices have fallen off the hope-cliff in the last two days but away from them - equity indices remain +3.5 to +4.5% from last week's pre-Summit...
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and Spain, Italy, and Portugal are now all notably wider than pre-Summit levels - as notably Bunds have outperformed Treasuries by 16bps in the last week...
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Charts: Bloomberg