Spain's broad equity index suffered its second largest single-day drop in almost 4 years and Italy also tumbled almost 5% as everything European was sold hard. EuroStoxx (the broad Dow equivalent) is down almost 3% as EURUSD dropped to two year lows, EURJPY to 12 year lows. AAA safe havens were massively bid with Germany, Denmark, and Switzerland all to new low (negative) rate closes. Core equity markets did suffer though with Germany down 2% but it was the periphery that saw the damage in credit-land with Spain 10Y closing at 7.27%, 610bps over Bunds (and 5Y CDS over 605bps). Spanish spreads are +130bps from post-Summit (and pre-Summit) and Italy +78bps, but it is the front-end of the curve that is most worrisome - Spain's 2Y is 132bps wider in the last week. Europe's VIX exploded by over 4 vols to 24% today and once again looks decidedly high relative to US VIX.
Spain and Italy surging to as bad a performance as Portugal...post Summit...
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but it is the front-end that is a disaster! This is where all the LTRO debt is being held that was put on as part of the Sarkozy carry trade - ECB margin calls here we come!!
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but while this is apples to apple-like things comparisons, the difference between credit and equity market reactions post Summit remain remarkable...(though today saw a pretty decent turnaround)...
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and broadly European stocks were hammered today as hope fades...
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charts: Bloomberg