Since the European Summit a mere six weeks ago, Crude oil prices have surged over 20%. It seems, if one looks at stock prices, that between Monti's 'bluff', Rajoy's 'threats', and Draghi's 'promise' that everything has been fixed in Europe and all-is-well in the world as Europe's stocks swing to a year-to-date gain of 5% (with Spain and Italy up 10-15% since the summit alone). However, if one considers for one moment what exactly they are supposed to have 'fixed' then it seems one of these markets is not like the others... 10Y Spanish spreads are 10bps wider than pre-summit, Italian 10Y is only 10bps tighter, Portugal 10Y is unchanged and the Bund has outperformed Treasuries by 15bps. European corporate and financial credit has rallied but has dramatically underperformed - especially post-Draghi - as it is clear that investor hope for more unsterilized Fed/ECB 'aid' is more than priced into equity markets and has had the aforementioned unintended consequence [10] of spilling out into energy markets - with all the negative feedback implications that come with that.
Oil is up over 20% since the EU summit with Draghi's recent help pushing to new highs...while the USD is unchanged!
[11]
and year-to-date, things look a little different now...
[12]
and meanwhile stocks are broadly soaring on the back of hope that all is fixed and credit is 'ignoring' the ebullience for now...
[13]
but individual sovereign equity indices are soaring with Spain and Italy (and financials) booming higher post EU Summit (and post Draghi)...
[14]
and yet - in reality - the only thing that counts is the funding cost for European sovereigns - which is basically unchanged since the absolute nothing of the EU Summit...
[15]
So - who do you believe?
Charts: Bloomberg