Despite dismal data on German PMIs, Italian and Spanish equity markets have had their best 4-day run in 7 months to push back to two-month highs as the exuberance around the world reaches fever pitch once again. The Eurostoxx 600 (broad European stock index) jumped a tremendous 2.4% for its biggest rise in 8 months. EURUSD plunged and perhaps gives the hint that the ECB will be forced to act next week - so what are they going to do? Rate cut? (maybe) Another all-encumbering LTRO? (bank spreads didn't weaken) More direct bond-purchases? (failed abysmally last time - though this shift could be the front-run of that) Doesn't matter... nothing matters. Spanish and Italian bond yields and spreads smashed lower to near pre-crisis spread levels even as Rajoy says things are worse, much worse, than expected. Bad is good, but terrible is way better... but if it's all so 'good' why did investors seek Swiss short-dated debt as a safe haven once again? (hovering at 3-month low rates).
Best day for braod european stocks in 8 months...
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and the high beta nations just soared...
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and EURUSD seems to be looking for the rate cut...
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and by way of a reminder - this is what happened to the bond spreads of LTRO-encumbered banks the last time the ECB acted to flood some more liquidity to the market... (all we ask is - given that the banks have been repaying LTRO, what's the sudden incentive to re-borrow now - knowing full well the subordinating impact and the new template... won't LTRO banks become more stigmatized since depositors know they are more at risk?)
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Charts: Bloomberg