During the past month European credit, iTraxx was a very good indicator for equities. At recent lows, credit suggested equities were due for a bounce, and we suggested for our macro audience to take a look at long credit protection vs long Eurostoxx 50 futures. This was a few weeks ago offering an interesting “macro value” play.
The trade did extremely well as we have had rising credit and relatively stable equity market. Today credit is blowing out totally as the Brexit saga goes into full retard mode. The Eurostoxx 50 has started to fall again, but the move higher in credit is absolutely amazing.
Surely Europe has it's problems, but this overshooting looks a bit "silly" despite the Brexit saga continuing.
For a list of Brexit casualties pls check our post "UK Casualties beyond the GBP"