The Post EU-Summit Reality Reversion

We know its a holiday trading day but Europe is active (if not watching Bob) and deteriorating quite rapidly. EURUSD just traded below the ledge of the initial spike after the EU SUmmit (and has retraced around 60% of the rally now). Italian and Spanish sovereign bond spreads are 15-20bps wider from their open today and have retraced over 40% of the spread compression post the EU-Summit now. Bunds are rather notably 5-6bps lower in yield (as we noted earlier the 'nein' to ESM standards relieves some risk transfer concerns for now). Equity indices across Europe are down between 0.5% and 1.5%. European bank equities are down around 1.5% on average (modest) but have quickly retraced around 25% of their post-summit gains. It appears the initial squeeze euphoria is wearing off quite quickly.

Spanish 10Y bond spreads have retraced 40% of their post summit gains...

and EURUSD over 60%...

and even the most-loved (and solved) European banks have retraced almost 25% of their gains now...

Credit spreads - both corporate and financial - have also retraced almost 25% of these post-summit gains.

While Swiss 2Y and EUR-USD basis-swaps are flat today, there recent weakness combined with a total lack of follow-through in European risk assets suggests that this 'fix' is the same as all the others and not a 'game-changer'. More importantly, with Germany's comments, it seems its a non-starter.

Charts: Bloomberg


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