Worst Day In Europe Since Rally Began
While we have noted the comparative weakness in European credit and sovereign markets, stocks had so far remained hopeful until today. Bloomberg's broad BE500 index of European stocks fell 2.8% today, its worse performance since mid-November when the recent rally began. This one-day drop has wiped out the gains of the last five weeks in stocks and credit is even worse as it continues to lead risk lower. European financial stocks are catching up to European credit's weakness (and we note US financial credit is really coming off today). Whether or not to BTFD is the question. We note that this sell-off is much more broad-based with stocks and credit dropping together (instead of just credit last time) and across asset classes the weakness is in CONTEXT with broad derisking. Furthermore, Sovereign credit stress re-emerged with Spain and Italy up 26bps and 18bps on the week as the former is now at almost 4 week wides. At some point, we wonder when MtM losses will hit all those aggressive Italian and Spanish banks who loaded up on chaotically procyclical carry trades?
BE500's weakness today is impressive...
Amazing that credit has been priced with some contagion premium for Greece for a while but now finally stocks are starting to reprice for that also. Note that Senior financials are underperforming (as the LTRO and ECB subordination gets priced in)...
European financial stocks finally catching up to reality in the credit markets (and US too)...
and across all sovereigns, CDS underperformed bonds but both were weaker with Spain worst (followed by Italy)...
As Spanish 10Y spreads rise above their February average (leaving all those late to the game carry traders suffering already).
Stocks are falling in CONTEXT with broad risk assets (with TSYs and AUDJPY looking to more weakness)...
US Treasuries are now 7-8bps off their highs last night as EURUSD breaks below 1.3150 and AUD continues to drift. Commodities are stabilizing here though down significantly (with WTI below $105 still).
Charts: Bloomberg
No comments:
Post a Comment