European Credit is even worse

Here's the S&P/SPY rally from the 11/25 bottom to the 12/7 top.

So far the market has retraced about 33% of the move, which also "kissed the triangle's apex", a typical test after a serious break, in this case failed as it only kissed it good bye, it didn't breakout above it.

Looking at European Credit markets, Financial Credit has retraced 2/3 of the same rally, the European high yield credit index (XOver) has retraced 50% of the same rally/bounce. European Investment Grade Credit (MAIN) is starting to drop badly.

This chart is a bit harder to follow, but the dark blue line is the European equity index (like US equities, it is lagging the credit markets, but seemingly getting ready to follow credit lower). Light Blue is Subordinated financial credit (those who own subordinated credit are second to get paid on any claims, senior credit holders are the first to get paid, so senior is a stronger credit asset then subordinated. Look at the move in light blue vs the dark blue equities over the last 2 days as subordinated financial credit sells off, obviously there's fear of a credit event in financials. The Black line is XOver (high yield credit mentioned above). The red line is Senior Financial Credit which is notably also selling off .

What we are seeing in Europe is the same dislocation we are seeing in the US, although we are looking at some different asset classes as I don't own a Bloomberg Terminal (YET!).

Furthermore, as to the EU summit which by all accounts was the Final, Final chance to save the single currency union (Kind of like Cher's farewell tours), there's little doubt that market participants "thought" a new treaty in the EU would untie the ECB's hands and allow them to print and buy up all the debt out there, especially Italy's, however ECB head Mario Draghi said, according to Bloomberg" that he was "kind of surprised" by the market's interpretation. So not only did the summit fail, but whatever it was reaching for, apparently wasn't going to produce the results they expected which still leaves me scratching my head ('m sure with hundreds of thousands of others) as to why communication in Europe is so badly flawed that an entire summit was focussed on an outcome that would likely never have materialized in the first place, thus the utter disappointment in the markets and just wait for Moody's and the S&P to chime in with downgrades.

In any case, it s now been reported fairly extensively that not only are some of the biggest corporations in Europe getting ready for a collapse of the EU by moving head quarters to northern Europe, sending cash to Germany, but it seems as well that Ireland is making sure they'll have access to printing presses should they need to issue their own currency! Furthermore British banking regulators (there's an oxy-moron) are telling British banks to prepare for a 'Disorderly" break up of the union or exit of multiple countries as reported by Reuters.

On Britain, Cameron has said today before parliament in explaining his veto that has Sarkozy fuming, "I went to Brussels with one objective: to protect Britain’s national interest. And that is what I did"


Not exactly a vote of confidence, but Britain has been one of the few large EU nations that has kept the Euro at arm's distance so we can at least give them credit for that and maybe infer they know a bit more about the situation then we do.


Throwing more uncertainty on the fire, Sarkozy has a tough election ahead of him and his main opponent, Hollande who is leading,  has come out today and said that he will not honor the EU summit agreements and essentially unwind everything the EU has done up to this point. He may very well get elected on that platform.


furthermore after Moody's credit rating agency spoke out today implying downgrades were coming, after the S&P last week, guess who else has jumped on the bandwagon, FITCH! And why do I use an exclamation point? Fitch is based out of Paris!


Bottom line, CREDIT STILL LEADS and equities still follow. Nothing in this post should be taken as market positive.