What a strange few days. On Wednesday it looked like LTRO was priced in and QE3 was in doubt. Yesterday, Italian bonds were incredibly strong and even Spain was good. Data didn’t seem to matter, dips were there to be bought. Everyone, bulls and bears, were wondering if the market could go down. If LTRO had solved everything. Yet today, we saw weakness. European economic data was weak, again, but investors actually cared. Spain seemed to purposely antagonize the rest of the EU with its flagrant budget deficit increase (they all signed a similar treaty/pact back when it all started, and Germany was the first to violate it, so why should this time be different). Some German officials now seem to be going out of their way to point out problems in Greece.
The market held in fairly well, Stocks traded off a touch, but credit also drifted a bit lower, IG17 was 1 bp wider, HY17 was down 3/8 of a point, and the mighty HYG was actually down about the same. LQD was up fractionally, but with the move in treasuries that means spreads widened. Nothing felt particularly weak, but after finishing the day ugly on Wednesday and seemingly bullet proof yesterday, today’s action gives the bears some hope, but think it would be nice if trading was starting in Asia and we could see how Europe responds tomorrow, but guess we have to wait until Monday.
The Euro got pounded again today, but no one really cares. All the algos that had pegged US stock moves to moves in the Euro must have all been stopped out last month as that correlation barely exists anymore (at least to my untrained eye). What does an algo that has been stopped out look like? I know what a trader who has been stopped out looks like, but not sure turning off a particular program has the same impact. Anyways, someone already knows what to be looking at to determine the next move in stocks, and some people will figure it out over the next week, and eventually it will be talked about non-stop, but anyone still using the Euro as a cue to stock moves is in severe pain.
Anyways, have a great weekend, as a lot of attention will turn to Greek PSI rumors next week.