Enis’s Macro Wrap – Look Out Below

by Enis July 23, 2012 7:56 am • Commentary

The market can be a cruel mistress.  Just when it seems like everyone could ignore European troubles, the European crisis re-ignites.  Make no mistake, no matter the short-term path, the European crisis will remain with us for years to come.  Their banking system is enormous (as I detailed in this post last month), with enormous implications.


The ECB decided not to accept Greek bonds as collateral on Friday.  For more in depth analysis of this move, this is a good blog post from the Inside Greece blog.  The simple answer, though, is that the news was a catalyst for European banks index (SX7E) to sell off 10% since Friday morning, to 25 year lows!  The market is increasingly taking the view that European bank equity might be rendered worthless when all is said and done.


Price action overnight was ugly.  Asian indices ended down 1-3%, and Europe is down 2% as I write at 7:45am.  SPX futures are down 1%, and 10 year Treasury bonds are down to a 1.4% yield.  Spanish and Italian 10 year yields are at the highs of 2012, at 7.3% and 6.3% respectively.  The dollar is broadly higher, and commodities sharply lower, with crude and copper, the industrial metals, leading the way, down almost 3%.  The one positive overnight is the purchase of Nexen, a Canadian oil sands producer, by CNOOC, a Chinese oil major.  Call option activity from last week in NXY reeks of insider trading, as huge call volume traded last week.

Market mistress has become enraged.  I have a hunch that the market will be seeing enraged red all week.