Bad News Swarm Attack

Europe is back.

Portugal - Two government resignations and the 10 year moves from 6.5% to 7.75%.  That's a big daily move by any old fashioned measure but if you look at where we have come from we are only back to levels seen last November so well below OMT announcement levels and there is fat chance of Dr Aghi being able to do anything pre German elections. But it's a spike big enough to spook everything Euro and encourage the Euro-disasternistas out of the wood work with the "Toldjaso, Europe is bust" mantra's. Add Italian and German PMIs, ignore the French, add a dose of USD buying anyway and it's enough to give the start off the day a whiff of summer 2011/12. 

But TMM think this remains psychological and whilst there is a chance of a pukefest in everything today, the Euro component is a "buy on dips".

The worrying part though is that Europe is the kick in the nuts to a market that was already falling. US markets rejecting 1625 50d mov/av again and that sizeable pull back after European close didn't set things up well. But our core concern remains in Asia where it would appear that the recent fall back in regional sov CDS (see Indo) and rally in Investment Grade and Sovereign bonds is camouflaging real problems in the High Yield and  the corporate market.
Despite trackable indices showing "not too bad" measures ( look at Indo CDS) behind the scenes are... well, pretty foggy.

China's bill discount markets and the like are not on bloomberg, not widely reported and if you want to get even the vaguest sense of what is going on you need to survey a bunch of loan officers. Thank god for consultants because efforts to create a senior loan officer app to be distributed via iTunes have thus far not been successful - we just wish they were bearing better news. All indicators are that the engine block of China's economy - credit - have frozen and while Shibor is semi under control much as Libor came under control post Bear Stearns it really isn't telling us much of anything about shorter term OTC markets with echoes of 2008 repo markets. TMM have learnt one thing over the last couple of crises and that is that if the transmission mechanism isn't working its time to get liquid or flat and continue trading from safely by hiding under ones desk.

Due to the opacity of China TMM have concluded that fixing this is going to look at lot less data driven / Target2 / Draghi like and a lot more like fixing the plumbing of a very old house in London where previous works were done by squatters in the 80's (undocumented) and original work done by pre-war owners whose records are as readily recoverable as the library of Alexandria. In summary, crossing the river by feeling the stones.

Which leads us to Egypt and the Arab spring part 2 that we have been expecting for a while. The headlines are spectacular but we don't see major market contagion. If Syria can't shake things then a second round rumble in Egypt with the Army acting as a stabilising force is unlikely to. However we bear in our minds one of our old dictums that some countries end up with effective dictatorships in the first place because that's all that works governing a populace of disparate extremes.

Put that lot together with this morning's price moves and it feels as though we are only a hair's breadth away from an old fashioned general meltdown in everything, involving more positional liquidation (which might explain why AUD/USD is not falling any further after Steven's comments overnight).

The market can cope with one problem at a time but today feels more like a swarm attack.