As the Greek 'deal' is being finalized and we anxiously await next week's LTRO, it would appear that the market is now pricing in a very different way forward. EURUSD is soaring and decoupling (the other way) from risk assets as market participants begin to anticipate potential rate hikes in Europe to combat soaring energy prices, and furthermore that following the second LTRO, any and all easing expectations (and the pump to keep global asset prices afloat) will be squarely on the shoulders of the somewhat ambivalent Fed as the rest of the world already pumped about $2 trillion of cash into the market.
It does seem from credit underperformance in Europe, and financials underperforming more broadly, that the pump has run its course for now. It will be interesting to see how the Fed manufactures a reason to print with gas prices soaring, consumer confidence in the market economy so high, and high-yield credit near all-time low yields as their push-into-risky-assets play may have worked a little too well and a little too fast.
And the decoupling / recoupling has a long way to go (up for EUR or down for the S&P?):
Chart: Bloomberg
It does seem from credit underperformance in Europe, and financials underperforming more broadly, that the pump has run its course for now. It will be interesting to see how the Fed manufactures a reason to print with gas prices soaring, consumer confidence in the market economy so high, and high-yield credit near all-time low yields as their push-into-risky-assets play may have worked a little too well and a little too fast.
And the decoupling / recoupling has a long way to go (up for EUR or down for the S&P?):
Chart: Bloomberg
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