It appears that today's +3.5% jump in IBEX (from decade-lows) is being
heralded as some kind of indication of a bottom or turning point in stress in
Spain. By way of context though, Spanish 10Y bond yields remain above 6% (and
spreads at 450bps near record wides), Spanish 5Y CDS are unchanged at record
wides over 500bps, and the banking bailout remains woefully small relative to
the size of the hole they are trying to fill (and all of that is funded by a
sovereign that only retains access to the public debt markets thanks to its
circular banking system's bid). To be more clear, the last time IBEX
increased by +3 sigma marked the very top last July before Europe fell apart and
IBEX plummeted 23% in just 2 weeks. Anchoring bias can be a dangerous
thing and dead cat bounces are often misleading when selling-fatigue is all
around.
A +3 sigma move off a 3-month mean was the trigger for sellling to begin last summer - will we echo?
Chart: Bloomberg
A +3 sigma move off a 3-month mean was the trigger for sellling to begin last summer - will we echo?
Chart: Bloomberg
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