Last week, when looking at the the distortion and absurdity unleashed by the ECB's asset purchase program upon European capital markets, we showed the unprecedented collapse in European junk bond yields as captured by the effective yield of the BofA/ML Euro High Yield Index, which is now trading just shy of all time lows, having dropped below 3% at the end of April, and printed at 2.79% on May 23, within bps of record lows...
Not even last night's Moody's credit downgrade of China - the first since 1989 - could dent the global stock rally which has pushed global stock prices to all time highs. After initially sliding, regional stocks and emerging Asian currencies pared early losses following the unexpected downgrade of China, taking their cue from the "sudden reversal" of the Shanghai Composite Index, which some speculated saw the latest intervention of the "national team."
S&P futures rose alongside European stocks as Asian shares posted modest declines. The euro set a new six-month high and European bourses rose as PMI data from Germany and France signaled that the ECB will have to tighten soon as Europe's recovery remains on track, with the German Ifo business confidence printing at the highest level on record, and hinting at a GDP print in the 5% range. Oil declined after the Trump budget proposal suggested selling half the crude held in the US strategic petroleum reserve.
Stop us if you've heard this story before.
Insolvent Greece, having last week voted itself into even more austerity in hopes of unlocking some of the money promised it by Brussels so it can then use it to repay debt maturities owed to the ECB (whether it will actually follow through with said austerity measures remains unclear, though most likely not), is dragged to the finish line of yet another Euro finance minister negotiating session with promises that this time a debt relief deal is virtually guaranteed, and then... it all falls apart.
In the early days of the Trump administration, when the world was still worried - unnecessarily - that Trump would single out Europe, and especially Germany, as an unfair trading partner, slamming the Euro as too weak, Germany's fallback response was to say the currency is where it is due to the ECB's monetary policy, oh and that the Euro wasn't weak, but merely reflecting fundamentals.