Below is the opening commentary from our Bespoke Morning Lineup today. If you’re looking for a more in-depth synopsis of all that has gone on over the weekend and into this morning, sign up for a 5-day free Bespoke Premium trial and view the full report.
What a weekend. Highlights: Greek capital controls, Shanghai Composite bear market, miserable open for financial markets Sunday evening. We’ll address the first two below, but with S&P 500 futures currently off 1%, let’s keep something in mind: 1% declines are ridiculously commonplace, historically and in recent times, showing up in 11% of days since 1928, already taking place 11 times this year. Here are charts with more. We see no signs of outright panic in US equities pre-market, and don’t think there should be, with the large gap down at the futures open last night being about 25% filled and a more elevated volatility reaction also easing off. At the end of the day, each development in Europe is fulfilling a probabilistic outcome in a very, very long decision tree with many, many outcomes. Pricing in of further risks is a process over time, and that’s what markets are doing, in our view; this is markets in flux, not markets in turmoil. Your assumptions of probabilities for certain near- and long-term outcomes may differ from the market, but very, very little is certain; the same as it ever was. The EUR is also climbing off its lows and has been all night, while a huge gap down in European indices has been bought. European indices are in the middle of their intraday range, with the CAC, DAX, IBEX, and FTSE MIB down between 3.5% and 4.2% on volumes 50% higher than average. Credit spreads in Europe are moving markedly wider, with high yield CDS 40 bps out, IG 9 bps wider, and peripheral debt 30 bps wider in spread as bunds rally 15 bps versus Friday’s close. US fixed income is following that lead, with the ten year 13 bps lower in yield to 2.342%, and US credit opening 3 bps wider in IG and 15 bps wider in high yield.
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