A glimpse at stock prices, sovereign bond prices, and credit spreads and you could be forgiven for believing that (a la Juncker) Europe has turned the corner. The dismal reality is that one by one, market-based signals have been decoupled from reality by repression or plain old jawboning and squeezing. The picture of real fundamentals is considerably worse as these three charts from Bloomberg Briefs show. The Good (financial conditions index at multi-year highs) is merely a reflection of the ECB's transfer of risk and support (and is obviously hindered by the acknowledged failure of transmission mechanisms; which leads to the bad - both consumer and business confidence has decoupled (in a bad way) from markets. All this market-based hope is predicated on eventual joint-and-several-ness and an ECB backstop that seems more promise than premise; the ugly is that Germany (cash-money for the rest of the Euro-slaves) has seen six months in a row of manufacturing orders plunge and nine of the last eleven. Markets aside, fundamental realities suggest yet another hope-based rally due to be faded.
The main driver of the market (via banking performance and correlation) appears to be the improvement in the optics of the financial conditions index in Europe. This is simply due to the ECB's almost entire disintermediation of the interbank and sovereign funding markets and not in any way a true reflection of reality...
EU business confidence (above) has decoupled from this financial conditions index (like never before) and also (below) consumer confidence is at dismal levels...
and who will save us? who will provide the capital to back another acronym? Well - not Germany we suspect...
Charts: Bloomberg