Yesterday, the focus gradually shifted from PIIGS to PIIS. The market is calling the bluff of European policy makers. The Greek bail-out has been extremely costly compared to the size of the Greek GDP and its share of E-Z GDP. The market is beginning to wonder how big the problems “really” are in the PIIS countries and how the E-Z would be able to handle those problems in the absence of draconian and immediate austerity programs.
This is threatening to blow-up the E-Z in a much shorter time-span than the market anticipated only half a year ago and it more and more looks like a return of the funding crisis from the summer/fall of 2008. The TED spread is widening again (but still below 20 bps.).
CDS prices, Yield spreads vs. Germany, the VIX, the USD and the JPY are all higher and risk is completely off.
You can read the full version of the Daily Trading Stance here.