Futures Tumble, Bunds Soar To Record, Gold Surges As Europe Is Broken Again; Espirito Santo Halted

But... but... the VIX said everything is ok, and European rates were the lowest they have been in centuries... How can something possibly go wrong?

It just did.

The scandal which we first reported yesterday, after observing the record collapse in the bonds of troubled Portuguese lenderEspirito Santo International following the failure to make a bond payment, has quickly escalated and overnight went nuclear.

It seems someone is intervening in Portuguese bonds...

Early on in the European trading session, following a report in Diario that E.S. International is considering an insolvency request, Espirito Santo Financial Group, which holds 25% of Banco Espirito Santo, fell as much as 16.15% to EU1.09 and traded over 15% lower at EU1.10, at the same time as Banco Espirito Santo fell as much as 7.15% to EU0.571.This was aggravated by creditors concerns that anything was contained after yesterday's failed damage control attempt by the parent.

Then things went from bad to worse after Espirito Santo Financial announced it has suspended trading in its shares and bonds due to its exposure to ESI, adding the decision was taken due to “ongoing material difficulties” at its largest shareholder Espirito Santo International, according to regulatory filing.  ESFG says it “is currently assessing the financial impact of its exposure to ESI”. ESFG also suspends bond issued by fully owned subsidiary Espirito Santo Financiere. We will have the full, convoluted, org chart of Espirito Santo shortly.

At that point the genie was out of the bottle and thanks to Europe's still completely insolvent banking system, linked intimately to the sovereign as the ECB has done absolutely nothing to break the bank-sovereign link, promptly hit the sovereign sector, leading to a blow out in the Portuguese 5Y yield +16bps to 2.616%, sending the 10Y yield pushing wider +12bps to 3.896%, and the 10Y spread vs bunds +15bps to 270bps, highest since May 21. And not only in Portugal but other peripheral spreads widened also, with Greece (which is supposed to sell 3Y bonds today - good luck) and Ireland expanding most in 10Y.

Then the safe haven trade came back with a vengeance and the September German Bund future rose as much as 46 ticks to a contract high 147.79, and sending 10 Year yields to all-time lows of 1.17%.

Then, the contagion spread to stocks as first European shares tumbled, with the banks and travel & leisure sectors underperforming and personal & household, telco outperforming. The Italian and Spanish markets are the worst-performing larger bourses, the U.K. the best. Then, it moved across the atlantic as S&P futures have tumbled the most in months in the premarket.

Adding insult to Portuguese bank injury, was very disappointing French (-1.7%, Exp. 0.2%, Last 0.3%), Italian (-1.2%, Exp. 0.2%, Last 0.5%) and Dutch (-1.9%, Exp. 0.3%, Last 2.3%) industrial Production data, confirming any illusions about a European recovery absent a fix of the broken credit channel are utterly ridiculous, and that the ECB was once again wrong focusing on boosting the carry trade - the very same reason why Portugal is today picking up the pieces as Draghi forced traders in the very same trades which today are halted in Portugal!

In other news commodities decline, with nickel, WTI crude underperforming and silver outperforming. But not gold and silver: the precious metals have exploded this morning, with gold trading north of $1340 (but... but... Morgan Stanley said...) and silver at $21.50.

Finally, US equity futures are tumbling. This may be the day contagion and volatility finally comes back with a vengeance, which is great news for all those who plodded through months of centrally-planned boredom and artificial stability. Let the games finally begin.

Market Wrap

• S&P 500 futures down 0.5% to 1958.2
• Stoxx 600 down 0.8% to 337.4
• US 10Yr yield down 2bps to 2.53%
• German 10Yr yield down 3bps to 1.2%
• MSCI Asia Pacific down 0.1% to 146.5
• Gold spot up 0.1% to $1329.8/oz

EUROPE MARKET

• All 19 Stoxx 600 sectors fall; personal & household, telco outperform, banks, travel & leisure underperform
• 13.5% of Stoxx 600 members gain, 84.8% decline
• Eurostoxx 50 -0.7%, FTSE 100 -0.4%, CAC 40 -0.9%, DAX -0.8%, IBEX -1.6%, FTSEMIB -1.7%, SMI -0.4%

ASIA MARKET

• Asian stocks little changed  with the Sensex outperforming and the Nikkei underperforming.
• MSCI Asia Pacific down 0.1% to 146.5
• Nikkei 225 down 0.6%, Hang Seng up 0.3%, Kospi up 0.1%, Shanghai Composite down 0%, ASX up 0.2%, Sensex up 1.5%
• 5 out of 10 sectors rise with energy, utilities outperforming and telcos, health care underperforming

Bulletin headline summary from RanSquawk and Bloomberg

• Treasuries gain as bank stocks lead European equities lower, peripheral sovereign yields surge, with Portugal’s 10Y yield +22bps amid concern over problems at the nation’s second largest bank.
• Shares of Banco Espirito Santo SA tumbled more than 14%, bonds to record lows; central bank assurances that it is protected after parent company missed debt payments are failing to ease creditor concern they may also suffer losses
• Spain’s Banco Popular postponed a planned euro benchmark offering of PNC5 AT1 notes, citing heightened volatility in secondary markets; IPT had been 7%/7.25%
• China’s exports trailed estimates in June, suggesting support for growth from global demand will be limited as leaders try to defend their economic-expansion goal of about 7.5% this year
• Japan’s machinery orders fell the most on record in May, suggesting that companies remain cautious about deploying record cash reserves into investment
• Israel has mobilized 20,000 soldiers for a possible ground invasion of the Gaza Strip, as militants there extended their rocket barrage and the Palestinian death toll climbed to at least 75
• Donetsk is steeling itself for a siege as troops encircle separatists who’ve pulled back to the biggest city in Ukraine’s conflict zone after months of bloody unrest
• Four months after Vladimir Putin’s government annexed Crimea, the U.S. and EU have failed to deliver on threats to cripple Russia’s economy, penalizing fewer than 100 people and companies
• Sovereign yields lower with the exception of peripheral Europe; Greek, Spanish and Italian 10Y spreads to Germany all above 100-DMAs. Euro Stoxx Banks index slides 3.2%, at lowest since January. Asian stocks mixed; Japan and China fall.  European equities, U.S. stock futures decline. WTI crude and copper lower; gold surges 1.2%

Credit to Zero Hedge