EUR/CHF flows: Spread still going, cross back to recent lows; w/e key window?

OAT-bund spread is still going, if by virtue of France giving the German rally a miss this morning - suggesting buying interest unwilling to show into the falling knife action rather than additional outright French selling. Acceleration is out to 145bp~ now, so in the last few days has already largely delivered our ‘risk scenario’ for 150bp+ for coming months in a hurry.

French banks also warrant particular attention in this environment, without being sensationalist and over dramatising things. BNP is currently some 20% off its Aug highs, though still substantially up on the year, CA off slightly less though back towards the year range lows. The wider Eurostoxx bank index is down around 7% from the tops. So so far, events encouraging (just) some hefty profit taking on French banks particularly from the prior higher-rates bank sector rally, but one to monitor from there is things aren't brought in hand. 

EUR/CHF continues to be the most acute expression of the mini shift in market focus, with volatility spiking sharply and the cross seeing rapid profit taking kick in on the shift from carry mentality to risk sheltering. 0.9305~ the Aug lows have been hit now from the turn back from 0.95 test earlier in the week, with some slowing in the drop this morning into that support. Just below 0.93 (0.9290 ish) would be 38% back on the rally from March and 0.9230-ish 50%.

This weekend now seems a critical period for politicians to try and react while the market is out and try and stem the tide, not only to show enough demonstrated unity to get the current Budget through but perhaps to increase the consolidation measures beyond the mooted limited 0.4pp trim to 5%. Without a strong statement, this could just invite further market pressure in the very near-term. The Truss Budget episode from the UK continues to be a relevant example (albeit minus the specific LDI mechanical amplifier in that case of course) in terms of how pressure for reaction can rapidly escalate without effective signalling and credibility.