Italy has managed pulling the entire European markets lower today as Italian assets are sold off sharply and risk premium is rising.

The Euro Stoxx 50 turned right at the highs of the trend channel we have been pointing out for months. The index simply lacks the steam to break out either way. It is probably frustrating to trade the break outs as every attempt is met with reversals, both ways.

Europan fear index, V2X, takes a sharp spike higher today. Note this move is big especially as it is Friday and volatilities are usually marked lower going into the weekend.

Italian MIB is selling off very hard today. Price action is horrible  as the MIB risk premium seems to be repriced instantly. Banks are the biggest losers.

The term structure in the MIB has totally exploded. Short term option maturities have skyrocketed and the entire curve has shifted higher.

All in all the Italian budget situation seems to have surprised many investors. Catching falling knives is not a pleasant strategy, but the way investors suddenly decided repricing some of the Italian assets could prove a bit too extreme.

Remember the old saying: When there is blood on the streets?

Source: charts by Bloomberg