Moody's Mid Morning Note Puts Sovereign Credit Default Fears On Blast

Monday has been a bloodbath across assets. Money mangers, traders, and retail participants alike are running around like goofballs trying to place capital in safe havens as uncertainty knocks a decade of hubris driven by central bank asset buying back to the ground where it belongs. Global markets are collapsing and as we warned on Friday, HSBC said the second leg of the Brexit shockwaves would transition from "knee-jerk reactions" to "credit".

Moody's says Brexit has driven sovereign credit risk "through the roof", to wit:

"The central bank’s next policy meeting is scheduled for July 14. As shown on Exhibit 3, changes in the probability of default in the UK have been highly correlated with changes in the probability of default of the country’s three largest banks since 2013 (correlation 0.65 over this period). Moreover, the rise in the country’s EDF measure has historically led the rise in the credit risk of its banks. On Friday, the average probability of default for the UK banks has also risen from 0.95% to 1.11%.

And the outlook does not get better.  Moody's notes the destruction to economic growth that has been exacerbated since the Leave vote happened.  Moody's says:

"The timing and the outcome of the referendum adds additional pressure to the already troubled region. Recent turbulence seemed to have slowed the pace of economic growth and weaken business confidence.   Markit’s Eurozone composite flash Purchasing Managers Index (PMI), a measure of activity in the manufacturing and services sectors, showed a decline for the second month in a row, from 53.1 in May to 52.8 in June"

It is becoming tougher to defend the decade long asset bubble blown by the Fed.  If markets continue to realize the cliff we're all heading toward, we'll need some more BIS reports written by the heads of various global Central Banks to be published telling us all how awesome everything really is.  The question is, is anyone even listening anymore?