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Wall Street has already begun weighing in with negative opinions on the new European deal to use bailout funds—the European Financial Stability Facility and the future European Stability Mechanism—to recapitalize troubled banks in Europe, despite the positive reaction we’ve seen in the markets so far today. Morgan Stanley has criticized the plan as failing to take a “meaningful step forward.” The Bank of New York Mellon argues that this measure and others announced so far [...] by David Pierre
Save Yourselves!
The proposal from the IMF that has no money of it’s own and relies on contributions from members. Two or three weeks back the IMF was talking about creating a fund to ring fence or firewall various European sovereigns to prevent a full blown forest fire from getting started. What started out at as a laughably small figure seeing how big the problems are… as a projected pool [...] by David Pierre
First and maybe most important, China announced that they will purchase oil from Iran and will pay in Gold. This follows the same type of arrangement announced by India a couple of weeks ago. THIS is a very big “in your face” to the western world’s SWIFT transfer and settlement system. No matter how you look at it, this is Dollar negative and further proof that Dollar demand will drop [...] The sad reality of an austerity induced slowdown in Europe and an ESFS/ESM as useful as a chocolate fire-guard seems to be creeping into risk asset premia across Europe (and implicitly the US). GGB2s are all trading back under EUR20 (that is 20% of par), Sovereign yields and spreads are leaking wider despite the best efforts of their respective banks to back-up-the-truck in the ‘ultimate all-in trade’ and the LTRO Stigma has reached [...] Whether it was the truthiness of Willem Buiter’s comments this morning, the sad reality of Spanish housing, or more likely the ugly fact that LTRO3 is not coming (as money-good assets evaporate), today was broadly the worst day of the year for European sovereigns. Spanish 10Y spreads jumped their most since the first day of the year, Italian yields broke back above 5% (and spreads broke back over 300bps), and Belgium, [...] As forecasts for peripheral macro data continue to deteriorate and core to strengthen modestly, there is little real comfort available from the European situation aside from the 800lb gorilla that all headlines are focused on today. Credit Suisse describes it as “a case of the outlook being less bad than expected, rather that it being better” and notes that post the Greek situation, despite the ongoing rally in the ever-thinning [...] by ZH The divergence between credit markets and equities accelerated today in Europe (and the US) as Senior and Subordinated financial credit spreads have increased dramatically in the last week. While risk has risen over 25% in financials, European stocks have gone sideways since the NFP print. The Subordinated financials spread has risen the most (in percentage terms) over the last 4 days since Nov2010 – and of course the broad equity [...] Despite disappointing auction results in France, the downgrade hangovers (sell the rumor, buy the news?), and increasingly likely Greek PSI talk epic-fail, most European sovereigns are rallying modestly on the day. Given the expected shift in the AAA benchmark used for margining(dropping higher yielding France ‘AAA’s as they are downgraded will lower AAA benchmark significantly and implicitly widen the yield differential for other sovereigns), it is perhaps no surprise that TPTB [...] Tell us something we don’t already know and while you’re at it why not tell us something EVERYONE already does know? The entire global financial system is a total sham, scam, fraud (with obvious intent) and a liar’s den. Why not just tell it like it is? Why not just tell us that if we are sitting on paper promises…we ain’t got squat! Now that would be a breath of fresh air [...] There are now 25 European sovereigns and 42 European banks on S&P’s “potential bond downgrades list.” From Reuters: Standard & Poor’s on Tuesday said there is a greater number of sovereign and banking bonds at risk of ratings downgrades as a result of its recent warning that it might cut the credit ratings on 15 euro zone nations. “Sovereigns and banks continue to show the greatest downgrade risk. The entities in these two sectors are [...] From his perspective, this forced austerity will mean slower growth and with that all chance that the European nations can ‘grow/tax’ their way out of this charade. He notes there is simply no way they can grow fast enough to be able to kick the can far enough down the road for it to matter. Pointing to his ‘better early than late’ calls on markets over the last 40 years, the man [...] Here is the chart few are looking at, and explains the concept of the dearth or shrinkage of so called safe collateral in the Euro and USD. The reason of course is that the Fed and other central banks hold much of it, or it is now encumbered via direct bilateral funding agreements or by sitting at the central bank drawing liquidity. At the same time a large chunk of sovereign debt has been [...] by ZH As rumors and chatter circulate across trading desks, European equity and credit markets are starting to lose their giddiness. European sovereigns are leaking back wider and financials starting to underperform and it is being noted that, as reported by The Hill, that conservatives say they will try to block the IMF from bailing out Italy and Spain. Pointing to the huge bill this could leave at US taxpayer’s feet, [...] When AP is printing stories like this, we’re headed over the falls Excerpt: At the top of Tuesday’s agenda is finding a means to more fully integrate the eurozone’s disparate nations — ranging from powerful Germany to tiny Malta — both politically and financially. And the ministers must do it fast, without the delays caused by democratic niceties like referendums that have led many EU reforms to take years to implement. ————– Hanging the regulators [...] by ZH The overnight news of worries over Dexia’s bailout deal and the weak Chinese PMI print did nothing to help the generally poor sentiment as the US closed on the stress test news. Equity and Treasury Futures (as cash was closed in Tokyo) were in risk off mode but stabilized with ES around 1170 (-1% from US close). With Europe opening and TSYs trading once again, CONTEXT shows that the [...] by ZH When we discussed the specifics of the ongoing European bank run, we cited from the NYT which noted the actions of a core Japanese mutual fund with European sovereign exposure, namely that “earlier this month, Kokusai Asset Management in Japan unloaded nearly $1 billion in Italian debt.” The Nikkei has just reported that this was merely the beginning: “Kokusai Asset Management Co. has sold all Spanish and Belgian government bonds that were [...] by South Of Wall Street Facts Don’t Equal The Conclusion in Europe Very simply, the facts of the current environment in Europe don’t equal the conclusion that a coordinated effort will restore confidence. The fact of the matter is that European Sovereigns are massively indebted and European banks are massively under-capitalized. The proposed solution of raising capital and issuing fresh debt to solve this issue is a joke. Via Peter Tchir of TF Market Advisors The credit markets here are actually deteriorating and are showing signs that there is growing default concern, rather than just pressure to reduce risk.
The red line is the ratio of BAC 5yr CDS vs 3yr CDS. It was the first curve to flatten. The dark blue line is the European XOVER index. As European sovereigns weakened, XOVER started to trade [...] by Reuters The developed world’s economies have become ensnared in a growth slowdown that threatens to turn into recession, at a time when room for manoeuvre with bold policy responses has narrowed significantly, Reuters polls showed. CNBC.com Surveys of more than 250 economists in North America, across Europe and Japan portend steadily increasing chances that central bankers will need to fire any weapons they may have [...] From Nic Lenoir of ICAP We have already discussed at length European sovereign spreads, the cost of keeping the PIIGS in the eurozone, the inevitable break-up down the road of the EMU, and how EURCHF is ratting out major stress in the system at a time when everybody is trying their best to look the other way. Today adding to our arsenal of charts highlighting the [...] |
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Of Belgium, Bonds, and Bullion
Fear is quite obviously rearing its ugly head once again tonight and Belgium’s ever-ready-for-an-understatement finance minister Reynders told La Tribune that the euro area may need as much as two years to overcome the sovereign debt crisis. We think it will all be over one way or another by then. As the US Treasury market opens for business tonight, yields are reflecting the fearful action seen in [...]