There was a time when the world had (somewhat) free markets. Then Lehman failed as the inevitable culmination of a credit bubble that was second in size and severity only to the one being blown currently, and the central planners took over, converting equity, bond and FX markets into nothing but monetary policy tools dominated by central banks. Below is a great summary of how parallel to SkyNet's HFT takeover of stock trading, the central planners conducted their own not so stealthy take over of all capital markets. The chart is open-ended. Expect much more intervention by the Big 4 in the months and years ahead as the circular nature of increased central bank intervention leading to less faith in financial markets leading to increased private sector deleveraging leading to increased-er central bank intervention and so on, accelerates.
Draghi has said lots of things in today's conference, most of them regurgitated. So far the most notable item is what ha already been implied on several occasions, namely that the ECB will not restructure its holdings of Greek bonds (something restructuring professionals call debt for equity in other circumstances) for one reason:
- DRAGHI: RESCHEDULING GREEK BONDS WOULD BE MONETARY FINANCING
And there goes any hope that the Greek bonds currently in the market will soar due to an OSI restructuring. It also means that the ECB was merely, well, lying when it said that any future bond purchases under the OMT will be Pari Passu. The won't be, as this would imply, as Draghi said, a monetary financing should a PSI/OSI restructuring ever take place in Spain. Which it will.
The now-ubiquitous prior revision higher in jobless claims made the rise in jobless claims of 4,000 seem a lot less than otherwise as claims didn't even budge the market's needle. Coming in at 367k, slightly better than expected but within the 352k to 392k range that it has been in all year, the most interesting thing we can say about today's print is "it's off the lows". After last week's significant beat, no follow through is seen as we contonue to muddle through.
The former Goldmanite head of the ECB, and CEO of DraghiFX LLC, whose only recommendation is still to not short the EUR and thus to make sure German exports suffer, is not expected to say anything too exciting or contradictory today, although he will surely be bombarded with questions about just how and when he plans on dethroning Spain's Rajoy who still refuses to play along with the program, and enact the Spanish bond buying program. Alternatively, if Draghi makes any indication the ECB is now backtracking from the OMT expansion and instead is forced to rely on first loss guarantees and other doomed ideas that failed a year ago, watch as everything goes risk off. Watch the full thing below.
Just out from the WSJ:
- Turkey's parliament has approved a bill authorizing the military to conduct cross-border operations in Syria, a day after a deadly shelling from Syrian territory killed five civilians
So, just how is this different to war? And how does NATO, and specifically Article 5 feel about this? What about Russia and China?
Markets were in sleep mode for most of the session, ahead of the BoE monetary policy decision, as well as the ECB’s press conference where the President is unlikely to outline any new measures and instead reiterate that the ECB stands ready to do whatever is necessary. The BoE held both their rates and asset purchase target unchanged, however it is widely expected that the central bank will boost the facility by another GBP 50bln in November. Today’s supply from both Spain and France was easily absorbed by the market, both were supported by the recent decline in bond yields. Going forward, apart from digesting comments from Draghi, market participants will get to see the release of the latest weekly jobs report, durables revisions and the minutes from the FOMC.
First the BOE, now the ECB has left rates unchanged. Alas: you don't win pole position in the currency debasement closed loop in which nobody ever wins (well, except for Iran) by doing nothing. But for now, both banks did just as expected.
At least it is not the China bails out Europe one: thankfully that one is now finished. Instead it is something almost as stupid -i.e., something that was floated, then denied, then floated again, then redenied, from Reuters:
- EURO ZONE CONSIDERING FIRST LOSS INSURANCE FOR SPANISH BONDS UNDER ASISSTANCE PROGRAMME - EU SOURCES
- SCHEME COULD COST EU RESCUE FUND ABOUT 50 BLN EUROS FOR ONE YEAR, ENABLE SPAIN TO MEET FULL BORROWING NEEDS -SOURCES
- NO DECISION TAKEN YET ON BOND INSURANCE SCHEME, MAY BE SEVERAL WEEKS AWAY -SOURCES
Considering the source, Reuters, was pretty much 100% wrong on Monday when it said the Spanish bailout was imminent and Germany contingent, something Germany refuted shortly thereafter, we give this rumor about the same "likelihood" of being credible as every other one that Europe is fixed. But at least it managed to get the EURUSD higher by 20 pips.
- Romney dominates presidential debate (FT)
- What Romney’s Debate Victory Means (Bloomberg)
- Obama Lead Shrinks in Two Battlegrounds (WSJ)
- "Everything will fall apart unless the Spanish conditions are extremely tough" German policy-maker (Telegraph)
- Draghi Stares at Spain as Brinkmanship Keeps ECB Waiting (Bloomberg)
- RBS facing loss after Spanish property firm collapse (Telegraph)
- Burdened by Old Mortgages, Banks Are Slow to Lend Now (WSJ)
- The Woman Who Took the Fall for JPMorgan Chase (NYT)
- European Banks Told to Hold On to $258 Billion of Fresh Capital (Bloomberg)
- Europe Weighs More Sanctions as Iran’s Currency Plummets (Bloomberg)
For the third day in a row, there is little to write home about from the overnight action. The EURUSD has been choppy following an MNI report about comments from EU officials that suggested Germany wants to delay the Troika decision on a €31.5 billion payment to Greece until after the November 12 Eurozone finmin meeting, no doubt predicated by the already discussed willingness by Europe to not rock the boat before Obama is reelected, still leaving the question hanging: just why is an entire insolvent continent so hung up on a US presidential decision. The main FX market focus is on the European Central Bank rate decision, due at 1145GMT. The ECB is widely expected to leave rates on hold just as the BOE did moments ago (it needs to hurry up if it wants to win the race to debase) although in the New Normal one can't be sure of anything. In other news Spain auctioned off a much needed €3.99 billion in various short-term bonds, the bulk of which fell under the LTRO maturity umbrella, but which was successful nonetheless if with modestly weaker short-end results, and an overall bitter aftertaste as seen by the resumption in Spanish 10 year widening, as the entire market, not to mention Draghi, is starting to get very impatient with Rajoy, who is now even getting urged by Catalonia's Arturo Mas to finally bite the bullet and demand a bailout (and resign shortly thereafter): "A bailout is inevitable; therefore the best thing to do is to make the decision without delay,” Mas said. “Spain has the potential to overcome the situation, but it will need assistance for some time." Recall that Spain's cash needs in October surge so every single successful euro raised is more than critical.
As Mr. Lehrer stumbled through the evening and the incumbent's odds of a repeat fell as fast as his frustration appeared to rise, a few things became very clear. President Obama spoke for over four minutes longer than Governor Romney in this evening's slug-fest. However, the fast-talking Mitt managed to squeeze in over 8300 words as opposed to Barack's 7400 words. The word-clouds below suggest each of the candidates' focus tonight with Obama appearing focused on his opponent 'Governor Romney' with heavy use of the words 'Got' and 'Medicare'; while word-wrangler Romney focused on 'People', 'Get', 'Going', 'Government', and 'Plan' (and no 'zinger'). If you are still standing after the drinking games, here are the details...
The first debate is still in progress, but the habitual gamblers who have a compulsion to bet all the time 24/7 on event outcomes have already spoken via their favorite venue InTrade, and the initial reaction is not favorable for the incumbent. Having traded over 70 for nearly two weeks, the "Obama for president" contract flash crashed below 70 promptly for the first time in many days, and has slid 8% in the past few minutes. Naturally, the contract has quite a bit to go until parity. On the other hand it does bear remembering that when it comes to predictive capacity InTrade odds are notoriously bad: just recall the Obamacare gamble when virtually everyone on InTrade was certain it would not pass. All that said, at least according to InTrade it appears that the first presidential debate has not gone quite as the current president might have planned.
At 9pm Eastern, the first of many presidential debates will begin, whose ultimate goal will be to validate in the minds of those 47% or so (aka the very loud minority) who intend to vote for the next president, that they have made the right choice. They haven't (for the reason, or rather 16,171,037,343,409 reasons, see here: neither candidate can do anything at all to prevent the debt crisis iceberg that America is careening into full speed, and which nobody could have foreseen). But it sure makes for great theater, and even better drinking games. So fire up the Interwebs, prepare your Tungstenschläger IV drip, lean back in your favorite easy, bought on credit, and soon to be repossessed chair, and be distracted, unknowing that during the duration of the debate, the US raked up another $200-$300 million in public debt (depending on the frequency and duration of the commercial breaks).
Far be it from us to encourage excess consumption; but, should you feel the need to numb yourself a little during the ensuing battle-royale between Obama and Romney, we present - for your imbibing pleasure - the official drinking game of the 2012 election debates.