Archive - Apr 23, 2010

Overnight we duely got the tech break and printed a fesh low of 1.3201 . The move seemed to be stop loss driven rather than on the back of fresh negative news . With hindsight it would appear that the market piled into shorts on the back of the technical break. A short market, much better IFO and news that Greece is to activate EU aid mechanism led to a very sharp rally to 1.3347. In parallel euribor sold off , Greek cds and spreads improved notably. But this still strikes me as a repeat of the type of news flow and price action which has been a defining feature of this whole episode. I don’t think this solves the sustainability issue and I think we will see the euro come under pressure again. The market has again cleaned out the weaker shorts and I think we will now struggle to sustain bounces.

The Japanese currency is falling in a choppy, volatile fashion that has become a day trader’s paradise. One of the largest short positions in the futures in history has appeared practically overnight. Has the central bank yen unwind only just begun?

Forget Greece: the European "subprime" contagion is spreading. The biggest daily movers in CDS land are now not some irrelevant Greek banks which the world has now given up on, but Portuguese Caixa Geral de Depositos, S.A. (+32 bps, 12%), Belgian Fortis NV (+8 bps, 11%) and Spanish Banco de Sabadell SA (+20 bps,8%) and Banco Pastor SA (+23 bps, 7%). But. But. GDP is only 2% of GDP? (more like -5% when EuroStat is done with them). But it's all good - the IMF's Strauss-Kahn, who is always on top of stuff, sees no threat of contagion. Buy the pre-bankruptcy dips. Or is that DIPs?

Mark Mobius, at least smi-hypocritically, joins the camp of those who still dare live in reality. Bloomberg reports that the Templeton Chairman said Greece should be allowed to go bankrupt as that would be the best way to sort out its finances. “If we pour piles of cash into a country where corruption extends to top government officials, we won’t see any reforms,” Mobius told the Ljubljana based paper. “There is no other solution than to stop financing Greece with creditors taking responsibility and suffering damages, so countries should help them, not Greece, limit those damages.”

• Jim Grant op-ed: The best financial reform? Let the bankers fail (WaPo)
• Goldman gambles as lawyers say bank should settle with SEC (Bloomberg)
• What Chinese Wall? Goldman role in Lloyds deal in spotlight (FT)
• Probe of Goldman director turns to Buffett deal (WSJ)
• Goldman 'doing god's work' (National Post)
• Soros: America must face up to the dangers of derivatives (FT)
• Durable goods down, on 67% plunge in demand for commercial aircraft (Census Bureau, Bloomberg)
• Big bonuses are back. Backlash isn't (Fortune)

After tightening to 540 bps, Greek-German 10 Year spreads are now back to 570 bps. The final outcome at this rate would still be a sovereign bankruptcy, but one which would have the US algos smiling all the way to the bank as they surge on every piece of good news and ignore the bad (a Greek Chapter 11 means billions in advisory fees for Wall Street - buy). At least the global market has said that at this point a Greek bankruptcy is a certainty. All those covering EUR shorts may want to reconsider.

The biggest non-news of the morning, that Greece has formally requested aid, which of course manages to spike idiotic US stocks as per usual, was that Greece formally requested aid. Yeah, nobody saw that coming. The issue is this proves absolutely nothing, with the EURUSD moving a tad higher and with Greek bonds still in the 8% range. What the futures gunners don't care about is that the activation mechanism remains unchanged and still needs the formal approval of Germany, which as we pointed out yesterday has now seen major opposition political parties step ahead of the process, in essence blocking the entire rescue. But who cares: the dollar is slightly weaker and all the carry traders are going nuts, so buy, buy, buy.

• Euro, Asian finance stocks fall on Greece concerns.
• Eurostat agency suggested Greece's debt crisis is worse than investors believed.
• Geithner harnesses G-20 behind Yuan push as India, Brazil raise pressure.
• Greece may seek Euro-region bridge loan as $11.3B redemption looms.
• Japan's bank minister not too keen on financial regulation.
• Air China swings to profit in 2009 of $709.4M on fuel hedging gains.
• Amazon.com's Q1 profit jumped 68% to $299M on a 46% rise in revs to $7.13B.

RANsquawk European Morning Briefing - Stocks, Bonds, FX 23/04/10

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 23/04/10

Bondholders to be re-paid with unicorn rainbows; EU objects, claiming withdrawal requires ratification by two-thirds of European Parliament or 10% of European populace.