Archive - Jul 20, 2012

Due to the expiration on 25 July 2012 of the buy-back scheme for marketable debt instruments issued or fully guaranteed by the Hellenic Republic, these instruments will become for the time being ineligible for use as collateral in Eurosystem monetary policy operations.

Presented with little comment but it seems that in yet another unintended consequence of the short-term haste to make noise ralative to any sustainable long-term solution, the nations that were supposed to benefit the most from the EU Summit are now the biggest losers as their equity markets are the only ones in Europe that are down from pre-Summit levels after today's sell-the-news events. It seems once again those looking at the equity markets to signal the success of an 'event' have been dangerously wrong-footed once again... Spain swung from an 8% gain to a 4% loss

What's Ben gonna do?

We are saved. No, we are doomed. The reaction to the much-heralded agreement to bailout Spain's banks is not good. Spanish bond yields are at their post-Euro highs at 7.21%, Spanish bond spreads (and 5Y CDS) are trading at 600bps as Valencia calls for its bailout, Montoro denies, then admits that indeed they are part of the fiasco. Spain's front-end is very weak with 3Y back over 6% with the entire curve at its flattest in 6 months. Italy is also cracking wider with the short-end getting crushed (2Y +42bps at 3.9%) - exactly where all that LTRO collateral is being held (more ECB margin calls?). While Italy's has reverted back to a zero basis to CDS, Spain has continued to see its bonds underperform CDS dramatically - which in the case of Greece and Portugal was the litmus test for a market switchijng from muddle-through to pending PSI as trust in CDS triggers reduces. Meanwhile, Germany's 2Y rate hits a record low below -6bps. Spain's IBEX is down almost 4% (but Italy's MIB worse) as EURUSD cracks below 1.22 once again. European financial credit (senior and sub) are getting cruyshed and it appears that broadly speaking equitieas are starting to catch up to the reality in credit markets - though have a long way to go. S&P 500 e-mini futures are down ove 9 pts from the close (and over 15pts from yesterday's highs). Europe's VIX is snapping 10% higher after capitulating al la US VIX but remains dramatically rich to crediot still.

At least superficially, they appear to be coming more and more often.

UPDATE: It would appear the right hand has no idea what the left hand is doing in Spain, as via Bloomberg:

• *MONTORO SAYS VALENCIA HASN'T SOUGHT RESCUE

but

• *VALENCIA TO TAP SPAIN'S REGIONAL FINANCING FACILITY
• *VALENCIA GOVT COMMENTS IN STATEMENT ON WEBSITE TODAY

Just as today's largely expected announcement that the Eurogroup has formally agreed to accpet the Spanish bail out (details still lacking), the Spanish region of Valencia just became the second to officially demand a bailout following Catalunya's comparable announcement at the end of May, and has announced it will need to tap the government liquidity mechanism. Kneejerk reaction: EURUSD sharply lower and below 1.22 for the first time in days.

Just over a year after the tragic mass shooting in Norway which left 77 children dead, America has its own episode of senseless mass killing and violence: overnight, a mass shooting at a Aurora, CO movie theater during a Dark Knight screening has left at least 14 dead and 50 injured in one of America's most horrific mass execution-style events in recent history. As of right now, the FBI has said it does not believe the tragedy to be terrorism related.

• Gunman kills 14 in Denver shooting at "Batman" movie (Reuters)
• Full retard meets Math for Retards: Spain Insists $15 Billion Aid Need for Regions Won’t Swell Debt (Bloomberg)
• World braced for new food crisis (FT)
• Banks in Libor probe consider group settlement (Reuters)
• U.S. banks haunted by mortgage demons that won't go away (Reuters)
• Ireland Bulldozes Ghost Estate in Life After Real Estate Bubble (Bloomberg)
• China will not relax property control policies (China Daily)
• Russia, China veto U.N. Security Council resolution on Syria (Reuters)
• Kim to reform North Korean economy after purge (Reuters)

It is a quiet session so far with risk in the Off position (for now - we have yet to see the sinusoid HFT stop triggering function which rises stocks artificially as yesterday demonstrated so very well to nobody's surprise). All eyes are once again focusing to Europe, pushing the EURUSD lower for at least a few more hours until Europe closes and the repatriation resumes.  In terms of key European events, today is the EU finance minister’s conference call on Spain today. As DB summarizes, officials are expected to approve the EU100 billion Spanish bank rescue plan however the exact size of the loan will probably only be determined in September pending the result of a bank-by-bank stress test. This will then pave way for restructuring plans for the sector in October which is broadly consistent with the timeline set out in the leaked draft MoU. At the previous meeting finance ministers agreed to first disburse EU30bn to Spain by the end of July so we will watch out for further confirmation of this today. We may also get the terms of the loan today. The conference call is expected to start at 10am GMT. What is odd is that unlike before when the mere possibility of a European catalyst was enough to push risk higher, this is no longer the case, and Spanish spreads to Bunds just hit another all time wide, with the Spanish 10 Year plunging to 7.11%, another post-summit high, this time dragging the Italian 10 Year which was at 6.10% at last check. Will the world once again be able to ignore the once-again imploding European reality (and American: Of the 35 S&P 500 firms that reported results yesterday, about 74% of those came ahead of market consensus but only 57% of those topped sales forecasts.), and send the ES to a green close on the day? Or is today the day when reality comes back with a vengeance? Stay tuned and find out.