Archive - Dec 10, 2014

Yesterday's greek carnage continues as stocks and bonds in the Hellenic State collapse further. The Athens Stock Exchange Index is now down over 18% from Monday's highs and yields on the 3Y GGB have exploded to 9.35% (pre-bailout levels) and are 75bps inverted to 10Y. The ongoing fear of fallout from a snap-election victory for anti-EU Syriza has also spread to the rest of the perihpery where Portuguese, Italian, and Spanish bond spreads have all started to crack wider. The beneficiary of this risk aversion so far are Bunds and Treasuries and precious metals where silver is surging higher.

• New Normal headlines: Global stocks up on hopes of China policy easing (Reuters)
• China inflation eases to five-year low (BBC)
• U.S. Lawmakers Agree on $1.1 Trillion Spending Bill (WSJ)
• U.S. Braced for Blowback as CIA Report Lays Bare Abuses (BBG)
• CIA tortured, misled, U.S. report finds, drawing calls for action (Reuters)
• CIA Made False Claims Torture Prevented Heathrow Attacks (BBG)
• Oil Resumes Drop as Iran Sees $40 If There’s OPEC Discord (BBG)
• OPEC Says 2015 Demand for Its Crude Will Be Weakest in 12 Years (BBG)
• Greek yield curve inverted as politics raise default fears (Reuters)

If the US has become the undisputed world leader in sending non-lethal "military advisors" to the middle east, then Russia is learning fast, and as Interfax just reported, the head of the Russian Armed Forces chief of staff Gerasimov just confirmed that Russian "military specialists" are now working in the Donetsk region, although not to support the separatist army, but to promote "conflict de-escalation." One just has to admire politically correct war talk. But the punchline, from both Interfax and Bloomberg which also just reported this news, is that Russia is doing so at the "request of Ukraine's head of general staff." In other words, Ukraine actually invited the Russians.

Now that China is on the same boat as the rest of the world, and its stock market is a direct reflection of hopes for constant liquidity injections by the central banks, nothing could be better for stocks than bad news, which is precisely what it got. After the biggest crash in the Shanghai Composite in 5 years, what China got just the bad economic update it needed, when it reported a PPI of PPI (-2.7%, Exp. -2.4%), the 33rd consecutive decline and a  CPI (1.4%, Exp. 1.6%), lowest since November 2009, when the big banks’ RRR rate stood at 15.5% vs. current 20%. And so hope of yet more PBOC interventions to halt China's deflation promptly reversed SHCOMP losses of over 4% on the session (at which point it was just shy of correction territory from recent highs hit just this week), and stocks surged to close up almost 3%, erasing half of yesterday's losses. This spike came despite reports Chinese regulators may limit brokerages' interbank borrowing.

The Nikkei 225 has fallen over 300 points from the v-shaped recovery close at the end of the US day session and is now trading below the lows of the day at 2-week lows. USDJPY has plunged over 100 pips having briefly neared 120.00, now back below 119.00. JGB Futures are trading near record highs prices as yields collapse to near-record lows (30Y -23bps since QQE, 20Y -15bps) only seen during last year's yield-crash. No surprise then with the bond market "dead" according to market participants and yields negligible, that RBS has decided to exit the Japanese fixed-income business, slashing 200 jobs, and surrendering its primary bond dealership.