Archive - Feb 22, 2011 - Story

Markets down this morning as turmoil in Libya heightens. Treasuries remained unchanged and LIBOR-OIS fell to 16.3bp from 16.75bp last Friday v 12bp at the start of the year. Look for today’s release of consumer confidence and Thursday’s release of durable goods to put the recent stock market gains in the context of the economic recovery.

More trouble for Italy, whose CDS has surprisingly not spiked in OTC trading yet. In addition to a "technical glitch" halting its stock exchange, now Reuters reports that the country's natural gas deliveries may be compromised. "Political unrest has hit Libya, which is Italy's biggest oil
supplier and covers about 10 percent of its gas needs. Gas is
carried via underwater pipeline Greenstream, which is controlled
by oil and gas major Eni. "Supplies have not been interrupted, but the situation is
very complicated," Industry Undersecretary Stefano Saglia told a
conference on Tuesday. Gas flows from Libya into Italy through the 510 km pipeline
have been slowing since late Monday, and the situation is
worsening, Italian energy publication Staffetta Quotidiana said,
quoting sources close to the situation. Who would have thought that African revolutionary butterflies can flap their wings and cause the price of that most hated of products - nattie, to be on the verge of surging.

Yesterday we pointed out that UniCredit, the bank which had fallen by 5% in day trading, was 7% owned by Libyan interests (we also noted  some other odd Libyan holdings). Today, this stigmata is far more of a curse than a blessing, as not only the bank, but the entire Italian stock exchange, the Borsa Italia, is in major unwind mode, and has been halted all day. FT reports: "Borsa Italiana, the Italian exchange, failed to open as usual on Tuesday amid concerns in the Italian broking community about possible fallout from turmoil in Libya. The outage, which left brokers unable to process orders, came a day after the main Italian stock market index closed down 3.6 per cent, making it the worst performing European market on Monday. Traders in London said the failure to open meant that the crucial opening auction, which sets initial prices at the Borsa, had also not taken place. Yet there was growing demand from investors to trade certain blue chip Italian stocks." Following up with a European market participant we got the following: "stock exchange suspension has been ordered to handle massive unwind of positions in some of the largest index components. Significant dislocation occurring on swap and option market on the FTSE MIB as well.... So you see, it's not just in the US that it is forbidden to sell." In other words, when faced with a huge deluge of selling, best to implement the biggest known circuit breaker of all and just shut it down. In the meantime, UniCredit CDS trading away from Italy was 3% wider this morning as concerns about that "7%" spook risk holders.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 22/02/11

Good morning. The investment thesis for this comment advocates a barbell. Long quality flight "insurance" Treasury bonds (despite 3 leg 2yr, 5yr, and 7yr auctions in shortened Holiday week), short complacency, and long energy/geopolitical plays. The upshot is that markets will be dominated by geopolitical risk which I don’t feel is valued properly at the moment. This is a departure from an extended period of catalysts to investment performance dominated by a chronology of sovereign and Club Med imbalances, QE light and QE2 ruminations, midterm election/budget austerity leanings, and earnings recovery/growth prospects contributions to valuations. Until ever so late the marketplace hasn’t had the liberty of focusing on simple mundane economic fundamentals, and I suggest that fundamentals may be put aside again in light of tidal wave of hearts and minds of peoples versus regimes. Petty domestic partisan budgetary and ideological spats will play second fiddle to a global stage littered with toxins that possess the potential to re-arrange global allocation of physical and human resources. The stakes are high and any investment theses must aspire to handicap risk premium of potentially explosive re-arranging of deck chairs of all things political GLOBALLY.