Archive - Jun 2011 - Story

A snapshot of the US Afternoon Briefing covering Stocks, Bonds, FX, etc.

Market Recaps to help improve your Trading and Global knowledge

For all those who believed that it was only JP Morgan who is manipulating the Brent-WTI spread, we regretfully have to inform you that the squid is once again front and center, having now been caught red-handed by none other than the ICE exchange, aka the home of Brent trading. From a just disclosed complaint: "On 28 January 2011 the Exchange’s monitoring detected six notable “price spikes” in the April11 Brent/WTI spread, between 14:26 hours and 14:31 hours UK time. These were investigated and found to be the result of a limit order and several large market orders placed in quick succession by a GSF trader...In relation to the events described above, the Exchange alleged that GSF had breached the following Rule: "It shall be an offence for a trader or Member to engage in disorderly trading whether by high or low ticking, aggressive bidding or offering, or otherwise." The Exchange recommended to the Committee that summary disciplinary proceedings be commenced in regard to the above mentioned allegations. The Committee subsequently considered the matter in accordance with Summary Enforcement Rule E.7...The Committee considered the behaviour of GSF and its client to be a clear case of disorderly trading, in that the  distorting price impact of the placement of such large orders in close proximity was not considered." But don't worry: the ICE naturally had to sugar coat its findings: "Having examined the instant messenger logs of the communication between the GSF trader and their client, the Committee found no evidence of intentional manipulation of the market; nevertheless it considered the breach to be of a serious nature." Well, thank god that all market manipulation occurs via perpetually recorded instant messaging. It would be inconceivable that Goldman and its "client" may have found a different way to hatch plans to defraud investors than one which involves on the record messages.. Simply inconceivable... And preposterous.

A republican-organized roast at the Hilton New Orleans Riverside headed by comedian Reggie Brown, meant to poke fun at democrats broadly and the president in particular, turned horribly wrong, after the comic flipped the tables and after joking at Obama's expense for a good 15 minutes, decided to take some well-deserved stabs at republican candidates. After telling the crowd that as president Obama, who had a black father and white mother, he celebrated half of Black History Month, and naturally joking at Weiner's expense, he went on a less than welcome rampage, saying if former Massachusetts Governor Mitt Romney were to become president, he would have his "first lady, second lady, third lady". Brown also said former Minnesota Governor Tim Pawlenty missed the conference because he was having his foot removed from his mouth, adding that the operation would be covered under President Obama and Mr Romney's respective healthcare reforms, along with spinal transplants. Yet when Brown launched into a gag about Tea Party stalwart Michele Bachmann, his microphone was cut off, the music swelled and the comedian was ushered from the stage.

Just like last year at about this time, the tables are turning on the funders of the latest Greek bailout. As Athens News reports: "Austrian mass-circulation tabloid Oesterreich, expressing rising taxpayer resentment around the EU, called for an EU-wide plebiscite "to let those who have to pay for Greece decide" whether to rescue it again or preserve "a euro without Greece"...[it also said] zigzagging over Greek aid pointed to a lack of a strategy allowing "shameless financial markets (to) blackmail apparently helpless politicians", and it called for an EU-wide referendum." Elsewhere, Geert Wilders, head of the third largest Dutch political party, the Party For Freedom, said "Greece should leave the euro zone and reintroduce the drachma (pre-euro currency). No more Dutch tax money to the corrupt and de facto bankrupt Greek." So the end result is that once again neither the Greek nor the European population wants the latest bailout that is forced upon them by the banking system, which is terrified about what happens if failure is reintroduced as a final outcome. Yet while it will take a lot to organize Europe's conflicting popular interests, the immediate decision-making power resides with Greece, where in just over 24 hours the all-critical vote of confidence in the ruling party will take place, whose failure is simply unthinkable in terms of downstream effects for the Eurozone. And as anyone familiar with the constitution of "united" Europe can attest, the jettisoning of Greece from the currency union will be next to impossible without a thorough redo of the bylaws of not only the Eurozone but all other artificially unionizing constructs that will promptly be forced to unwind should Greece "just say no" to more banker bailouts.

On Friday, the BLS released its monthly state employment and unemployment summary. The Bberg chart below summarizes the results. Bottom line: lots of red, a little green and quite a bit unchanged.

Yesterday we reported on the halt of gold and silver futures trading by Australian broker CMC Markets. As noted, CMC did indicate it would continue trading gold and silver spot products, which is why we were surprised by the difference in trading halt outcomes between the Australian firm and Forex.com which had halted XAU and XAG outright. To provide further clarification on the CMC decision, here is an email we received from Jane Bryant, PR campaign amanger at CMC Markets...

Not a great deal on the political calendar this week, with fiscal talks led by VP Joe "NFP of 500,000 coming any... minute... now..." Biden expected nearly every day starting tomorrow.

According to flashing headlines, the CDO better known as the European Financial Stability Fund will be increased to guarantee €780 billion in the future, up from €440 billion currently (the same EFSF which currently sees Greece, which has no money left at all, guaranteeing €12.4 billion of European bailouts). This was largely expected previously as many had noted that the EFSF in its current form is insufficient to cover the liabilities of Spain once the country is swept away to the Greek insolvency tsunami. Alas, for the EURUSD which is seeing this as good news, and has surged on the announcement, this development actually means that Europe is taking proactive steps to fund Spain imminently when the house of cards start falling potentially as soon as Tuesday night. This is nothing but a Spain, and then Italy, backstop. However, for Italy to be covered, expect the total covered amount to be €1. 5 trillion. Did the Eurozone just blink?

As QE 2 enters its (black) swan song phase, today the Fed will conduct only the first dual POMO of 2011. While two POMOs per day were a regular fixture back in 2010 when the Fed had to give the impression that "profits and earnings ratios" were low enough, they had been missing in the current year... So far. At 11pm and then at 2pm, Sack-Frost team will conduct two $4-5 billion POMOs, the first one targeting 10 years, the second, buying up 3 Year bonds. Which incidentally will be a good test to see if PDs are now in the Bill Gross camp expecting Operation Twist 2 to focus on the 2-3 year space. As a reminder, last week's 2 Year POMO saw exactly zero On The Run bonds monetized, after Bill tweeted his now infamous "QE3" tweet. In other words, while we expect Dealers to go balls to the wall in flipping the just auctioned off 10 Year reopening in the form of Cusip QN3, their interest in flipping the recently auctioned off QS2 will be far more muted. On the other hand, if QS2 is shuffled back to Sack wholesale, it may simply mean that PDs believe that the Fed will target just the 2 Year and leave the 3 Year+ part of the curve floating in the wind. We will know the result of this experiment at 11am EDT. Stay tuned.

• US budget talks hit tense stage (FT)
• Siemens chief warns on US skills shortage (FT)
• Greek Default Would Spell ‘Havoc’ for European Banks a Year After Bailout (Bloomberg)
• Spain protesters turn anger against Brussels (FT)
• Credit Suisse downgrades China banks, GDP (MarketWatch)
• Rare earth prices soar as China stocks up (FT), previously covered here
• H.K. Home Prices to Fall Up to 15% (Bloomberg)
• Americans gave $291 billion to charity in 2010 (Reuters)

Risk-appetite, which emerged last Friday, couldn’t sustain its momentum today after Eurozone finance ministers decided to delay any final decision on a new Greek rescue package till July. The decision led to a re-emergence of risk-aversion, which provided support to the USD-Index and in turn weighed on EUR/USD and GBP/USD. The ongoing Greek debt concerns once again weighed on equities, with particular underperformance seen in financials, which underpinned the strength in Bunds. Allied to this, Eurozone peripheral 10-year government bond yield spreads widened led by the Greek/German spread.

Everyone is on Rule 48 watch today because while speculation addicts in America was snoring, European markets were not doing that hot, leading to the now traditional exchange break. The reason per the FT: "NYSE Euronext’s European equities, bonds and ETFs markets opened later
on Monday due to technical problems, that knocked out trading on the
Paris, Amsterdam, Lisbon and Brussels." And from the horse's mouth - the NYSE "Boerse" Euronext said: “Due to technical issues the pre-opening phase for
regulated equities and bonds and ETFs, opening of the continuous trading
session will be delayed....Consequently, we have halted the regulated warrants and certificates
market given the unavailability of the cash markets." Translated: this is merely a test for an alternative ending for when the markets drop to that level where NYSE circuit breaks are triggered... anywhere between 1,200 and 2,400 points on the Dow Jones.

The "on again, off again, but totally clueless" European bailout whose fate may be cemented with a negative vote of confidence tomorrow in Greece, in what may be the most important offshore government decision in European history, continues to slaughter PIGS as the 10 Year Portuguese-Bund spread just blew out by 35 bps to a new all time high of 914 bps. From Reuters: "The premium investors demand to hold Portuguese 10-year government bonds rather than benchmark German Bunds hit a fresh euro lifetime high on Monday, due to ongoing concerns about Greece's immediate financing situation. Yields on bonds issued by euro zone's lower rated states were broadly higher after ministers delayed granting emergency loans for Greece. "There's general contagion in the periphery ... There's not a huge amount of trading but because the market is so thin prices are being marked wide on the screen," a trader said. "People are putting very defensive prices out there with the bid/offer being a lot wider."" And while risk is broadly off on the screen, this is wonderful news to Ben Bernanke, who as we have been saying for months now, will need crude to drop to at least $85, and the S&P to triple digits, to have a solid case for pushing on with more suicidal Keynesian policies (the cure for record debt is more debt^TM). Again from Reuters: "Crude oil prices fell by more than $1 on Monday, extending last week's losses, with risk aversion rising after euro zone finance ministers postponed a final decision on emergency loans to Greece. "The crisis in Greece has resulted in higher risk aversion, which is weighing on oil prices," Commerzbank analysts led by Eugen Weinberg said in a note.

Gold is being supported as default risk has increased after EU finance ministers failed to agree on a new Greek loan package. Gold priced in sterling rose to new record nominal highs this morning at £954.84/oz and the weakness of the euro has seen gold rise to touching distance (9 euros) from new record highs in euro terms at €1,088/oz. The cost of borrowing euros for three months in the interbank market continued to rise today with the three month Euro Interbank Offered Rate, or Euribor, fixed at 1.510%, up from 1.502%. Corporate borrowing costs in the U.S. as measured by U.S. swaps rose sharply from 20 to 26.99 last week - the highest so far in 2011. Societe Generale SA raised its third quarter gold forecast by $90 to $1,580 an ounce and silver by $3.50 to $42 an ounce.

A snapshot of the European Morning Briefing covering Stocks, Bonds, FX, etc.
Market Recaps to help improve your Trading and Global knowledge