Archive - Sep 12, 2011 - Story

• Sources close to the situation said during the weekend that Moody's may cut credit ratings of major French banks including Societe Generale, BNP Paribas and Credit Agricole. However, SocGen’s CEO downplayed the news, and ECB’s Noyer said that French banks have no liquidity issues
• German economy minister Roesler didn’t rule out an orderly Greek bankruptcy. However, a German Economy Ministry spokesman said that instruments for an orderly Greek debt insolvency is not currently being readied
• UK’s ICB, in its report, recommended “ring fencing” UK banks’ retail arm, which will incur a cost of between GBP 4-7bln. However, it gave the banks till 2019 to implement those measures

Update: NO CONTAMINATION FROM EXPLOSION AT FRENCH MARCOULE NUCLEAR SITE - FRENCH POLICE: RTRS... hopefully the accuracy here is better than at Fukushima

The following story is very fluid and we are following closely. Minutes earlier shares of french EDF have come under selling pressure following broad headlines of a explosion at a French nuclear power plant. Here is what we have found so far...

It is not often that you can look at stock futures implying an open of down more than 1% and wonder why they are so optimistic. European credit can be summed up as "the horror, the horror, the horror".  XOVER hit 808 or 35 wider on the day.  Main is at 202, or +11.  Financials are a mess - Fins Snr is 315 or +22 on the day.  All are back to near their wides.  SocGen stock is below 16 and DB was down almost 10% and 46% on the year. And that was the good news!  Greek bonds are dropping again.  Yield is largely meaningless for Greece, but it is still eye-catching to mention that Greek 1 year bonds yields more than 100% at a price of 53.5% of par.  With the 10 year bonds at 45% of par, the yield inversion is almost over, and the next phase is for the market to create a rumor that Greece is going to be trading "flat" (trading with no accrued is the final step before default).

In the chart below, for all intents and purposes, green means red. Also, the probability of Greek default according to at least one data service is a little over 100%.

Can the NYSE Boerse merger close quicker so some of that vaunted German engineering can finally come to the NYSE Liffe and it stops breaking every 5 minutes when the market drops?

There has been a sharp increase in risk aversion with the euro and stocks internationally falling sharply due to concerns about the coming Greek default and the real risk of contagion in the Eurozone. The euro got off to a rocky start in Asia, falling to fresh six-month lows against the dollar and a 10 year low on the yen as downside momentum picked up after several key technical levels gave way recently. Gold could see weakness today due to dollar strength and the possibility of margin calls for leveraged players on the COMEX.  However, bargain hunting bullion buyers are present at these price levels and gold is likely to be supported above $1,800/oz. While dollar strength would normally result in gold weakness it is very possible that both the dollar and gold could rise together in the short term. This would result in gold making sharper gains in pounds, Swiss francs, euros and other fiat currencies. France’s largest banks by market value, BNP Paribas SA, Societe Generale SA and Credit Agricole SA, may have their credit ratings cut by Moody’s Investors Service as soon as this week because of their Greek holdings.  Officials in Merkel’s government are debating how to shore up German banks in the event that Greece defaults. Merkel is due to hold talks on the debt crisis with European Commission President Jose Manuel Barroso today. The risk of contagion in the Eurozone sovereign, banking and entire financial system is very real and will result in continuing safe haven demand.

As we speculated on Friday, Europe has opened, and it is ugly. In fact, Europe has never been closer to a bank and market holiday than it is right now. Why? Let's go down the list...

After a brief push back above Friday's lows, ES is back down to the early overnight lows (-17) just in time for the opening of Europe. Early runs on ITRX Main show +10bps at 198/200bps, XOver breaking 800bps (+35bps), and SovX +23bps to 333bps - not pretty (and worse than simply catch up to late Friday's demise). Financials continue to bear the brunt but non-financials are getting dragged out now more and more.