Archive - May 25, 2012 - Story

Yesterday we mocked the fact that the Bankia's bailout costs are doubling with each passing day. Today, things just got "Messi-er":

SPAIN'S CATALONIA REGION NEEDS GOVERNMENT HELP, RUNNING OUT OF DEBT FINANCING OPTIONS-CATALAN PRESIDENT - RTRS

So... if broke Bankia can rehypothecate Ronaldo, can Barcelona demand delivery of Messi and pledge him as ECB collateral too? Or was he nationalized by the government in retaliation for that whole "Argentina" thing?

Euro bonds “didn’t find much support” at the EU conference.
                              -Jean-Claude Juncker

“A majority of European Union leaders at a Brussels summit this week backed joint euro-area bonds.”
                             -Mario  Monti

Encapsulated in these two comments is the problem that Europe is now facing. Two views, two radically different positions and no agreement on a middle ground because there is not one. Of course the periphery countries, the weaker nations want Eurobonds because it would dramatically drop their cost of funding. Of course Germany and their stronger EU countries do not want it because it would dramatically raise their cost of funding. Nations, in the end, will act in their own self-interest, this has been proven more than enough times in history, which is why I stand by my conclusion that Eurobonds will not be forthcoming regardless of the polite rhetoric attached to them.

Newedge: "Last thing I asked before I went traveling was "try not to break anything" while I’m away. I get back this morning and it looks like a bunch of teenagers have had a particularly messy drug-fuelled rave in the market’s front room. The day-on-day charts hide the roller-coaster ride we've seen on the back of the Euro. Bond markets are in lock-down awaiting what-ever-next “liquidity bomb” the authorities can find to drop. Aside from some minor bond crosses, there has been zip activity outside zero-coupon bunds, gilts and treasuries. There is more liquidity in the Atacama desert."

European stock futures saw a jump higher at the cash equity open as the Eurostoxx broke through yesterday’s high of 2160. Comments from the Italian PM from late yesterday, who said that the majority of ministers are in favour of Euro bonds was noted but the move was largely technically driven with stops tripped on the ascent. In reaction to this the European bond yield spreads in the 10yr part of the curve tightened aggressively with OAT’s outperforming once again edging back toward the psychological 100bps level. Meanwhile in the FX market the USD weakened in early trade on the renewed risk appetite which bolstered the gains in EUR/USD alongside touted option defence by a Swiss name at the 1.2500 level. Commodity linked currencies such as the AUD was the main benefactor of a moderate move higher in crude futures and precious metals but has been capped so far by offers at 0.9800. Into the North American open prices have pared, with European equities in the cash and futures both slipping into the red, excepting the DAX. A distinctly light calendar from the US with only the May final Michigan report due, coupled with an early closure in the Treasury pit today, ahead of the Memorial day holiday, means that volumes will likely decline into the latter stages of the US session today.

With US markets already checked out ahead of the holiday day weekend, and Europe acting abnormally stupid (PIIGS bond spreads plunging, then soaring right back), there is little newsflow to report overnight, except for a key report that China loan growth is plunging in what is a major risk flag proudly ignored by all algos (but not the SHCOMP which dropped 0.7%). Futures have followed the now traditional inverse pattern of selling off early in the Asian session, then ramping following the European opening on nothing but vapors of hope. All that needs to happen today is a drop early in regular trading, following by a major squeeze on the third consecutive baseless rumor for the week to be complete, and for stocks to actually post an increase even as the EUR crashes and burns. Unless of course we get a rumor that Europe will be open on Monday even as the US is not there to bail out risk assets.

• This is the solution? - Germany Writing Six-Point Plan for Europe Growth, Spiegel Says (Bloomberg)
• JPMorgan Gave Risk Oversight to Museum Head Who Sat on AIG Board (Bloomberg)
• Vatican bank president Gotti Tedeschi ousted -statement (Reuters)
• Bribery, crime and stupidity pays. From this: SEC Staff Ends Probe of Lehman Without Finding Fraud (Bloomberg)
• To this: Lehman to buy remaining Archstone stake for $1.58 billion (Reuters)
• Governments must restore faith in debt sustainability: ECB's Praet (Reuters) - by issuing more debt
• IMF Helping EU Explore Alternatives to Euro Bonds (WSJ)... such as US-funded bailout bonds?
• China Banks May Miss Loan Target for 2012, Officials Say (Bloomberg)
• Facebook market makers' losses total at least $100 million (Reuters)
• World Bank’s Sri Mulyani Says Asean Is Resilient to Europe Woes (Bloomberg)
• Time to flip "The Scream" - Tiffany Cuts Full-Year Profit Forecast (Bloomberg)
• Definitely Maybe: Italy's Monti says Greece will probably keep euro (Reuters)