Archive - Jun 7, 2012 - Story

Well, risk is on. Not so much because of the ECB, or BOE, both of which did nothing, but because everyone is hoping and praying that in two weeks the Princeton professor will unleash the 4th round of quantitative easing in the US (yes, Twist was a flow-shifting operation and thus QE3). And the reminder that China is not immune, and did its first rate cut since 2008 only validated the realization "that they have every idea just how bad it is", as Cramer would say. Sure enough, risk is ripping, although considering the world's 2nd largest economy just joined the monetary easing pants party, the 10 point ES response is oddly subdued. Where the reaction is yet to manifest itself is in gold: we expect the PBOC will take a little longer before it announces its meager 1000 tons of gold holdings have at least doubled following 100 ton/month gold imports as recently announced. But announce it will. In the meantime, China's aggressive step likely means that unless we get a global coordinated intervention at 9 am today, as was the case on November 30 after the last notable move by the PBOC, which was the first reserve cut also since 2008, there will be none this time around and Bernanke will be on his own. God save the markets if he does not deliver, either today at the JEC testimony at 10 am or at 2:15 pm on June 20, as the S&P has now priced in at least 75 points of NEW QE intervention.

• China Cuts Interest Rates for First Time Since 2008 (Bloomberg)
• New Risk to Europe's Growth: Banks Cut Lending to Cities (WSJ)
• Labor Faces New Challenge - Losses in Wisconsin, California Come as Ranks of Government Unions Decline (WSJ)
• Yellen argues for more Fed easing amid Europe risk (Reuters)
• Americans Cling to Jobs as U.S. Workforce Dynamism Fades (Bloomberg)
• Japan’s LDP Agrees to Talks With Noda’s DPJ on Sales Tax (Bloomberg)
• Korean Buying Spree Boosts Brent Price (FT)
• China Delays Bank Capital Rule Tightening as Economy Slows (Bloomberg)
• China CIC Chief Sees Rising Risk of Euro Breakup (WSJ)

Update: 9:00 am has come and gone... and no global bailout unlike November 30, 2011. Not a good sign for those expect a central-bank D-Day.

While minutes ago the Bank of England followed in the ECB's footsteps, it was the China central bank that stole England's thunder, announcing an unexpected rate cut moments before 7 am, and thus finally joining the global easing party: this was the first Chinese interest rate cut since 2008. As a reminder, hours before the global central bank intervention on November 30, China announced its first (50 bps) reserve requirement cut since 2008. Is today's PBOC move, which is the first cut of deposit and 1 year lending rates also since 2008, a harbinger of something much bigger to come any second now?

The video below is a great a preview of things to come in Greece. Per Bloomberg, Greek police on Thursday issued an arrest warrant for the spokesman of far-right party Golden Dawn for assaulting two left-wing politicians on live television.  Ilias Kasidiaris was shown on a live morning show jumping out of his seat and slapping Communist Party member Liana Kanelli three times after throwing a glass of water at leftist SYRIZA party member Rena Dourou. Golden Dawn, which was elected for the first time to parliament in a May 6 election, is accused of carrying out violent attacks against immigrants. Surely, being captured on live national TV beating up women will do wonders for restoring the party's image as that encouraging pacifism and peaceful resolution of problems.

On the surface, the overnight Spanish bond auction, in which the country sold a tiny €2.1 billion of 2, 4 and 10 year bonds was a success, simply because it wasn't a failure. Anywhere below the surface and things get fishy. The Treasury sold €638 million of a 2-year bond, €825 million of a four-year bond and €611 million of a benchmark 10-year bond. And while the bid-to-cover ratios were higher than at recent auctions, with the 2012, 2014 and 2022 bonds covered 4.3, 2.6 and 3.3 times respectively, so were the yields: the 2014 bond was issued at a yield of 4.335 percent, the 2016 bond at 5.353 percent and the 2022 bond at 6.044 percent, a lower price than the 6.14 percent the same maturity bond trades at in the secondary market. In other words, Spain is back to using the same tricks it did back in the fall when bonds would magically price well over 10 bps inside of fair value. Just don't ask why.  More notably, as Bloomberg reminds us, this was the lowest amount allotted to a 10 year note since 2004. In other words Spain sold the bare minimum of the longer-bond just to keep up with appearances: an amount likely recycled by its broke banks, which scrambled to get the last remaining LTRO cash and to show just how strong the demand for the country's debt is. In fact as Nicholas Spiro of Spiro Sovereign said, "If it wasn't for its banks' continued support at auctions, Spain would be unable to sell its debt. Right now confidence in Spain is at an all-time low." Either way, the good news is that according to Spain it has now covered 58% of its borrowing needs for 2012. the bad news: 42% remains uncovered. Especially in the aftermath of an EU announcement that not only has it not received an aid request from Spain, but that there is no EU rescue plan for Spanish banks. Europe has now completely lost the script and is making up day by day.