Archive - Feb 25, 2013 - Story

While the Italian exit polls provided a breath of fresh air for statists everywhere, and hope that despite his recent resurgence, Berlusconi ascent won't result in a Hung Parliament outcome, threatening Italy's access to the ECB's OMT program, the final outcome for the 158-seat Senate majority will hinge on the final Lombardia vote, which as explained previously is critial for the final senate breakdown. Readers can track the real-time data as Lombardia votes come in via Italy's TG24/Sky at the following link, while the general Senate breakdown in real time can be found here.

As I and many others have pointed out for years, unless you are a crony Wall Street welfare queen you can pretty much forget about any high level position in the Obama Administration.  Barack made that clear from day one when he decided to surround himself with two of the people at the core of the 2008 financial crisis, Larry Summers and Tim Geithner.  The trend is simply continuing with the current nominee for Treasury Secretary: Jack “Bailout Bonus” Lew.  The revolving door is institutionalized and at this point as reliable as a Swiss watch.

If one looked at the EURUSD exchange rate or US equity futures one could be forgiven for thinking things did not go so well in Italy's election. The former is fading quite rapidly from its overnight exuberance and the latter is stable at pre-FOMC levels. However, a glance at the initial exuberant, nothing can stop us now, Italian (and Spanish) bond and stock markets and it appears the problems of the world have been solved. Spain's 10Y yield is back below 5%, Italian 10Y spreads have collapse 30bps to near multi-year lows, and Italy's equity market is up 3.5%. However, if you pause, take a breath, and look around, the liquidity is plain to see and the initial knee-jerk is beginning to retrace as investors realize that everything they knew was there before - is still there...

The ongoing debacle of Europe's food-chain continues with news from the BBC that IKEA, the venerable do-it-yourself furniture (and food apparently) maker has pulled 1675lbs of Swedish Meatballs off shelves. Horse was found in "beef and pork" meatballs in the Czech Republic and then in 13 other nations including the UK, Holland, and Portugal. Since the first horsemeat was found last month, traces have been found in many places (table below) with UK's FSA having 35 positive tests and Germany's equivalent 67 positives. IKEA's discovery, noted on their facebook page, adds further fuel to the complex food-chain fire but we can only wonder just how many extra pieces of horsemeat were included in the package (and what was missing).

Who says necessity is not the mother of invention in the New Normal. While a tiny fraction of the Japanese population is enjoying the transitory effects of Abe's latest reflating "wealth effect" policy (even as China has made it clear said policy will end quite soon), the bigger problem for Japan is that even sooner, more and more of it will be reliant on hamster wheels to generate electricity, as LNG prices have just hit a record high and are rising at a breakneck pace, and as local nuclear power generation has collapsed to virtually zero. Which means one thing: electricity will soon become so unaffordable only those who are invested in the daily 2% Nikkei surges will be able to electrify their immediate surroundings. So what is Japan's solution? A quite ingenious one: as Geek.com and ASR both report, Japan's Fujifilm has created organic printed sheet that harvests energy from body heat, or in other words, converts body heat to electricity. Finally, at least one key part of the Matrix "reality" is now fully operational - the use of human beings as batteries.

Next week’s calendar is packed with important events and releases, aside of course from the biggest event of the week which are the Italian elections. In fact we already got the first one in the form of China's disappointing HSBC flash PMI which consensus expectations would print stable yet which dropped to a 4 month low. On Friday, the ISM is expected to come out mildly softer vs last month’s strong 53.1 print and consensus at 52.5. Chicago PMI will also be followed by markets on Thursday. On the central bank front markets will be primarily looking for further news on the BOJ leadership succession front. From the perspective of Fed speakers, Chairman Bernanke’s testimony ahead of the Senate Banking Committee will also be followed as markets continue to track the Fed’s assessment of the economic recovery. In the global currency warfare front, the Bank of Israel is expected to cut policy rates by 25bps on Monday, as well as the National Bank of Hungary on Tuesday.

• Risk of instability hangs over Italy poll (FT), Protest votes add to uncertainty in close Italy election (Reuters), and... Risk On
• Czech inspectors find horsemeat in IKEA meatballs (Reuters)
• China’s Slower Manufacturing Casts Shadow Over Recovery (Bloomberg)
• So much for reform: China Prepares for Government Shuffle as Zhou Stays at PBOC (Bloomberg)
• France to pause austerity, cut spending next year instead: Hollande (Reuters)
• Sinopec to buy stake in Chesapeake assets for $1.02 billion (Reuters)
• White House warns states of looming pain from March 1 budget cuts (Reuters)
• China Quietly Invests Reserves in U.K. Properties (WSJ)
• Osborne Keeps Austerity as Investors See Downgrade as Late (BBG)
• South Korea's new president demands North drop nuclear ambitions (Reuters)
• Russia accuses U.S. of double standards over Syria (Reuters)

Following last night's very disappointing China HSBC PMI numbers, one would think that the traditional EURUSD, and thus ES, overnight ramp would be missing or at least delayed, especially ahead of a very possible risk off day such as Italian election day. One would be wrong. Because some time after midnight eastern, in what can only be seen as a celebration of Argo's choice as a best picture, the EURUSD resumed its upward ramp on absolutely no news, pushing the pair higher by nearly 100 pips in a smooth diagonal line, and dragging US futures up with it as usual. The catalyst apparently is that with Italian exit polls mere hours away (due out at 2pm GMT), market talk is that Berlusconi's resurgent chances have been hobbled due to a low turnout in the pro-Berlusconi northern states (recall that Lombardia is the key state for the elections) following a quick read of a Reuters recap article. What is ignored is that the referenced Reuters article also notes the "surge in protests votes being cast" in the first day of voting, which means less votes on an absolute and relative basis for Bersani and Monti, even if Berlusconi ends up getting less of the Northern vote. Of course, nobody actually has any clue what the exit polls look like. In fact, with a hung parliament a distinct possibility even assuming a Bersani-Monti coalition, both Goldman and JPM have said a 50-100 pip widening across the Italian curve is possible should a Hung Parliament develop (for more read here). But for now hope dominates and is both squeezing the shorts and causing yet another algorithmic stop hunt in FX, and thus every other asset class. Don't be surprised all of overnight's gains, and much more to be wiped out minutes after 9 am eastern when the first Italian exit polls emerge.