Archive - Feb 26, 2013 - Story

Italy’s politics were turned upside down yesterday after the election resulted in the dissident, 5-Star Movement of comic Beppe Grillo creating the strongest party in the country, but left no group with a clear majority in parliament. This political uncertainty weighed on the euro as Italy is the Eurozone’s 3rd largest economy. Bullion’s gains were limited as investors await the Federal Reserve chief Ben Bernanke’s semi-annual testimony to U.S. Congress before the Senate Banking Committee today, and tomorrow he visits the U.S. Housing Financial Services Committee. A dovish statement from Bernanke will support gold.  European stocks declined as Italy’s inconclusive parliamentary election renewed concern that the region’s sovereign-debt crisis will deepen. This follows falls on Wall Street yesterday and Asian falling overnight. Huge complacency and even denial about the debt crisis and suggestions that it had been resolved have contributed to investors selling physical gold in recent days. 

• Italy Political Vacuum to Extend for Weeks as Bargaining Begins (BBG)
• Italian impasse rekindles eurozone jitters (FT)
• On Spending Cuts, the Focus Shifts to How, Not If (WSJ)
• Obama spending cuts strategy focused on waiting game (Reuters)
• BOE’s Tucker Says He’s Open to Expanding Asset-Purchase Program (BBG)
• Fed Faces Explaining Billion-Dollar Losses in Stress of QE3 Exit (BBG)
• Carney warns over lack of trust in banks (FT) - here's a solution: moar bank bailouts!
• Bundesbank tells France to stick to budget (FT)
• China to tighten shadow banking rules (FT)
• Saudis Step Up Help for Rebels in Syria With Croatian Arms (NYT)
• After election win, Anastasiades faces Cyprus bailout quagmire (Reuters)
• Just for the headline: Singapore’s Darwinian Budget Sparks Employer Ire (BBG)

Yesterday we joked that we:

Need a short selling ban in Italy. All the evil speculators' fault

— zerohedge (@zerohedge) February 25, 2013

Today, we were reminded, that in a socio-fascist, insolvent world, the thin line between the Onion and reality no longer exists:

• ITALY'S CONSOB CONSIDERS SHORT-SELL BANS FOR HEAVILY SOLD STKS
• ITALY REGULATORS CONSIDER MEASURES TO TIGHTEN VOLATILITY LIMITS
• ITALY REGULATOR DISCUSSING VOLATILITY MEASURES WITH EXCHANGE

Next, as always happens, will be a ban on selling, then finally, a confiscation of all discretionary accounts by the government. Because the government knows what's best for you, and are here to help you with your "sell" execution.

While the market will do everything in its power to forget yesterday's Hung Parliament outcome ever happened, and merrily look forward to today's Bernanke testimony (first of two) before the Senate, Europe is not quite so forgiving. Because moments after today's Italian Bill auction in which the now government-less country sold €8.75 billion in 6 month bills at a yield of 1.237% nearly double the 0.731% yield for the same issue previously, things went bump in the night, leading Italian 2Y yields to surge +38bps to 2.086%, vs 2.063% earlier, while the benchmark Italian 10Y yields soared +28bps to 4.766%, vs 4.739% earlier, and just shy of JPM's 5% target. Spain is not immune from the Italian developments, and while it will take the market some time to realize that the next political scandal may be dropping this time in Spain (as reported yesterday), the Spanish 10 Year is already up 7% to 5.23%. Suddenly talk of parity between Italy and Spain may be on the table all over again. And while unlike yesterday there is US macro data, in the form of US consumer confidence, new homes sales and house price data, all the market will care about is soothing Wall Street sellside spin that Italy is not really as bad as everyone said it would be if precisely what happened, happened. With the EURUSD on the verge of breaking down the 1.3000 support, it is very unclear if they will succeed.

From JPM: "The market implications are not positive in our view: we see risks of no agreement or slow progress on a grand coalition over the next few days. Even if an agreement is reached we see a very weak political mandate for further austerity measures and any type of structural reforms. This coupled with recent weakness in some macro releases, is likely to halt the progress on the virtuous circle of improving financial conditions, lower volatility and increasing investor appetite for riskier assets such as peripheral bonds. Although we believe tail risk is greatly reduced relative to last summer, we recommend investors to open risk-off trades. Technicals are supportive, with our client survey showing that benchmarked investors entered the Italian elections long peripherals vs. core countries. We recommend longs in 10Y Bunds (with a 1.35% target) and find 5s/10s flatteners an attractive bullish proxy. We unwind trades with a bearish duration bias such as 3s/7s steepeners and 10s/30s flatteners in Germany. In terms of core spreads, we close 5Y overweights in Belgium and turn neutral. In peripherals, we open shorts in 10Y Italy as we believe that 10Y BTP yield could exceed 5.00% in coming days."