Archive - Jul 4, 2013 - Story

This weekend's epic indignation by Francois Hollande at the NSA, coupled with his laughable ultimatum for Barack Obama to stop spying, was almost good enough to mask the fact that none other than France has its own version of the NSA happily intercepting and recording every form of electronic communication. Almost. Overnight French Le Monde reported that "France, like the United States with the Prism system, has a large-scale espionage telecommunications device. Le Monde is able to reveal that the General Directorate for External Security (DGSE, special services) has systematically collected and spied on the electromagnetic signals emitted by computers or phones in France, as well as flows between French and abroad all our communications. Politicians are aware of this, but secrecy about the Big Brother operation is the rule."

Following BoE Carney's earlier dovishness, and purely by "coincidence" according to Draghi, the ECB has "extended forward guidance" on rates for the first time - once again changing rules and clearly indicating (in spite of his explicit comments that he is not) the ECB's reaction to Fed and BoJ instability introduced into markets. The OMT remains a ghost - but he promises its there if they need it - and negative rates are still on the table. All this jawbone easing (for critically nothing was said apart from no withdrawal of liquidity anytime soon) has sent markets surging higher on a US-market-holiday-induced low liquidity background...

The all important ECB press conference is set to begin momentarily. Will Draghi answer questions regarding the readiness of the OMT's use in Portugal whose short end has exploded this morning, or will he be forced to wait for the German court's decision first? Or maybe Draghi will finally have some comments on either the ongoing Monte Paschi scandal or the recently revealed Italian derivative debacle which took place under Draghi's watch. We somehow doubt it...

*DRAGHI SAYS ECB RATES TO STAY LOW FOR EXTENDED PERIOD OF TIME
*DRAGHI: IMPROVEMENT IN FINANCIAL MARKETS SHOULD REACH ECONOMY
*DRAGHI SAYS INFLATION RATES MAY BE VOLATILE THROUGHOUT YEAR
*DRAGHI: RECENT TIGHTENING OF MARKET RATES MAY WEIGH ON GROWTH

Despite media rumors that the Portuguese foreign minister Portas, who resigned on Tuesday precipitating a complete collapse in Portugual bond prices and ushering in the latest European political crisis, has agreed to stay in the government as a Deputy PM and economy minister (nothing like some title inflation-pro-quo), things in Portugal are rapidly turning from bad to worse. To wit:

PORTUGUESE 10-YEAR BONDS DECLINE; YIELD RISES 14 BPS TO 7.60%
PORTUGUESE TWO-YEAR NOTE YIELD RISES 60 BPS TO 5.64%
PORTUGUESE 2-YEAR YIELD REACHES 5.66%, HIGHEST SINCE NOV. 20

The main reason for the collapse appears to be the near consensus developing this morning that no matter what the government does at this point, a second bailout of the small country is inevitable.

As largely expected, the ECB just announced that all three of its key rates remain unchanged.

At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.50%, 1.00% and 0.00% respectively.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today.Since the announcement itself is never that exciting, attention as usual shifts to the 8:30 EDT press conference by Mario Draghi in which he will indicate, once more, just how non-existent the OMT's legal term sheet is, and thus how the European deus ex machine, the OMT, continues to be merely a jawboning-inspired mirage (even though Portugal will need it quite soon).

While it was not surprising that the BOE did nothing to change its rate or QE program, it was surprising (to some) that in the first official statement following the appointment of Goldman's Mark Carney as head of the Bank of England, the bank did mention that forward guidance and intermediate thresholds would likely be considered at the August assessment. Which, of course, is code for expect a major change in monetary policy. And now we also know the date, meaning that some time in August Goldman's latest central bank head will proceed doing what Goldman central bank heads do best: crush currencies in order to boost nominal, not real, returns and ensure another record Goldman bonus pool.

Given the US holiday, markets are likely to be thin today but there are some big news stories floating around at the moment.  If the fast and furious events from the past few days in a revolutionary Egypt bear a striking resemblance to what happened in the spring of 2011, it is because they are strikingly comparable. Only this time, following the ouster of yet another US-supported "leader" by the US-supported military, the country's CDS has normalized at a level that is roughly double where it was two years ago as the implicit backing of the US looks increasingly shaky, following what was yet another bungled foreign policy venture by the Obama administration. But for now, the people are celebrating, just as they did in 2011. One wonders what happens between now and the next coup, somewhere two years (or less) hence. For now focus merely on who controls the Suez - after all that is really all that matters for the US. The other major story of yesterday, Portugal, continues to be in limbo,