Archive - Feb 9, 2015 - Story

With France pivoting and Merkel turning her back on Obama's arms-for-Ukraine proposals, perhaps Vladimir Putin can be forgiven for an impromptu exhibition of "jazz hands" at yesterday's Minsk Summit preparations...

For the first time ever, "developed" central banks are now monetizing more than 100% of global sovereign debt issuance!

The urgency to put your savings to work is understandable, but patience is a virtue. Sometimes the hardest thing to do is to wait for the right opportunity to come along... The math is pretty simple.

Just 3 short months ago, Greek bank bonds were trading near par and every over-leveraged, over-confident, over-full-of-propaganda hedge fund was buying them "for the yield" - well, S&P had upgraded Greece and implied 'all-clear'. Today, Greek bank bonds are trading at 60% of face-value, having dead-cat-bounced last week before re-collapsing today. Greek bank stocks are also careening lower with most at record lows (below the lows reached during the peak of the crisis). The reason to focus on these instruments is that, while somewhat illiquid, they are the most sensitive to the day-to-day headlines and overall sentiment on Greece (and Grexit) as a pure reflection (redenomination risk aside) of trouble ahead.

Having fallen for 47 of the last 51 days, The Baltic Dry Index (tracking the cost of shipping dry bulk from iron ore to grains) has been collapsing in a well-documented manner by Zero Hedge (though not the mainstream media). With Cramer having told investors of its importance previously, it will be hard to ignore the fact that, as of this morning, the index of global shipping costs has never (ever) been lower at 554. We leave it to readers to decide what they think this means (but we already know what it means for shippers and ship-building companies).

"We want to avoid further deterioration in relations between Russia and Europe," explained Cyprus' President Nicos Anastasiades upon reportedly signing an agreement to offer Russia military facilities on its soil (that we noted previously). The air force base at which Russian planes will use is about 40 kilometers from Britain's sovereign Air Force base at Akrotiri, on the south shores of Cyprus, which provides support to NATO operations in the Middle and Near East regions. As fault lines within the EU widen, Anastasiades said in his interview that Cyprus opposes additional sanctions against Russia by the European Union over Ukraine, "Cyprus and Russia enjoy traditionally good relations and that is not going to change."

"There is no way out" for Greece from its treaty obligations warns German lawmaker Michael Fuchs (Angela Merkel's deputy caucus chairman) telling Bloomberg TV that conditions set for Greece by The Troika (EU, ECB, IMF) for bailout funds "have to be fulfilled.... That's it, very simple." The Greeks remain adamant that they will not ask for an extension to the bailout mechanism with both Tsipras and Varoufakis confirming that a bridge agreement is required and the latter adding "the ECB has lost control of monetary policy," demanding the Troika structure come to an end. Then German Finance Minister Wolfgang Schaeuble exclaimed at the G-20 meeting that "Greece either has to find a way to get bridge financing, or, if they want to do it with us, they need a program," seeming to push the door open to possible Russian financial aid for Greece as Europe's pivot to Putin appears to be rising.

"Greek Fin Min Varoufakis said the euro will collapse if Greece exits, calling Italian debt unsustainable. Markets may gain the impression that Greece may not opt for a compromise, instead opting for an all or nothing approach when negotiating on Wednesday. It seems the risk premium of Greece leaving EMU is rising. Our scenario analysis suggests a Greek exit taking EURUSD down to 0.90."-  Morgan Stanley

• Greek Risk Draws Global Concern on Lehman Echo Warnings (BBG)
• Merkel to urge caution in U.S. as pressure builds to arm Ukraine forces (Reuters)
• West Races to Defuse Ukraine Crisis (WSJ)
• German-French Push Yields Ukraine Summit Plan With Putin (BBG)
• Swiss Leaks lifts the veil on a secretive banking system (ICIJ)
• Italy Lenders Seen Cleansing Books Amid Bad-Bank Plans (BBG)
• G-20 Finance Chiefs Face Tough Test in Istanbul (WSJ)
• Demand for OPEC Crude Will Rise This Year, Says Group (WSJ)... or rather prays
• U.S. Banks Say Soaring Dollar Puts Them at Disadvantage (WSJ)

In the absence of any notable developments overnight, the market remains focused on the rapidly moving situation in Greece, which as detailed over the weekend, responded to Europe's Friday ultimatum very vocally and belligerently, crushing any speculation that Syriza would back down or compromise, and with just days left until the emergency Eurogroup meeting in three days, whispers that a Grexit is imminent grow louder. The only outstanding item is what happens to the EUR and to risk assets: do they rise when the Eurozone kicks out its weakest member, or will they tumble as UBS suggested this morning when it said that "the escalation of tensions between the Greek government and its creditors is so far being shrugged off by investors, an attitude which is overly simplistic and ignores the risk of market dislocations" while Morgan Stanley adds that a Grexit would likely lead to the EURUSD sliding near its all time lows of about 0.90.

With SNB's Danthine having proclaimed last week that, despite allowing Swissy to free-float again (with a soft corridor from 1.05 - 1.10), that "the SNB remains ready to intervene on foreign exchange markets" one could be forgiven for thinking that the Swiss National Bank is at it again tonight. The 'stabilitee' of EURUSD - trading in a narrow 45 pip range and holding very close to unchanged (as US equity futures slide, Treasuries rally and gold rises) seems a little too well managed tonight and one glance at EURCHF's "spikey-ness" suggests the visible hand of intervention at play...