Archive - Apr 17, 2015 - Story

As Grexit contagion spreads so European peripheral bond risk has surged. Portuguese, Italian, and Spanish risk has increased by the most since May 2010. It appears that the hope of "containment" in Europe via Q€ purchases is overwhelmed by the outflows - this was extremely evident in German markets today that saw 'someone' selling both bonds & stocks as Grexit fears rose. European stocks were all battered - the worst week of the year - with Germany worst as European VIX soared 5 to 25.05 - its biggest jump in 4 months.

In order to maintain a grip on market share by pushing U.S. shale producers out of the market, Saudi Arabia (and OPEC) is willing to use up its spare capacity. That could lead to a price spike.

"Service has been fully restored. We experienced a combination of hardware and software failures in the network, which caused an excessive volume of network traffic. This led to customer disconnections as a result of the machines being overwhelmed. We discovered the root cause quickly, isolated the faulty hardware, and restarted the software. We are reviewing our multiple redundant systems, which failed to prevent this disruption."

Greek FinMin Varoufakis is meeting sovereign debt lawyer Lee Buchheit today, the ‘fairy godmother to finance ministers in distress’... The big questions concern not just the difference between on the one hand, economic issues and on the other, political ones. Syriza doesn’t have the mandate to take Greece out of the eurozone. That is a huge point. But neither does it have the mandate to give in to the troika’s insistence on pensions cuts. At a certain moment, it may come down to what can be explained to the Greek people, and how well it can be explained. This explanation will almost certainly have to come after the fact, since holding a referendum pre-Grexit would carry far too much potential risk of uncontrolled demolition of the entire Greek economy and banking system.

• 2010: The first full year of the recovery was a growth recession with a collapse in inventories (after the restocking was complete), and continued private sector deleveraging.
• 2011: There were a series of events, including the Japanese tsunami, spike in oil prices and US debt downgrade by S&P.
• 2012: The crisis in the Eurozone intensified with concerns over a Greek exit and a breakup of the Eurozone. The policy response abroad was lackluster and there were concerns of another financial crisis.
• 2013: The combination of the sequester, debt ceiling fight and government shutdown created an environment of heightened uncertainty and fiscal restraint.
• 2014: The polar vortex delayed economic activity and led to a permanent loss of growth.
• 2015: Rapid appreciation of the dollar and heightened uncertainty about the winners and losers from plunging oil prices has hurt growth. A small part of the weakness may be related to the weather and the dock strike.

DAX is plunging this morning, hitting news lows for the day, as the last 2 days have been the biggest drop in the Q€-juiced index since mid-December. At the same time, 10Y Bunds are seeing yields collapse to as low as 4.9bps...

Well that escalated quickly...

Having fallen for the last two months, with stock prices back near record highs, many expected an exuberant bounce in UMich Consumer Sentiment and were not disappointed. In the face of rising gas prices, Consumers were loving it - UMich printed 95.9, beating expectations of 94.0 by the most since August, for the 2nd most exuberance since 2007. Current and futures expectations rose notably as consumers believe now is a good time buy a home, vehicle, ore major appliance more than ever.

IMF OFFICIAL: IMF'S GREEK ECONOMIC OUTLOOK NEEDS TO BE LOWERED

IMF MAY NEED NEW DEBT ANALYSIS ON GREECE, THOMSEN SAYS

While the Chinese are long to bed, futures continue to trade on their exuberant stock market... and it's going south in a hurry. As we noted earlier, the catalyst appears to be a regulatory decision to increase the number of 'shortable' securities (and follow-through from PBOC's day prior demands of brokers to monitor margin trading). Both of these actions were taken as 'signals' that policymakers may be getting nervous about the ebullient wealth creation... Chinese stock futures are now down almost 7% - the 2nd biggest drop in 7 years.

Just as China was closing for trade and Europe was opening, something previously unseen happened: no, not another another GPIF or Virtu inspired marketwide stop squeeze, those are quite recurring these days. It was virtually every Bloomberg terminal around the globe suddenly going dark.

Update: SCHAEUBLE: GREECE FREE TO SEEK RUSSIAN AID, MAY NOT GET MUCH

As Greeks take to the streets, Varoufakis calls predictions about Grexit reverberations delusional, and Bloomberg proposes a list of Greek default scenarios. Meanwhile, central banks move to ringfence Greek exposure and analysts scramble to outline the risk of bank runs, capital controls, and contagion. 

Stocks - for now - are ambivalent to the highest core CPI in 5 months; but the grown-up markets in bonds and FX are taking notice. The Dollar has surged (led by EUR weakness) and long-bond yields are up 5bps (back to unchanged on the week).

Following February's big bounce back MoM, Consumer Prices in March rose 0.2% MoM (less than the expected 0.3% rise) but it is YoY that is the great news for Americans. CPI fell 0.1% YoY in March (below expectations of unch) which means Consumer Prices haven't risen YoY in 3 months. However, while this clear disinflationary signal is peersisrtent, Core CPI continued to rise 1.8% from last year  (above the 1.7% consensus) driven by big jumps in the cost of shelter (thank you Fed) and healthcare (thank you Govt); which should send shivers through the risk-bulls as The Fed may be forced to pull rate hikes forward.

A large number of European countries have effectively quarantined Greece in a bid to minimize the consequences on their credit systems in case of a Greek "accident." As ekathimerini reports, the actions are being taken in order to shield themselves and minimize the danger of contagion in case the negotiations between the Greek government and the eurozone do not bear fruit. This has sparked broad-based selling across global risk assets but particularly in Europe. Stocks from Germany to Spain are having their worst day of the year, European sovereign bond risk is exploding higher (contagion Mr. Schaeuble?), and Greek bank bonds and stocks are getting crushed.