It is not only the Chinese interbank market that has found itself in a liquidity vacuum. A quick look at recent moves in European overnight lending rates shows that in the past two weeks the key Eonia overnight rate hit a multiyear high of 1.549%, which was rather disturbing because as Reuters points out "Factors related to the end of the first half of the year, when banks tend to lend less as they square up their books, also kept cash prices over two weeks near the European Central Bank's main refi rate of 1.25 percent, money market traders said." Of course, concerns about Greece are a far more prevalent factor in the closed loop that is liquidity evaporation. Which is why the Eonia plunge to 1.091% on Wednesday would have been surprising in isolation, but not if one considers that during yesterday's ECB Main Refinancing Operation (MRO), banks borrowed a whopping €186.9 billion in 7 day funding at a fixed rate of 1.25%. This is €50 billion more than what was borrowed in the past week, and as the chart below shows, is the highest since January when the market was once again concerned about European exposure to Portugal and Ireland (then subsequently forgot all its concerns for about 5 months).
Tired of highly technical and sophisticated gobbledygook from doomers and other realists, talking about the Greek implosion in terms of CDS, liquidity freeze, Main Refinancing Operations (that is coming in the next post just after this one), FX swaps, contagion, etc? Then here is Jon Stewart to explain the Greek situation to everyone in a few short mintues. The fun starts 2 minutes into the clip.
While Bill Gross may be ignored, what a former Fed chairman is saying may be a just a little more important
- BROADDUS SAYS ANY DISINFLATION MAY PROMPT FED TO CONSIDER QE3
- BROADDUS SAYS FED UNDERSTANDING OF INFLATION HAS IMPROVED
- FORMER RICHMOND FED CHIEF BROADDUS SPEAKS ON BLOOMBERG TV
(and no, his first name is not Calvin).
Bernanke Lies Half Life Reduced To Under One Day As Aflac Scrambling To Shore Up Liquidity On European ExposureSubmitted by Tyler Durden on 06/23/2011 - 11:33
Yesterday during his press conference, the Chairman uttered his latest lie: "We have asked the banks to essentially do stress tests and ask, looking at all their positions, all their hedges, what would the effect on their capital be if -- if Greece defaulted...The answer is that the effects are very small.” Enter Aflac to prove that the half life of Bernanke's lies is now under 24 hours. From Bloomberg: "Aflac Inc. (AFL), the largest seller of supplemental health insurance, may issue as much as 100 billion yen ($1.24 billion) in debt as it records losses tied to investments in banks from Greece, Ireland and Portugal. Second-quarter losses on the assets will probably be about
$610 million, the Columbus, Georgia-based insurer said today in
a statement." Additionally, Aflac CEO Amos has added invesments in public utilities and Japanese government debt to minimize the company's exposure in Europe. Yet what is truly hilarious is that as the EFSF's spokesman Christof Roche just announced in commenting on the sale of 2016 bonds from the CDO, "Asian investors bought 46.5% of the bonds issued yesterday." In other words, by transferring exposure to Japan, Aflac is merely gaining exposure to Europe through yet another insolvent government. But such is life in the unwind phase of the biggest global ponzi ever conceived, in which the smallest mark to market event on the global financial balance sheet in which everyone's assets are someone's else liabilities and vice versa, will launch the biggest house of cards collapse in history.
Greece Tensions Escalate As Labor Unions Call For Two Day General Strike On June 28-29 To Celebrate Austerity VoteSubmitted by Tyler Durden on 06/23/2011 - 11:01
The last time Greece had a full day strike was a week ago on June 15, when labor unions decided to cut another 0.15% from Greek GDP by doing absolutely nothing, and events on Syntagma square reached the highest level of violence so far in 2011. And unfortunately for the Troica, Greece seems to have realized that the best way to make sure the bailout program craters is by continuing to miss all IMF output and production targets. As a result, as Athens News reports, "according to the General Confederation of Workers of Greece (GSEE) and the civil servants' umbrella federation Adedy, the 48-hour strike is an escalation of their recent industrial action comprising 24-hour nationwide strikes in protest of the medium-term programme. A main demonstration will be held on Tuesday, June 28, at the Pedion tou Areos park in central Athens at 11am, while on Wednesday another demonstration will be held in downtown Klafthmonos Square." As a reminder June 28, is the far more critical Greece austerity vote, which unlike the vote of confidence in G-Pap, already has several PASOK members saying they will vote against it.
5 weeks ahead of the day when the debt ceiling "extend and pretend" plan ends, talks have broken down, and in order to hike Congressional Nielsen ratings, this time seemingly terminally. From Reuters: "U.S. Deficit-reduction talks led by Vice President Joe Biden have reached an "impasse," House of Representatives Majority Leader Eric Cantor said on Thursday, adding that he will not participate in the meeting of the bipartisan group that had been scheduled for later in the day. Cantor, a Republican, said the group has identified trillions of dollars in spending cuts, but had been unable to resolve a disagreement over tax increases Democrats sought. A Senate Democratic aide said the two sides "need to continue talking", and were continuing to talk. But an aide to Senator Jon Kyl, a Republican member of the Biden group, declined to comment on whether the senator would attend Thursday's scheduled meeting."
Courtesy of Reuters we have this lovely graphic reminder of what the US Strategic Petroleum Reserve looks like. Also, putting the 30 million barrel draw from the SPR in perspective, the US consumes 21 million bpd, and Canada exports over 2 million barrels daily to the US...
The big question is how many people are long stocks because they played the 200 day moving average bounce? We have had at least 3 chances in the last week for investors to buy the moving average. It seems like a lot of people had stopped buying the dip during the relentless march down for stocks, but everyone seemed to jump on the bandwagon that the 200 DMA was a big support for stocks. I think a lot of investors got sucked in and allocated capital and are now weak longs. One group waited until Tuesday when the market really seemed strong and 'was destined to test resistance at 1300' before buying in. The other group of weak longs are those who typically don't play technicals but found the 200 DMA bounce theory too compelling to resist. It is always difficult to trade when losing money, but the ability to make really dumb decisions goes up when we have positions that were put on for reasons that we don't normally follow. The technicians are used to these trades, it is what they do. The 'fundamentalists' are not and are more likely to react badly to losing money here. People must be scratching their heads a little, since it seems, according the rose colour glasses world i) Greece fixed, ii) Contagion avoided, iii) economic soft patch is only a soft patch and no risk of double dip, and iv) Bernanke will be there for us.
You Have Just Entered The Onion Zone: Irish Finance Ministry To Sell "Ireland Is Not Greece" T-ShirtsSubmitted by Tyler Durden on 06/23/2011 - 09:47
Just when you thought you had seen it all...
Well, it's not quite the negative Bill prints we saw right after Lehman, but the second someone lifts that offer in the 1 Month, Americans will revert to paying the Treasury for the privilege of it holding 1 Month paper. Of course, the last time the 1M was on the verge of being negative, the S&P was at 666. We are now double that. What happens should stocks plummet by 50%, without the Fed withdrawing the massive amounts of liquidity still sloshing out there: -0.5%? -1.0%?
The much anticipated, and expected, IEA report is here.
- IEA SAYS TO RELEASE STOCKS
- IEA SAYS TO RELEASE 60 MILLION BARRELS OVER COMING MONTHS
- IEA SAYS TO RELEASE STOCKS TO ENSURE SUPPLY DUE TO LIBYA
- IEA SAYS MEASURE TO ALLEVIATE LIBYA UNREST, IMPACT ON SUPPLY
- IEA SAYS 132 MILLION BARRELS LOST TO LIBYA
- IEA SAYS HIGH PRICES DAMAGE ECONOMY OF EVERY COUNTRY; IMPACT WORSE ON DEVELOPING COUNTRIES
- IEA SAYS VOTED FOR EMERGENCY RELEASE FOR ONLY THIRD TIME
EURCHF Tumbling, Prints Fresh All Time Low Of 1.1914, Commodities Plunge (Update: Scratch That, New Low Is 1.1875)Submitted by Tyler Durden on 06/23/2011 - 08:41
Wonder what is happening with Greek deposits? Nothing good, at least nothing good for Greek banks. And it is not just Greece: all of Europe is scrambling into the relative security of Switzerland where the EURCHF just hit a fresh all time low of 1.1915, and likely to drop much lower. And the FX massacre has just spread to commodities where everything is screaming "Risk Off."
Big Miss In Initial Claims, Print 429,000 On Expectations Of 415,000, Downward June NFP Revisions ComingSubmitted by Tyler Durden on 06/23/2011 - 08:38
The soft patch may need to order a lifelong supply of Viagra soon, as the economic news continues going from bad to worse: Initial Claims just printed at 429,000 on expectations of 415,000. Prior was naturally revised higher, the n+1 such revision, from 414K to 420K. Continuing claims also missed the consensus of 3670K coming at 3697K, although in yet another BLS spin job, the number will be presented as a drop, since the previous number of 3675K was revised to, wait for it, 3698K, a one week sequential drop of 1K in continuing claims. The week ended June 4 saw the first spike in recipients of extended claims, with both EUCs and Extended Benefits rising by 68K. Bottom line, this is the 11th consecutive week of 400K+ Initial Claims, which likely means that the June NFP will be revised substantially lower. The state by state analysis showed that not a single state had a decline of more than 1000 claims, while 13 state had a greater than 1000 increase in claims, with the biggest hit being Pennsyvlania and California, at 6,019 and 3,884, due to layoffs in the service, manufacturing and transportation industries.
- America Faces Critical "Colonel Jessup" Moment (RCM)
- Democrats push for jobs package in debt deal (Reuters)
- HSBC Preliminary China June PMI Falls to 11-Month Low (WSJ)
- Most Euro-Zone Economies Contract (WSJ)
- Trichet Says Risk Signals Are Flashing Red as Debt Crisis Threatens Banks (Bloomberg)
- A Divine Wind Blows Against Iran’s President (NYT)
- Syrian troops mass near Turkish border (Reuters)
- Yemen Jailbreak by Al-Qaeda Fighters Highlights Risk of Descent into Chaos (Bloomberg)
- Buy and Hold Crushes Day Traders, New Report Shows (CBS)
- Greek, Irish Incomes Take Hit (WSJ)
Risk-aversion remained the dominant theme during the European session on the back of the ongoing Greek debt concern, allied with worse than expected manufacturing PMI data from core Eurozone countries like France and Germany. This resulted in weakness in European equities, which provided support to Bunds, and also observed widening of Eurozone 10-year government bond yield spreads across the board. In the forex market, strength in the USD-Index weighed upon EUR/USD and GBP/USD, whereas weakness in commodities exerted downward pressure on commodity-linked currencies. Moving into the North American open, markets look ahead to key economic data from the US in the form of jobless claims, Chicago Fed and new home sales. In fixed income, 2-, 5-, and 7-year Note refunding announcement, another Fed's Outright Treasury Coupon Purchase operation in the maturity range of Aug'21-Nov'27, with a purchase target of USD 1-1.5bln, and USD 7bln 30-year TIPS auction are also scheduled for later.