Market players are watching for any details on the ECB’s bond purchasing plans, after bank chief Mario Draghi said last week that the ECB would target short-term debt, fuelling optimism in the bond markets. A Reuter’s poll of economists on Friday highlighted that they expect the Fed to start QE3 in September, but a top Fed official said that a stimulus package so close to a presidential election would not be prudent. Since the ECB conditioned it would buy more government debt from Spain & Italy if they agreed to strict austerity packages, this has decreased pressure on either country to act quickly. The Financial Times interviewed Ken Wattret, a BNP Paribas economist who said: “If people think this will all be sorted in a matter of days, or weeks, then they will be disappointed. We could be in limbo for months.”
According to the latest Centro de Investigaciones Sociológicas (CIS) poll, Spanish Prime Minister Mariano Rajoy’s popularity has sunk to the point where 77.9% of the country’s electorate has little or no confidence in him. The survey still shows Rajoy’s conservative Popular Party (PP) ahead of the Socialist Party, however, by 6.7 per cent – eight percentage points down from the PP’s historic election win eight months ago. Ironically, during his entire his political campaign, and during his time as leader of the opposition, Rajoy’s fundamental message was that the country needed “a shot of confidence” to overcome its economic woes. Rajoy’s promises to implement swift and credible policies that would restore confidence in Spain were pivotal to his landslide electoral victory last November. However, the complete U-turn his Administration begun only days after taking office has left many feeling betrayed. Broken promises aside, his distant and elusive manners have only added to the detriment of his public image.
- Standard Chartered Falls Most in 24 Years on U.S. Iran Probe (Bloomberg)
- Iran accusations wipe $15 billion off StanChart shares (Reuters)
- Hilsenrath tells us that Fed Official Calls for Open-Ended Bond Buying (WSJ) - shocking indeed
- German opposition backs fiscal union, demands constitutional change and referendum (FT)
- Gary Gensler speaks: Libor, Naked and Exposed (NYT)
- IMF Pushes Europe to Ease Greek Burden (WSJ)
- Second TSE System Error in Seven Months Halts Derivatives (Bloomberg)
- Rice Hoard Offers World Respite as Food Costs Surge (Bloomberg)
- UK coalition in crisis over parliamentary reform (Reuters)
- Ethics probe could deal losing hand to Nevada Democrat (Reuters)
This morning there was a round of European economic data which showed that regardless of whether Italian and Spanish bonds trade up or down by 100 bps on any given day, the continent remains deeply mired in recession. First we got Dutch June Industrial Production (a AAA country), which slid from -0.3% to -0.6%, on expectations of an increase, then this was repeated with Italian June Industrial Production which also missed estimates printing at at -1.4% in June, a drop from +1.0%, and below the estimate of -1.05%, followed by UK Industrial production which collapsed, IP sliding from 1.0% to -2.5%, the biggest one month drop since November 2008, but modestly better than expectation which is what apparently drove the GBP higher - the market: always the optimist. And then the cherry on top was German factory orders which plunged from 0.7% to -1.7%, missing expectations of a -0.8% print. Completing the sad economic picture was Italian Q2 3GDP which which was essentially unchanged at -0.7% compared to Q1's -0.8%. Goldman was certainly not happy with Italian data: "The recessionary dynamic is likely to mechanically weaken tax revenues this year, creating hurdles for the fiscal consolidation that is otherwise well underway... We believe that the domestic economy - in particular private sector consumption and investment - currently faces strong headwinds (fiscal adjustment, financing conditions) that may end up harming sequential growth dynamics by more than we currently foresee."
HARP, The Home Affordable Refinance Program, is a streamline refinance program developed to help borrowers who have continued to make their mortgage payments, but have be unable to refinance due to a decline in their home value. While it is encouraging that more and more underwater homeowners are gaining the benefits of today’s low interest rates, tremendous profits are being made at their expense. Lack of competition is the primary catalyst, but the underlying economics of the large “too big to fail” banks will do nothing but stoke additional anger in the general public. Expect this trend to continue until the dynamics of the program is changed once again, possibly in HARP 3.0. Until then, the cash cow will continue for the TBTF banks.
Ten days ago, when predicting what may and likely will be the outcome of the August ECB announcement, we said that it is virtually certain that it will follow in the trailblazing footsteps of what Mario Monti did at the June 29th meeting. To wit: "The bottom line here is that Draghi most likely pulled a Mario Monti (and his hanger on Mariano Rajoy), and spoke up before pre-clearing with Buba's Weidmann. Draghi thinks that, like Monti with Merkel at the June 29 summit, he can bluff the Bundesbank into submission, and Germany will agree to monetization, especially if markets have risen enough where nothing out of the ECB next week leads to a market plunge. The problem is that as we patiently explained, Monti got absolutely no concessions our of Merkel, as was seen in the bond yields of Spain after the June 29 summit." Sure enough, the market soared in the days after June 29 as well, giddy with optimism that Germany would never settle for being bullied publicly and had implicitly agreed with the Monti and Rajoy. Euphoria promptly turned to despair as it became quickly clear that Monti had bluffed without preclearing with Merkel and Buba. Fast forward one month, and what we expected to happen is precisely what did happen.
UPDATE: *CHEVRON RICHMOND REFINERY HYDROCRACKER EXPLODED: KPIX-TV, REFINERY SHUTDOWN, CAN PROCESS 244,000 BBL/DAY
Chevron's Richmond refinery, the largest refinery in California, is under a Level 3 Hazardous Material extreme immediate warning with local authorities advising local citizens to "to shelter in place, go inside, close all windows and doors, turn off all heaters, air conditioners and fans. If not using the fireplace, close fireplace dampers and vents, and cover cracks around doors and windows with tape or damped towels." As KTVU2 comments, it appears massive and out of control currently. Live KRON4 stream embedded below.
- *2 DISTINCT PLUMES OF SMOKES OBSERVED EMITTING FROM CVX REFINERY
- *CHEVRON SPOKESWOMAN SAYS NOT SURE WHAT CAUSE OF FIRE IS :CVX US
- *CHEVRON RICHMOND REFINERY HAS EVACUATION ON EMISSIONS: FILING
Earlier today the Spanish stock exchange was down for nearly 5 hours - the reason is unclear: perhaps as a form of precrime punishment to all those felons who would even consider selling stocks in the future. Now, the SkyNet self-awareness wave goes East just as Japan opens and takes down all Tokyo derivative trading:
- Tokyo Stock Exchange Stops Derivative Trades, Cites System Error - BBG
- Tokyo Stock Exchange Group stopped trading of Topix futures, JGB futures and options from around
9:20 a.m. because of a systems error.
- Co. spokesman Naoya Takahashi spoke in phone interview
In the aftermath a series of events such as the FaceBook IPO collapse, Knight, IBEX, this was only logical and expected. Tomorrow, any stock market that even thinks of a red candle will be halted indefinitely.
Instead of having to fire 1900 people, Deutsche Bank will now have to only let go 1899. The reason: the second most prominent casualty of the Lieborgate scandal is now none other than Bob Diamond's daughter Nell, who made quite a splash in the aftermath of the Barclays Libor manipulation revelations when the social circuit butterfly tweeted that "George Osborne and Ed Miliband can go ahead and #hmd.” As it turns out after graduation from Princeton University in June 2011, and following a stint in UNICEF, the philanthropist, whose twitter profile is riddled with photos of shoes and runway poses, joined Deutsche Bank in November 2011, whether due to her natural curiosity into the minutae of Investment Banking, or for other reasons. Of course, considering her Princeton thesis was on "The Cultural Myth of Female Hair in the Victorian Imagination" (strinkingly comparable to "The Power Of Women's Hair In The Victorian Imagination" but we digress), it likely was the latter. As it turns out, 9 months after joining the firm full time (she had a part-time stint in the summer of 2010, following comparable stints at the Abernathy Macgregor Group, Nantucket Ice Cream Company, Abercrombie and Fitch), the young woman who sold "Rates" products (Libor and other IR derivatives? Surely that would be ironic at a bank which is now front and center into the Lieborgate investigation) at Deutsche Bank has decided to call it quits, in the process saving the job of at least one low level banker who now will not have to be let go because of the lack of an English thesis focusing on Female hair during Victorian times
In the weeks and months directly ahead, we need to monitor the tone of business capital spending and hiring. If businesses freeze up, economic growth will slow even further. This may be great for Bernanke in terms of providing cover to implement more QE, but for the real economy and financial asset investors it’s another story entirely. In fact it’s a story that stands in direct contrast to outcomes in the latter parts of 2010 and 2011. Moreover for equity investors, we need to remember that in the latter half of 2010 and 2011, the trajectory of corporate earnings growth was very strong. That’s not the case any longer in terms of growth rate. That tells us that economic growth must reaccelerate in good part to justify the already seen upward movement in financial assets largely driven to this point by QE sugar plum fairies dancing. Stay tuned. We know the key drivers to monitor. In the months ahead, it’s all about the interaction of key economic drivers, central bank QE drive by’s, and potential US fiscal cliff dives.
Last week we wrote that we were not surprised to learn that the first party of interest in the PFG bankruptcy was "none other than JPMorgan, which together with various other banks, will be the target of a subpoena by the PFG trustee." We added "How shocking will it be to find that Dimon's company is once again implicated in this particular episode of monetary vaporization." It appears that we were not the only ones shocked to learn that Jamie Dimon's firm could make a repeat appearance again when it comes to missing client money: JPM itself seems to not have expected this development. The result, as just reported by Reuters: "JPMorgan Chase & Co on Monday sought to limit the power the bankruptcy trustee for Peregrine Financial Group has to subpoena information from financial institutions that did business with the failed brokerage." Why, whatever may JPMorgan be hiding, and whyever is it taking preemptive steps from preventing such information from leaking into the public domain: because it is too "burdensome" - it is only logical that Jamie can not dedicate one person of his 261,453 employees to this modest matter. No fear though: even if it is found that just like in the MF Global bankruptcy JPM may have overreached just a tad when it comes to money that doesn't belong to it, the CFTC can just say that as a result of an extensive 4 year investigation, JPM was found to have done nothing wrong, and if the public can please already disperse.
This is the where we would normally do our daily market summary, but frankly there is no longer a market left to summarize: today's volume may not have been the lowest of 2012, including holidays, but it was close. Total volume on Tape A for all exchanges was just above 3 billion shares, 20% below the YTD average, which in turn is 20% below the 2011 average, and so on. As more and more firms such as Knight are carted out, and as confidence in the market follows the US corn reports percentage of corn in "good excellent" condition lower to zero, and then negative (why not? We have NIRP in half the developed world after all) more firms will have no choice but to go out of business: some may blame their extinction on a rogue algo, some on a social network IPO, but the reality is that unless trading volume picks up, banks and trading desks, in their current shape, are doomed.