After yesterday's FOMC Minutes, despite a huge dovish reversal by the Fed - one which increasingly puts its "credibility" and reputation at risk - stocks were unable to close green, or even above 2100, for one simple reason: uncertainty with the fate of Greece. Overnight there has not been much more clarity, when as previously reported Greece submitted a 6 month extension request to its master loan agreement but not to its bailout extension, a nuance lost in the annals of diplomacy. But is this the much-awaited Greek capitulation? Or will the Eurogroup reject this too? The answer may be available in a few hours after an emergency Eurogroup meeting due later today. However, as usual stocks are ready to "price in" yet another Greek conflict resolution, and after futures were lower by 7 points overnight, were up 4 points at last check: a rebound which will not correct if the latest Greek "compromise" fails to deliver.
One thing is becoming clear: Greece will almost certainly not last until the proverbial D-Day on February 28 before it either i) runs out of money, ii) is forced to sign a "bailout extension" deal with the Eurogroup thus crushing its credibility with the people, or iii) exits the Eurozone. Needless to say, two of the three above options are very unpleasant for Greek savers, assuming any are left. And it is those savers that the Eurozone is directly targeting when it does everything in its power to provoke a bank run with statement such as these: "The situation of the banks is getting more and more difficult every day," said a European official. "In the end, in order to safeguard the banking system, capital controls will probably have to be imposed."
The chances of Greece being forced out of the euro zone have risen but a compromise agreement between Athens and its European partners is still possible, Greek media and investment banks said on Tuesday.
While certainly a revision is pending after today's latest, disastrous Eurogroup meeting after which the two sides are further apart from reaching a deal than a week earlier, here is the latest set of questions asked by UBS clients on the topic of "what could go wrong" with the biggest Swiss bank's mutedly optimistic outlook on the "global recovery" (aided no doubt by the biggest intervention of central banks in history) which is characterizes as "uneven", especially when one considered that even UBS itself admitted last week that a "dislocation" in the market (which is "underestimating Grexit Risks") is necessary in order to overcome the Greek impasses.
It has been a quiet start to the week, with US equity futures and European stocks mostly unchanged with all eyes on what progress (if any) will be made between Greece and the Eurogroup, where the press conference is scheduled for 7:00 pm GMT (expect significant delays) in what is otherwise expected to be a relatively subdued day with the US away from market and a light macroeconomic calendar.
- Greece will do 'whatever it can' to reach deal with EU (Reuters)
- ECB Urges Greek Political Deal as Emergency Cash Is Tight (BBG)
- Fighting rages in run-up to Ukraine ceasefire (Reuters)
- Eurozone GDP Picks Up, Thanks to Germany (WSJ)
- Two J. P. Morgan Executives Connected to Asia Hiring Probe Pushed Out (WSJ)
- Putin's High Tolerance for Pain and Europe's Reluctance to Inflict It (BBG)
- Indigestion Hits Top U.S. Food Firms (WSJ)
- Alibaba's Jack Ma seeks to reassure employees over U.S. lawsuits (Reuters)
Who would have thought all it takes for Eurozone Q4 GDP to print above expectations, even if by the smallest of possible margins - one which even the Chinese goalseek-o-tron bows its head down to in respect - which at 0.3% Q/Q was above the 0.2% expected and above Q3's 0.2%, was for Europe to admit it has finally succumbed to deflation. Oh, and for the ECB to admit the situation has never been more serious by launching Q€. Oh, and add the "estimated contribution" to GDP from hookers and drugs. Put all that together and on an annualized basis, the European economy grew by 1.4%. Whatever the reason, Q4 GDP was the best print since Q1, even as Germany blew not only consensus of 0.3%, but the highest GDP estimate of 0.6% out of the water when it reported that courtesy of a spike in spending, its economy grew by 0.7% in the fourth quarter, up from the near-recessionary 0.1% in Q3. That, together with QE and ZIRP now raging across the continent, was enough to push the DAX above 11,000 for the first time ever.
The bond market may have gotten so fragmented in recent months that even Bloomberg was amazed at how little trading volume it necessary to make a price impact, the amount of bond traders (and certainly salesmen), and certainly their bonuses, appeared to only go up. "Appeared" being the key word, however, because as Bloomberg reports, "the average number of dealers providing prices for European corporate bonds dropped to a low of 3.2 per trade last month, down from 8.8 in 2009, according to data compiled by Morgan Stanley."
Since the miserable US retail sales data hit, it appears the world's investors have decided that buying US stocks and US bonds is the thing to do...
So far it has been an overnight session which clearly forgot to take its lithium, with futures first tumbling after CNBC's "leak" that a Greek deal had been reached was refuted, only to surge subsequently on both the Riskbank's foray into NIRP and QE which crushed the Swedish currency and sent its stocks to recorder highs, and more importantly, on the latest ceasefire out of Minsk which has pushed Russian and European assets substantially higher. While only the most naive believe that any palpable end to Ukraine hostilities will emerge as a result of today's delay, expect for Greek headlines to return with a vengeance as today it is Tsipras' turn to speak at a summit of the 28 European Union leaders set to begin momentarily.
Ukraine Ceasefire Deal Agreed After Negotiations All-Nighter; Doubts Remain About Its ImplementationSubmitted by Tyler Durden on 02/12/2015 06:34 -0500
It would have simply been too much to handle for Europe and the risk off algos if hours after the embarrassing failure of the emergency Eurogroup meeting in Brussels failed to reach any deal involving Greece, the Ukraine ceasefire negotiations in Minsk were also to fall apart. Again. Which is probably why after a marathon session lasting 17 hours, and following repeated trial balloons that a deal had and/or had not been reached, a short while ago all major media outlets were delighted to finally blast some Risk On news namely that leaders of France and Germany brokered a renewed deal to end Ukraine’s 10-month civil war in the separatist eastern region, which means that we have a Minsk-signed Ukraine ceasefire. Again.
It looks reasonable that investors would not ask for an additional compensation for a source of risk that has limited direct economic bearing for other asset classes.... Such a conclusion would cease to hold, in our view, if Greece were to leave the common currency. Indeed, ‘Grexit’ would constitute a non-diversifiable event, affecting all financial assets. This is because, upon the departure of one of its members, EMU would likely be seen as a fixed exchange rate arrangement between countries which can elect to adhere or leave. Convertibility risk would resurface, exposing the possibility of a collapse of the entire project.
After paying governments, you'll be paying corporates...