If last week's big "Risk Off" event was the acute spike in heretofore dormant Portugese bank troubles (as a reference Banco Espirito Santo has a market cap at the close last night stood at around €2.1bn ($2.9bn), contrasting to Goldman Sachs ($78.1bn) and JP Morgan ($220.5bn)), then yesterday's acceleration in the Portuguese lender's troubles which as we reported have now spread to its holding company RioForte which is set to default, were completely ignored by the market. Today this has conveniently flipped, following a Diario Economico report that Banco Espirito Santo has the potential to raise capital from private investors. No detail were given but this news alone was enough to send the stock soaring by nearly 20% higher in early trading. Still, despite the "good", if very vague news (and RioForte is still defaulting), Bunds remained bid, supported by a good Bund auction, in part also dragged higher by Gilts, which gained upside traction after the release of the latest UK jobs report reinforced the view that there is plenty of spare capacity for the economy to absorb before the BoE enact on any rate rises. Also of note, touted domestic buying resulted in SP/GE 10y yield spread narrowing, ahead of bond auctions tomorrow.
Michael Lewis probably said it best when he told 60 minutes that the stock market is rigged. To the fantastic claims made by HFT that they provide liquidity, perhaps we should ask, what kind of liquidity? To the now obviously ludicrous claim that "everyone's order uses the same tools that HFT uses", we'll just say, the data shows otherwise. ... What is shown here is as close to automatic pilfering as one can get. It probably results in a few firms showing spectacularly perfect trading records; it definitely results in people believing the market is unfair and corrupt.
Having glimpsed the ugly reality of the under-belly of the Chinese economy last week, and the divergence between that and the government's PMI survey fallacy, it is no surprise that by the magic of excel, GDP and Industrial Production modestly beat expectations (+7.5% YoY vs 7.4% exp and +9.2% YoY vs +9.0% exp respectuvely). However, despite epic credit injections, home prices tumbled 9.2% YoY and Retail Sales missed expectations rising only 12.4% YoY. Even as it is self-evident that re-flating the next chosen bubble, or attempting to socialize losses, is not sustainable in the long-run, it is clear (given the surge in deposit creation in recent months) that China has chosen the path of short-term easy-street as opposed to the reform-based hard-street they had promised.
We can hear the headlines now... thin of the tax cuts, think of the improved discretionary spending, see Iraq was a storm in a teacup... WTI Crude's drop back below $100 provdes so much great news for the world that many perhaps are missing that the world and his brother were long black gold into this and this squeeze appears anything but reflective of the rising tensions... (or is it due to tumbling demand?) Russia won't be happy - time to escalate.
Portugal Contagion Spreads: Espirito Santo To Default On Portugal Telecom Loan, Business Lending Drops Most On RecordSubmitted by Tyler Durden on 07/15/2014 08:27 -0400
Despite reassurances from US asset-gatherers and TV 'personalities' that Portugal must be fixed (because US equities are up), it is anything but. Today's triple whammy from the 'recovered' Portugal starts with Banco Espirito Santo bonds and stocks hitting new record lows (down over 10% more on the day). The contagion has rippled across to Rioforte, which controls Grupo Espirito Santo's non-financial arm - and is likely to default on a EUR 847 million payment to Portugal Telecom. And just to add further salt to that wound, Portuguese business lending in May collapsed at a record pace (down 8.23%). But apart from that, yeash Portugal is all fixed and their sovereign bonds are worth every penny...
JPM Earnings Slide 8% On Drop In Trading Volume, Mortgage Production Offset By $1.5 Billion Stock BuybackSubmitted by Tyler Durden on 07/15/2014 07:40 -0400
While JPM stock is trading modestly higher in the pre-market following its earnings report which beat expectations on the top and the bottom line, it doesn't hide a troubling trend seen across all the banks that have reported so far, one we forecast would take place in an environment of plunging trading volumes and near-record low mortgage production: slumping earnings. J.P. Morgan Chase JPM +0.88% & Co. said second-quarter earnings sank 7.9% as the bank continued to grapple with weak trading revenue. Indeed, as WSJ summarized, "J.P. Morgan Chase & Co. said second-quarter earnings sank 7.9% as the bank continued to grapple with weak trading revenue."
It has been a mixed overnight session, following data out of China first showing that any hopes of ongoing PBOC tapering are dead and buried, following the June report showing money and loan creation (1.08 trillion Yuan up from 871 billion in May and above the 980 billion expected) in China soared, slamming expectations and indicating that Beijing is once again set on masking slowing growth with a surge in money creation. Should the Chinese not so secret any more money laundering channel be plugged this means local inflation may be set to surge in the coming months. More worrying was the release of a big drop in the German ZEW Survey expectations print at 27.1, down from 29.8 and below the expected 28.2. The low print has prompted several banks to warn that Europe's growth spurt has finally ended and there may be substantial downside surprises ahead, and certainly even more cuts to the IMF "forecast" for European growth. Finally, the Portuguese situation may be out of sight, but it is certainly not out of mind as the stock of BES continues to tumble and now the contagion has finally moved over to Espirito Santo Financial Group whose shares dropped to the lowest since 1993. Keep a close eye on this "not so lonely" cockroach.
The UBS trading floor in Stamford, CT was dubbed (by Guinness World Records) the largest in the world. But now... as the WSJ reports, there are virtually no traders shouting into their phones or staring at terminals. UBS's cavernous floor is taken up mostly by back-office, legal and technology staffers, according to people familiar with the bank. Simply put, a deep slump in trading activity in everything from stocks and bonds to currencies is changing the face of Wall Street. Today's markets are "boring," rants a senior credit trader; "It's been absolutely dead," warns another adding, "When you go a day or two and don't have a trade on the tape, it's frustrating," as stock trading in the second quarter fell 43.6% from second-quarter 2009 levels to their lowest level since 2007.
The central banks of the world are massively and insouciantly pursuing financial instability. That’s the inherent result of the 68 straight months of zero money market rates that have been forced into the global financial system by the Fed and its confederates at the BOJ, ECB and BOE. ZIRP fuels endless carry trades and the harvesting of every manner of profit spread between negligible “funding” costs and positive yields and returns on a wide spectrum of risk assets. Stated differently, ZIRP systematically dismantles the market’s natural stability mechanisms.
It appears His word is losing its omniscience. Speaking to the European Parliament, ECB's Mario Draghi unleashes a torrent of negative-now-but-positive-just-around-the-corner attempts to talk down the Euro... and it's not working...
- *DRAGHI SAYS APPRECIATING EURO WOULD BE RISK TO RECOVERY (sell!)
- *DRAGHI SAYS JUNE POLICY MEASURES HAS EASED POLICY FURTHER (see sell!!)
- *DRAGHI SAYS RISKS TO ECONOMIC OUTLOOK ARE ON DOWNSIDE (really sell please!!!)
- *DRAGHI SAYS READY TO USE UNCONVENTIONAL TOOLS WITHIN MANDATE (Seriously sell!!!)
For now, EURUSD dropped 5 pips and rallied back to unch... not exactly what he hoped for...
Presented with little comment aside to remind the gung-ho stock-buyers who have been convinced (because the mainstream media has moved on from Banco Espirito Santo contagion concerns) that Portugal is anything but fixed. No government bailout coming means bail-ins and bail-ins means confiscation... Banco Espirito Santo bonds are collapsing today... down almost 8 points as they know this doesn't end well.
UPDATE: Gold is down 2.5% - the biggest daily drop since early Dec 2013
In a status-quo reinforcing smackdown, gold and silver prices have been clubbed lower this morning to one-month lows with the biggest drop in almost 2 months. The customary USDJPY surge (and risk asset spike) has accompanied this high volume dump just to make sure everyone believes that BES is fixed, Ukraine is fioxed, Iraq is fixed, earnings are great, and the water is warm....
Vested interests are threatened by the losses generated by small financial fires, so these are systemically suppressed. As a result, the fallen deadwood piles ever higher, creating more fuel for the next random lightning strike to ignite. Once the deadwood piles high enough, the random lightning strike ignites a fire so fast-moving and so hot that it cannot be suppressed, and the entire financial system burns to the ground. So go ahead and keep defending the Status Quo as the best system possible, or believe Elites will keep suppressing fires forever because they're so powerful, or whatever excuse, rationalization or justification you prefer. It won't matter, because the firestorm won't respond to words, beliefs, ideological certainties, reassurances or official pronouncements. It will do what fires do, which is burn all available fuel until there's no fuel left to consume.
Another round of overnight risk on exuberance helped Europe forget all about last week's Banco Espirito Santo worries, which earlier today announced a new CEO and executive team, concurrently with the announcement by the Espirito Santo family of a sale of 4.99% of the company to an unknown party, withe the proceeds used to repay a margin loan, issued during the bank's capital increase in May. This initially sent the stock of BES surging only to see it tumble promptly thereafter even despite the continuation of a short selling bank in BES shares this morning. Far more impotantly to macro risk, it was that 2013 staple, the European open surge in the USDJPY that has reset risk levels higher, while pushing gold lower by over 1% following the usual dump through the entire bid stack in overnight low volume trading. Clearly nothing has been fixed in Portugal, although at least for now, the investing community appears to have convinced itself that the slow motion wreck of Portugal's largest bank even after on Sunday, Portugal’s prime minister said taxpayers would not be called on to bail out failing banks, making clear there would be no state support for BES.