Australia

All you need to read.

All you need to read.

It appears that when it comes to mocking consensus groupthink emanating from lazy career 'financiers' who seek protection from their lack of imagination and original thought, 'creation' of negative alpha and general underperformance (not to mention reliance on rating agencies, only to jump at the first opportunity to demonize the clueless raters), in the sheer herds of other D-grade asset "managers" (for much more read Jeremy Grantham explaining this and much more here), David Rosenberg enjoys even more linguistic flexibility than even us. Case in point, his just released trashing of the latest Barron's permabull groupthink effort titled "Outlook: Mostly Sunny." And just as it so often happens, no sooner did those words hit the cover of that particular rag, that it started raining, generously providing material for the latest "Roasting with Rosie."

All you need to read and some more.

UPDATE: BofA already calling the bottom in China's slowdown and CSI drops 0.2%

China's April HSBC Flash PMI came slightly stronger than expected but suggests manufacturing may remain in a contractionary state for the sixth month in a row. The problem for all those stimulus junkies is that while it does suggest contraction, the data rose modestly from last month's final HSBC Manufacturing PMI print. So is this data not cold enough for massive stimulus (which Australia must be craving given tonight's dismal PPI print) and not warm enough for the 'double-rip' camp and the expected hockey-stick in global growth that is to occur any moment now? For now the market seems on the fence.

All morning we have been blasted with 2011 deja vu stories how the IMF panhandling effort has finally succeeded, and how Lagarde's Louis Vuitton bag is now full to the brim with $400 billion in fresh crisp US Dollars bills courtesy of BRIC nations, and other countries such as South Korea, Australia, Singapore, Japan (adding $60 billion to its total debt of Y1 quadrillion - at that point who counts) and, uhh, Poland. From Reuters: "The Group of 20 nations on Friday were poised to commit at least $400 billion to bulk up the International Monetary Fund's war chest to fight any widening of Europe's debt crisis." We say deja vu because it is a carbon copy of headlines from EcoFin meetings from the fall of 2011 in which we were "assured", "guaranteed" and presented other lies that the EFSF would surpass $1 trillion, even $1.5 trillion on occasion, any minute now. Alas, that never happened, and while we are eagerly waiting to find out just what the contribution of Argentina will be to bail out Spanish banks (just so it can expropriate even more assets from the country that rhymes with Pain), we have one simple question: does the I in the IMF stand for Idiots? Why? Because this is merely yet another example of forced capital misallocation, only this time at a global scale.

When thinking of Australia, one traditionally imagines a country that is nothing but a secondary derivative of China's trade surplus, and an unpegged currency that allows for more trading flexibility than the Yuan. As a result, recurring calls warning of a housing weakness in the country are often ignored as there always appears enough liquidity to mask the issue just long enough. That may all soon be changing. Earlier today, insurance company Genworth Financial pulled the IPO of its Australian unit, sending its shares plunging by over 20% and its default risk soaring. Unfortunately for GNW, and soon for the entire Australian financial sector, instead of merely blaming market conditions, in the IPO, which was supposed to take public up to 40% of the company's Australian mortgage business, and has instead been delayed to 2013, GNW laid out a far more nuanced, and detailed explanation of what is happening. Alas, it also may be the canary in the coalmine that has been so long overdue in yet another regional, bubblelicious housing market.

• First Japan now... Australia Ready to Help IMF (WSJ)
• "Not if, but when" for Spanish bailout, experts believe (Reuters)
• Spain’s Surging Bad Loans Cast New Doubts on Bank Cleanup (Bloomberg)
• Spain weighs financing options (FT)
• Spanish Banks Gorging on Sovereign Bonds Shifts Risk to Taxpayer (Bloomberg)
• Spain and Italy Bank on Banks (WSJ)
• Chesapeake CEO took out $1.1 billion in unreported loans (Reuters)
• China preparing to roll out OTC equity market – regulator (Reuters)
• Angry North Korea threatens retaliation, nuclear test expected (Reuters)
• North Korea Breaks Off Nuclear Accord as Food Aid Halted (Bloomberg)

European markets are seen trading higher as North America comes to market, with some momentum seen following the release of the forecast-beating German ZEW Survey. An economist from the institution commented that downside risks have decreased significantly over the past month, prompting some risk-appetite in Europe during the morning. Participants were also looking towards the Spanish T-Bill auction with particular focus, but it did not confirm the nation’s worst fears as the auction passed with strong bid/covers, selling to the top of the indicative range. Yields, however, did increase over both lines. As such, the Spanish 10-yr yield has fallen below the key 6% mark and remained below that level for most of the session. Peripheral 10-yr spreads against the German Bund are seen tighter throughout the day, amid some market talk early in the session of domestic accounts buying the paper, however this remains unconfirmed.

• This is just hilarious on so many levels: Japan Will Provide $60 Billion to Expand IMF’s Resources (Bloomberg) - just don't look at Fukushima, don't look at the zero nuclear plants working, don't look at the recent trade deficit, and certainly don't look at the Y1 quadrillion in debt...
• US Senate vote blocks ‘Buffett rule’ (FT)
• Reserve Bank of Australia awaiting new data before considering rate move (Herald Sun)
• Merkel Offers Spain No Respite as Debt Cuts Seen As Key (Bloomberg)
• RBI cuts repo rate by 50 bps; sees little room for more (Reuters)
• China allows banks to short sell dollars (Reuters)
• Central bankers snub euro assets (FT)
• Shanghai Econ Weakening’ Mayor Vows to Pop Housing Bubble (Forbes)
• Wen's visit to boost China-Europe ties (China Daily)
• Madrid threatens to intervene in regions (FT)

All you need to read and more.

All you need to read and some more.

• Downgrades Loom for Banks (WSJ)
• China Loosens Grip on Yuan (WSJ)
• Sarkozy Embraces Growth Role for ECB (WSJ)
• A Top Euro Banker Calls for Boost to IMF (WSJ)
• Wolfgang Münchau - Spain has accepted mission impossible (FT)
• Hong Kong Takeovers Loom Large With Banks Lending Yuan: Real M&A (Bloomberg)
• Banks urge Fed retreat on credit exposure (FT)
• Drought in U.K. Adds to Inflation Fears (WSJ)
• France faces revival of radical left (FT)
• Euro Area Seeks Bigger IMF War Chest as Spanish Concerns Mount (Bloomberg)

What a difference a month makes. About 4 weeks ago the European crisis was "over" - French President Sarkozy exclaimed that: “Today, the problem is solved!” Christine Lagarde, former French finance minister, and current IMF head following the framing of DSK, added that “Economic spring is in the air!”... Fast forward to today when following the inevitable end of the transitory favorable effects of the LTRO (remember: flow not stock, a/k/a the shark can not stop moving forward), the collapse of the Spanish stock market, the now daily halting of Italian financial stocks, the inevitable announcement that shorting of financials in Europe is again forbidden, and finally the record spike in Spanish CDS, Europe is broken all over again. Which brings us again the Sarkozy and Lagarde. The Frenchman who is about to lose the presidential race to socialist competitor Hollande (an event which will have major ramifications for Europe as UBS' George Magnus patiently explained two months ago), no longer sees anything as solved, and instead is openly begging for the ECB to inject more, more, more money into the system to pretend that "problems are solved" for a few more months. Incidentally, so is Lagarde, for whom in an odd change of seasons, economic spring is about to be followed by a depressionary winter. The problem is both will end up empty handed, as the well may just have run dry.

Heading into the US open, European stock markets are experiencing a mixed session with particular underperformance noted once again in the peripheral IBEX and FTSE MIB indices. The Portuguese banking sector specifically is taking heavy hits following overnight news from Banco Espirito di Santo that they are to issue a large quantity of new shares, prompting fears that further banks may have to recapitalize. The financials sector is also being weighed upon by a downbeat research note published by a major Japanese bank on the Spanish banking sector. Elsewhere, the Italian BTP auction was released in a fragmented fashion showing softer bid/covers and the highest yield since mid-January in the only on-the-run line sold today. Similarly to yesterday’s auction, the sale was not quite as poor as some as feared. Italy sold to the top of the range and as such, the Italian/German 10-yr yield spread is now tighter by 13BPS, currently at 361BPS. From the UK, the DMO sold 20-year gilts with a lower bid/cover ratio and a large yield tail, prompting gilt futures to fall by around 10 ticks after the release. Later in the session, participants will be looking out for US PPI data and the weekly jobless numbers.