BOE

For Greece, this is an important election. Inside the euro, their heavily state-dependent economy will continue to suffer scathing austerity. Outside the euro, they can freely debase, and — as Nigel Farage has noted — enjoy the benefits of a cheaper currency like renewed tourism and more competitive industry. If Greeks want growth sooner rather than much later, they should choose life outside the euro (and by voting for Tsipras and trying tough negotiating tactics, they will be asking to be thrown out). But for the rest of the world, and the rest of Europe, this is all meaningless. As Ron Paul has noted, when the banking institutions need the money, central banks — whether it’s the ECB, or the Fed, or the BoE, or a new global central superbank — will print and print and print. Whether Greece is in or out, when the time comes to save the financial system the central bankers will print. That is the nature of fiat money, as much as the chickenhawks at the ECB might pretend to have hard-money credentials. Tsipras, though — as a young hard-leftist — would be a good scapegoat for throwing Greece out of the Eurozone (something that — in truth — the core seems to want).

The announcement by the UK Treasury and BoE to take co-ordinated steps to boost credit and with the central bank re-activating its emergency liquidity facility has resulted in a sharp move higher in UK fixed income futures. GBP swaps are now pricing in a cut of 25bps in the base rate by the end of this year and following on from Goldman Sachs, analysts at Barclays and BNP Paribas are now calling for an increase in QE next month. The new measures have seen the likes of Lloyds Banking Group (+4.3%) and RBS (+7.0%) outperform the more moderate gains observed in their European counterparts. Meanwhile in Europe the focus remains on the possibility of co-ordinated action from the major central banks. However, it would seem more realistic that any new measures will likely come after the Greek election results are known and once ministers have conducted their G20 meetings. Given that there is an EU level conference call this afternoon scheduled for 1500BST the likelihood of rumours seem high but as the wires have indicated already these conversations are purely based upon co-ordination ahead of the meeting which is usual practice. The yields in Spain and Italy have been a lot calmer so far with the 10yr in Spain at 6.88%, off the uncomfortable test of 7% seen yesterday.

Epic. Stocks clambered back up to the 1315 (S&P 500 e-mini Sept 2012 contract) level which has been a critical VWAP level for a few days now amid what was a mildly slow day (though IG credit outperformed from its recent deterioration). Then the rumors started.  Risk assets jolted in a very systemic manner (all highly correlated) as ES popped above last Friday's highs (unable to get close to Monday's open we do note), then as the realization that a pre-emptive warning of 'some' action in the case of 'some' event was simply the status quo anyway and we gave the entire 14 pt ramp back. Then we bounced once again as BoE made some noise on further stimulus if things go pear-shaped and we bounced again (though this time only about 8pts and on very small average trade size we note) as we headed into the close right around last Friday's highs. With OPEX tomorrow, this vol could not be more stop-inducing and painful for many as the Dow has now been -150, +150, -80, and +160 pts this week and decent volume today although average trade size remains limited (on the lack of conviction we pre-suppose). Gold and less so Silver bounced off their earlier spike-down moves and WTI rallied like a champ today (resyncing with Silver just in the green for the week). Gold is up 2% on the week (but was far less impressed with the chatter today than stocks were) as in the meantime the USD dropped and ended -0.75% on the week (and AUD is now 1% stronger). Treasuries whipsawed around but only retraced around a third of their rally from yesterday's morning session as 7Y and 10Y underperformed (+5bps or so). Pre-OPEX VIX is always a mess but we dropped over 2.5 vols into the close to end under 22% (but above Friday's close). Risk assets in general moved together and stayed in sync today during the final hour's carnival with stocks perhaps a little rich by the close.

• How original: Syria prints new money as deficit grows (Reuters)- America is not Syria
• Former SNB head Hildebrand to become BlackRock vice chairman (FT)
• Osborne says Greece may have to quit euro (Reuters)
• Osborne Risks the Wrath of Merkel (FT)
• China second-quarter GDP growth may dip below 7 percent - government adviser (Reuters)
• Italian Borrowing Costs Surge at Auction of 1-Year Bills (Bloomberg)
• Greeks withdraw cash ahead of cliffhanger vote (Reuters)
• Merkel’s Choice Pits European Fate Against German Voter Interest (Bloomberg)
• Italy Tax Increases Backfire as Monti Tightens Belts (Bloomberg)
• Dimon says JPMorgan failed to rein in traders (Reuters)

All you need to know.

This pretty much says it all:

• BOE'S POSEN SAYS TIME FOR CENTRAL BANKS, INCLUDING BOE, TO BUY PRIVATE ASSETS
• POSEN SAYS BUYING PRIVATE-SECTOR ASSETS WOULD HELP ECONOMY

Buy. Real. Assets. Now

That economic data out of Europe was disappointing overnight should come as no surprise to anyone. That Spain is broke, and there is no money to bail it out under the existing framework (and that Germany is unwilling to come up with a new bailout scheme), should also be no surprise. And yet they somehow manage to stun the market... each and every day. Which is why overnight action has now boiled down to a simple algorithmic exercise: is there a short covering squeeze: if yes, then rip, aka Risk On. If not, then Risk Off. So far, the squeeze has not been initiated which is also to be expected, following the biggest short covering squeeze in up to two years. This too may change if repo desks decide to pull borrow as they tend to do during regular hours, to give the impression that the latest and greatest bailout plan is "working." And in other news, which is completely irrelevant, here is the actual news.

Well, risk is on. Not so much because of the ECB, or BOE, both of which did nothing, but because everyone is hoping and praying that in two weeks the Princeton professor will unleash the 4th round of quantitative easing in the US (yes, Twist was a flow-shifting operation and thus QE3). And the reminder that China is not immune, and did its first rate cut since 2008 only validated the realization "that they have every idea just how bad it is", as Cramer would say. Sure enough, risk is ripping, although considering the world's 2nd largest economy just joined the monetary easing pants party, the 10 point ES response is oddly subdued. Where the reaction is yet to manifest itself is in gold: we expect the PBOC will take a little longer before it announces its meager 1000 tons of gold holdings have at least doubled following 100 ton/month gold imports as recently announced. But announce it will. In the meantime, China's aggressive step likely means that unless we get a global coordinated intervention at 9 am today, as was the case on November 30 after the last notable move by the PBOC, which was the first reserve cut also since 2008, there will be none this time around and Bernanke will be on his own. God save the markets if he does not deliver, either today at the JEC testimony at 10 am or at 2:15 pm on June 20, as the S&P has now priced in at least 75 points of NEW QE intervention.

While we do not agree that anything will happen on Wednesday (or pre-Greek-election to be more precise) - aside from perhaps a small bump in BoE LSAP, Peter Tchir provides a useful update to our original 'full central bank menu' two weeks ago. Markets and economies are teetering across the globe.  More and more people are coming to the conclusion that a Greek Exit would be catastrophic. Central banks won’t want to act as though they are panicking, but neither will they want to wait much longer to act. Tchir believes investors will be extremely disappointed if nothing happens and expects markets to decline rapidly.  If central bankers do take some policy actions, it is key to figure out which ones are practical, which are merely symbolic, and which are just a dream and not an action.  Who says what is just as important in some cases as what they say.  When Merkel says something, we all need to listen.  When anyone from the EU in Brussels says something, it will be the same thing they have said over and over and is completely self-serving and should be ignored.  Anything Draghi and Bernanke might say is critical to listen to, because in this weird world, they have the most power to do something meaningful in a short period of time.

• Spain Seeks Joint Bank Effort as Pressure Rises on Merkel (Bloomberg)
• Banks Cut Cross-Border Lending Most Since Lehman: BIS (Bloomberg)
• Shirakawa Bows to Yen Bulls as Intervention Fails (Bloomberg)
• Merrill Losses Were Withheld Before Bank of America Deal (NYT)
• Investors Brace for Slowdown (WSJ)
• China's lenders ordered to check bad loans (China Daily)
• Obama Seeks Way Out of Jobs Gloom (WSJ)
• Noda Reshuffles Japan Cabinet in Bid for Support on Sales Tax (Bloomberg)
• China to open the market further (China Daily)
• Australian Industry Must Adapt to High Currency, Hockey Says (Bloomberg)
• Tax-funded projects to be more transparent (China Daily)

Back in 2007, BP sold its Coryton refinery, one of the largest in the UK, to Swiss refiner PetroPlus for $1.4 billion. Fast forward 5 years later where we find that shortly after PetroPlus filed for bankruptcy, and was forced to proceed with a firesale of its assets, the European end demand market is so abysmal that a buyer could not be found for even a 30% off firesale. As Reuters reports, following a failure to sell Coryton for the low, low, price of $1 billion, the refinery, in dire need of CapEx investments, will be shutting down, and taking about 10% of UK refining capacity with it. "Insolvent Swiss refiner Petroplus' Coryton refinery in the UK is likely to close after its administrator PricewaterhouseCoopers (PwC) said on Monday that it had failed to find a buyer that could pay $1 billion for the site. Petroplus filed for insolvency in December after it could not meet its debt obligations. "The current economic environment, the challenge of raising $1 billion (£625 million) of funding for the refinery, including the $150 million capital expenditure 'turnaround' project ultimately proved prohibitive in the face of an over supplied European refinery market for both buyers and investors." The Coryton refinery has a capacity to process about 175,000 barrels of crude oil per day and additional 65,000 barrels per day of feedstock. Richard Howitt, the local member of the European Parliament said: "It's a bitter blow for the workforce...I think the process was flawed and that the government should have stepped in." It will be an even more bitter blow to the island nation's motorists who will suddenly find themselves facing with other spiking prices, a shortage of gasoline, or some combination of both.

Following the morning in Europe, a generally risk-off tone is observed, with stock futures sitting just above session lows and the German Schatz auction resulting in record low yields. Some of the risk-averse moves were noted following unconfirmed market talk that a troubled Dutch housing association may be pressed towards bankruptcy, however this seems to be linked towards an article concerning the Dutch central bank probing into the sale of derivatives to the housing group Vestia. Nonetheless, the long end of the Dutch curve remains well-bid and European 10-yr government bond yield spreads are seen generally wider across the board. Releases from the UK have come under particular focus; the BoE minutes showed an alongside-expectations vote of 8-1 to keep QE on hold. With some analysts estimating more of a lean towards further asset purchases, the initial reaction was strength in the GBP currency, but countering this effect was the parallel release of UK retail sales, with the monthly reading showing the sharpest decline since January 2010. Additionally, it was noted that several members of the board saw further QE as a finely balanced decision, placing GBP/USD back on a downward trajectory and briefly below 1.5700. Elsewhere in foreign exchange, current sentiment is reflected in EUR/USD, printing multi-month lows earlier in the session of 1.2615, with the USD index at 20-month highs which in turn has weighed on commodities.

• Rajoy to ask for ECB assistance, according to reports (Sharecast)
• Bundesbank Suggests Greek Exit From Euro Would Be Manageable (Bloomberg)
• Unemployed Burn as Fed Fiddles in Debate Over Natural Rate (Bloomberg)
• Regulators, investors turn up heat over Facebook IPO (Reuters)
• China to boost private energy investment to bolster economy (Reuters)
• OECD fears euro woe to snap brittle world recovery (Reuters)
• China slowdown threatens Australia - World Bank (Herald Sun)
• Guessing game begins over next Treasury chief (Reuters)
• Italians spurn main parties in local polls (FT)
• A fragile Europe must change fast (FT)
• Spain to outline Bankia plan, may announce bailout size (Reuters)
• China Should Adjust Policy Early - Government Researcher (WSJ)