Borrowing Costs

Will Oil Kill The Zombies?

If prices fall any further (and what’s going to stop them?), it would seem that most of the entire shale edifice must of necessity crumble to the ground. And that will cause an absolute earthquake in the financial world, because someone supplied the loans the whole thing leans on. An enormous amount of investors have been chasing high yield, including many institutional investors, and they’re about to get burned something bad. We might well be looking at the development of a story much bigger than just oil.

Fitch Downgrades France To AA: Full Text

And the final punch in the gut on this bloodbathy Friday some from French Fitch which just downgraded France from AA+ to AA: "The weak outlook for the French economy impairs the prospects for fiscal consolidation and stabilising the public debt ratio. The French economy underperformed Fitch's and the government's expectations in 1H14 as it struggled to find any growth momentum, in common with a number of other eurozone countries. Underlying trends remained weak despite the economy growing more strongly than expected in 3Q, when inventories and public spending provided an uplift. Euro depreciation and lower oil prices will provide some boost to growth in 2015. Fitch's near-term GDP growth projections are unchanged from the October review of 0.4% in 2014 and 0.8% in 2015, down from 0.7% and 1.2% previously. Continued high unemployment at 10.5% is also weighing on economic and fiscal prospects."

China's Stock Market Whiplash Extends As Greece, Crude Slump More

Now that China is on the same boat as the rest of the world, and its stock market is a direct reflection of hopes for constant liquidity injections by the central banks, nothing could be better for stocks than bad news, which is precisely what it got. After the biggest crash in the Shanghai Composite in 5 years, what China got just the bad economic update it needed, when it reported a PPI of PPI (-2.7%, Exp. -2.4%), the 33rd consecutive decline and a  CPI (1.4%, Exp. 1.6%), lowest since November 2009, when the big banks’ RRR rate stood at 15.5% vs. current 20%. And so hope of yet more PBOC interventions to halt China's deflation promptly reversed SHCOMP losses of over 4% on the session (at which point it was just shy of correction territory from recent highs hit just this week), and stocks surged to close up almost 3%, erasing half of yesterday's losses. This spike came despite reports Chinese regulators may limit brokerages' interbank borrowing.

Interest Rates Have Nowhere To Go But Up... Right?

With interest rates near their lowest levels on record, they have nowhere to go from here "but up." This is the consensus of virtually all of the analysts and economists on Wall Street which currently suggests that rates will rise to 3.88% next year on the 30-year treasury. Is everyone still wrong?

PBOC Tries To Pop Equity Bubble, Tightens FX & Slashes Collateral/Margin Availability; Yuan Crashes Most Since 2008

Unlike the Federal Reserve - which openly encourages speculative wealth creation/redistribution and has never seen an equity bubble it didn't believe was contained - the PBOC appears, by its actions tonight, to be concerned that things have got a little overheated in its corporate bond and stock markets as hot money ripped into the nation's capital markets on hints of further easing and QE-lite a few months ago. In a show of force, the PBOC simultaneously fixed CNY significantly stronger (implicit tightening) and enforced considerably stricter collateral rules on short-term loans/repos. With Chinese stocks concentrated is even fewer hands than in the US (and recently fearful of the surge in margin trading), it appears the PBOC is trying to stall the acceleration is as careful manner as possible. The result, as Bloomberg notes, is a major squeeze in CNY (biggest drop since Dec 2008), interest-rate swaps ripped higher along with corporate bond yields,  and most Chinese stocks sold off (with two down for every one up) though the latter is stabilizing now.

A Comprehensive Breakdown of America’s Economic House of Cards

America has created a moral hazard for all Americans in that we feel we always have a fail safe no matter what we do because we’ve always succeeded.  But so too had every other great dynasty until it didn’t.  If we do not force a change in our economic policies we are very close to and perhaps already past the point of no return.  I have no witting quip to end this article.  The economic landscape we face today is nothing short of dire.  And at the risk of sounding overdramatic we either force a policy change, suffer the short term pain and restructure or we and all future generations will live in a very different America from the one our folks left us. 

Here Is Oil's Next Leg Down

Perhaps those sub-$50 Bakken prices tell us pretty much where global prices are ahead. And then we’ll take it from there. With 1.8 million barrels “that nobody needs” added to the shale industries growth intentions, where can prices go but down, unless someone starts a big war somewhere? Yesterday’s news that US new oil and gas well permits were off 40% last month may signal where the future of shale is really located. But oil is a field that knows a lot of inertia, long term contracts, future contracts, so changes come with a time lag. It’s also a field increasingly inhabited by desperate producers and government leaders, who wake up screaming in the middle of the night from dreaming about their heads impaled on stakes along desert roads.

The Three Reasons Why Moody's Just Downgraded Japan From Aa3 To A1

1. Heightened uncertainty over the achievability of fiscal deficit reduction goals and containing debt
2. Economic growth policy uncertainties and challenges in ending deflation
3. Erosion of policy effectiveness and credibility could undermine debt affordability

"There Will Be Blood": Petrodollar Death Means A Liquidity And Oil-Exporting Crisis On Deck

Recently we posted the following article commenting on the impact of USD appreciation and dollar circulation among oil exporters, as well as how the collapsing price of oil is set to reverberate across the entire oil-exporting world, where sticky high oil prices were a key reason for social stability. Following today's shocking OPEC announcement and the epic collapse in crude prices, it is time to repost it now that everyone is desperate to become a bear market oil expert, if only on Twitter...

"Failed" Bund Auction At Record Low Yield And All Other Key Overnight Events

While there has been no global economic outlook cut today, or no further pre-revision hints of "decoupling" by the appartchiks at the US Bureau of Economic Analysis,  both European and US equities are pointing at a higher open, because - you guessed it - there were more "suggestions" of "imminent" QE by a central bank, in this case it was again ECB's Constancio dropping further hints over a potential ECB QE programme, something the ECB has become the undisputed world champion in. The constant ECB jawboning, and relentless central bank interventions over the past 6 years, led to this:

  • GERMANY SELLS 10-YEAR BUNDS AT RECORD-LOW YIELD OF 0.74%

The punchline: this was another technically "failed" auction as it was uncovered, the 10th of the year, as there was not enough investor demand at this low yield, and so the Buba had to retain a whopping 18.8% - the most since May - with just €3.250Bn of the €4Bn target sold, after receiving €3.67Bn in bids.

Currency Wars Reignite As Yuan Tumbles Most In 2 Months And Chinese Bond Market Freezes

Did China just re-enter the currency wars? The Chinese Yuan dropped 0.29% overnight - its biggest drop since September and 2nd biggest devaluation since March - as the currency tumbles back in line with the PBOC's fixing for the first time in over 3 months. Despite 'hopes', S&P confirms the recent (and reconfirmed) rate cut doesn’t signal renewed government intentions to resort to aggressive stimulus to prop up economy. More troubling is the fact that China's huge corporate debt market appears to be freezing as over $1.2 billion in bond sales were scrapped or delayed last week suggesting wall of maturing debt will find it increasingly difficult to roll-over and keep the dream alive (especially in light of Haixin's bankruptcy last week).