Despite a sovereign downgrade of Ireland to "junk" by Moody's late last night, risk-appetite was observed in the market, led by out performance in Italian asset-classes after Moody's said that Italy is not in the same situation as Ireland due to its market access. This supported EUR across the board as well as the European equities, which together with comments from PIMCO that it is using the latest sell off in Italian bonds to increase its own holdings, weighed on bunds. Bunds came under further pressure following speculation that official names were checking European bond prices, and the peripheral Eurozone 10-year government bond yield spreads narrowed across the board. Weakness in the USD-Index provided strength to EUR/USD, GBP/USD and commodity-linked currencies, however, some weakness was observed in GBP/USD following the release of jobless claims change data from the UK, which showed the biggest jump in two years in June.
Gold for immediate delivery rose to new record nominal highs of 987.58 British pounds and 1578.8 U.S. dollars in London this morning. New record nominal highs were seen for gold in euros (1,123.50 euros per ounce), pounds and dollars yesterday. Gold rose soon after FOMC minutes showed that the Federal Reserve is considering further quantitative easing or QE3 and after Moody’s downgraded Ireland’s debt to junk status. The very poor trade deficit numbers in the U.S. yesterday ($50.2 billion in May) and the UK this morning (£8.5 billion in May) is also supporting gold today. The Moody’s downgrade of Ireland was expected but the timing was very bad given the increasing turmoil in Eurozone bond markets and deepening risk of contagion due to bond risk in Spain and Italy, the world’s third largest debtor after Japan and the U.S. While Italian and Spanish bond yields have fallen today, the Irish 10 year yield rose to new euro era record highs at 13.74%. While UK inflation figures yesterday were slightly better than expected, today’s unemployment figures were worse than expected. Jobless claims rose at their fastest pace since May 2009, showing the UK recovery is faltering and jobs are being lost as the deepest government budget cuts since World War II take hold.
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Why would anyone think that a monetary system whereby poor states spend and get bailed out by rich (i.e., successful) states would ever work? The euro is a failed concept and will tear Europe's monetary system apart.
Deustche Bank's forensics/technicals looked downright ugly. We opined on both about two weeks ago, along with parsing the CEO's warning that all should essentially start running for the hills. Many participants in mother market missed this. Well, DB got crushed in European trading, making both the forensic research and technical trade setup shine like the sun. There's much more to come! Will those triple digit short returns of 2008 come again?
All you need to know by www.thetrader.se
Bill Buckler presents an amusing compendium of facts, let us call them inconvenient truths, in the latest edition of his newsletter, some of which would make for very entertaining anecdotes if presented at the Biden "deficit cutting" talks, which also, and very paradoxically, aim to cut US debt by increasing it.
Greek "Rollover" Bailout Proposal On Verge Of Collapse, After Germany Puts Bond Swap Idea "Back On The Table"Submitted by Tyler Durden on 07/06/2011 09:31 -0400
The much ridiculed "MLEC-type" bailout proposal of Greece, which contemplates the rolling of existing debt into a guaranteed SPV, and which was the European rescue deux ex machina for exactly two weeks, appears to have been pulled off the table, following the announcement by German Deputy Finance Minister Joerg Asmussen to Reuters Insider TV that "Germany has put a Greek bond swap back on the table as a model for private sector involvement in fresh aid for Athens." More: "The model put forward by some French banks is still a good base for discussions and we are currently working on this. But since rating agencies have signalled that they will consider modalities (such as) the French proposal as a selective default -- that means a rating event -- we can also put other options like a bond exchange on the table." he said, adding discussions would take place over the summer break. Translation: back to square minus one. And actually it is much worse, because if Asmussen is aware of rating agency policy, a debt exchange would most certainly qualify for an event of default. Which confirms our initial expectation from a month ago that there is nothing absent a complete loss of ECB credibility that can possibly transpire next, as the ECB realizes there is no way around accepting defaulted Greek bonds as collateral. The only question is what happens then: will the market, head currently deep in the sand, scramble upon the confirmation that the ECB emperor is naked, or will it continue acting as if nothing has changed yet again.
Structural Problems Cannot Be Solved Though Bailouts! As A Matter Of Fact, Bailouts Make The Situation WorseSubmitted by Reggie Middleton on 07/06/2011 08:08 -0400
I invite, if not challenge those who question the utility of the higher end of the blogoshpere to compare this opinion/analysis (as biting, cynical and hard hitting as it may be) to that of the mainstream media and the sell side analyst community of Wall Street to determine if independent, proprietarry research in the form of a blog is something that this country and the global investment community is in need of... or not!
And heeeeeere's Moody's to dump on today's no volume levitation and push Portugal further into junk: "Moody's Investors Service has today downgraded Portugal's long-term government bond ratings to Ba2 from Baa1 and assigned a negative outlook. Concurrently, Moody's has also downgraded the government's short-term debt rating to (P) Not-Prime from (P) Prime-2. Today's rating action concludes the review of Portugal's ratings initiated on 5 April 2011."
As ECB Finds Rating Agencies Have Suddenly Found Religion, It Prepares To Flip Flop On Accepting Greek Bond CollateralSubmitted by Tyler Durden on 07/04/2011 20:57 -0400
Well this was unexpected: the rating agencies, for years and years patsies of their highest paying clients, have suddenly found their conscience, if not religion, and adamantly refuse to bend long-standing rules which qualify the proposed Greek MLEC/CDO type rescue as an event of default. Per Bloomberg: "The rating companies have signaled the plan would trigger because it is being done to avoid default, so couldn’t be considered voluntary, and because investors would be worse off than by holding the new securities." The ECB is so confused by this intransigence and unwillingness to bend to the will of the criminal cartel that earlier today the ECB's Novotny was complaining to Austrian TV about this unexpected demonstration of independence: "Debt rating agencies are being much tougher on potential private-sector contributions to Greece's debt woes than in past bailouts, European Central Bank Governing Council member Ewald Nowotny said on Monday. "We are conducting a very difficult conversation with the ratings agencies," he said."This is what we have to try to find: a way that on the one hand certainly involves banks without having this lead to a default as a consequence," he added. "I also must say it strikes me that the ratings agencies are being much stricter and more aggressive in this European matter than they were, for example, in similar cases in South America. I think this is something we will have to think over." As a result of all this sudden uncertainty, Bloomberg now speculates that the ECB will have no choice than to flip flop on its own adamant position of isolating defaulted collateral, and accept Greek bonds even in an event of default: “The ECB cannot remove liquidity from the big Greek banks,” said Dimitris Drakopoulos, an economist at Nomura. “This discussion is a waste of time. The ECB is going to back down in the end -- what can they do?” he added."
Following up on saving the world and some 4th of July thoughts on Greek and American nationalism...
Back To The Drawing Board: S&P Says Greek Rollover Debt Plan "Would Likely Amount To A Default Under Our Citeria"Submitted by Tyler Durden on 07/04/2011 07:27 -0400
Last Wednesday we cited from a Reuters report, according to which the last ditch Greek MLEC/CDO rescue operation, would be welcome to S&P and Moody's as "The whole charm of the French model is that it was worked out in a such way that it will be fine with the rating agencies." Because absent a decree of no EOD, the whole thing is pointless. Well, as often turns out, this was yet more wishful thinking on behalf of some bureaucrat, masked as fact. S&P has just come out with the following: "In recent weeks, a number of proposals relating to this topic have surfaced, and the particulars in some cases are evidently still in flux. This credit comment looks at the most prominent of the recent proposals, put forward by the Fédération Bancaire Française (FBF) on June 24, 2011, in the context of our criteria for evaluating distressed debt exchanges and similar debt restructurings (see Related Research below). In brief, it is our view that each of the two financing options described in the FBF proposal would likely amount to a default under our criteria" and specifically: "we believe that both options represent (i) a "similar restructuring"
(ii) are "distressed" and (iii) offer "less value than the promise of
the original securities" under our criteria. Consequently, if either
option were implemented in its current form, absent other mitigating
information, we would likely view it as constituting a default under our
criteria." Goodbye MLEC 2 - as expected you were just as useless as your first iteration back in 2007.
After trading higher in early European trade, equities pared back some of their gains as focus remained on the Greek austerity implementation details. In the forex market, EUR received support after ECB's Trichet said that the ECB is in a state of strong vigilance, which signals a possible change of rates, allied with news that German banks and the German government have agreed on a Greek debt plan. However, GBP/USD remained under pressure partly on the back of market talk that US names and a UK clearer were selling in the pair, with speculation of month-end demand from the Bundesbank assisting the rise EUR/GBP. Moving into the North American open, markets look ahead to key US economic data in the form of Initial/Continuing Jobless Claims and Chicago PMI figure, allied with GDP data from Canada. In fixed income, there is another Fed's Outright Treasury Coupon Purchase operation in the maturity range of Dec'16 - Jun'18, with a purchase target of USD 4-5bln.