Eurozone

Biggest Greek Crackdown In 39 Years: Leadership Of Far-Right Golden Dawn Party, Third Most Popular In Greece, Arrested

In what may be a highly destabilizing step, both political and socially, Greece announced this morning that in a shocking political crackdown, the biggest since the fall of the military junta in 1974, the Police had arrested the leader and more than a dozen senior members of the far-right Golden Dawn party after the killing of an anti-fascist rapper by a party supporter triggered outrage and protests across the country. Reuters reports that the party's leader Nikolaos Mihaloliakos, spokesman Ilias Kassidiaris, two other lawmakers and 10 members were arrested on charges of founding a criminal organisation. They are due to appear in court this weekend to be charged formally. Police confiscated two guns and a hunting rifle from the home of Mihaloliakos, saying he did not have a license for them. As has been reported previously, Golden Dawn, is under investigation for the murder of Pavlos Fissas, who bled to death after being stabbed twice by a party sympathiser.

 

Guest Post: Don't Cry For Me, Ben Bernanke

Financial volatility since Federal Reserve Chairman Ben Bernanke’s announcement in May that the Fed would “taper” its monthly purchases of long-term assets has raised a global cry: “Please, Mr. Bernanke, consider conditions in our (non-US) economies when you determine when to end your quantitative-easing policy.” That is not going to happen. The Fed will decide on monetary policy for the United States based primarily on US conditions. Economic policymakers elsewhere should understand this and get ready.  All of this is just hard reality. The best way to prepare is to limit the use of credit in boom times, prevent individuals and companies from borrowing too much, and set high capital requirements for all banks and other financial institutions. The Fed surprised markets last week by deciding to maintain its quantitative-easing policy. But that underscores a larger point for non-US economies: You never know when the Fed will tighten. Get ready.

Futures Fall On Government Shutdown Uncertainty

Following yesterday's modest bounce in equities punctuated by the traditional last minute spike, sentiment has reverted lower once again, driven by the uncertainty surrounding debt ceiling talks in the US, where lawmakers have until next Tuesday to agree to a spending bill, or much of the government will shut down. The Senate will vote on a spending bill later today, which will then be sent back to the House putting republicans in a quandary (Politico explains the complications surrounding the GOP's "Plan C"). It was reported that US House leaders are considering postponing action on a bill to extend the US government's borrowing power, with the leadership discussing a change of strategy to complete action on the stopgap spending bill before debating the debt-limit debate. In FX, GBP strengthened across the board this morning after BoE’s Carney said he does not see a case for more quantitative easing.

Mario Draghi's Nightmare Gets Worse: European Loans Decline At Record Rate

Moments ago Mario Draghi's nightmare just got worse following a release by the ECB overnight that loans to the private sector dropped 2 percent from a year earlier. That’s 16th monthly decline and the biggest since the start of the single currency in 1999. "The data shows a depressing picture for the credit market," said Annalisa Piazza, an analyst at Newedge Group in London. "Although the ECB made clear that the ECB cannot do much to boost credit to the corporate sector, we expect the current picture for loans to remain one of the key reasons behind expectations of a prolonged period of accommodation." Translated: all monetary transmission mechanisms in Europe are completely broken, which in turn feeds the feedback loop of the deleveraging depression, leading to even less demand for loans, more deleveraging by banks ad lib.

Deutsche: "Markets Are In Non-Panicky Limbo At The Moment"

The best summary of what has (not) been going on in the downward drifting equity markets comes from DB's Jim Reid, quoting: "Markets are in non-panicky limbo at the moment ahead of the upcoming US budget debate. US equities fell for the 5th day in row (S&P 500 -0.27%) and although this is the worst run since the Christmas/New Year’s Eve period of 2012 (due to the fiscal cliff debacle), the cumulative fall is only -1.9% over this decline. Meanwhile Treasuries hit a 7-week low in yield as they recorded their 12th decline in the last 14 days." As has been the case over the past week, stocks in Asia have generally traded lower with the exception of the Nikkei225 which day after day continues to do its insane penny stock thing, first dropping -1.5% only to close up 1.2% on absolutely no news, but some chatter the Abe administration would raise the sales tax on October 1, only to offset the fiscal benefit by lowering corporate tax.  How this has any net impact is beyond us. Proceeding to Europe, stocks failed to sustain the initial higher open and moved into negative territory, with Italian asset classes underperforming, as market participants digested reports citing Italian MP Gasparri saying that PdL lawmakers are ready to quit if Berlusconi is ousted. This in turn saw a number of Italian banking stocks come under intense selling pressure, with the Italian/German yield spread widening in spite of supportive reinvestment flows that are due this week.

German Coalition Negotiations: Key Players To Watch

After a surprisingly manic election night the focus in Germany now shifts to the tricky task of forming a government. As Open Europe explains, many options remain possible. Merkel looks unlikely to gain a majority on her own while the FDP and AfD are certainly out of the Bundestag. This leaves a Grand Coalition, a CDU/CSU and Greens coalition or (as a very, very longshot) some form of SPD-Greens-Die Linke (Red-Red-Green) coalition or alliance which could still mathematically have a majority. Little progress is expected before the end of the week, with the SPD holding a small party conference on Friday where it will determine its strategy for the negotiations. SPD Chancellor Candidate Peer Steinbrück has already said that the “ball is now in Merkel’s court”, suggesting he expects her to propose the terms of any Grand Coalition. Meanwhile, Greens leader Jürgen Trittin has said that, while open to negotiations over a coalition with Merkel, the chances of finding an agreement are “extremely limited”.

Pivotfarm's picture

The Germans will be getting out the beer and drinking a double dose of the amber nectar not only because MuttiMerkel as she is known (otherwise known as ‘Mother’ Angela Merkel) was reelected on Sunday 22nd September, but also because new reports issued today show that the Eurozone is doing better than expected.

Key Events And Issues In The Coming Week

Following the FOMC surprise, no less than twelve Fed speeches will provide some "clarifications" on where the Fed now stands. It is very likely that this subject will continue to dominate the discussions of market participants. At the same time, US data will get scrutinized after the recent weakening and to see how warranted the Fed's concerns were. Two US consumer sentiment surveys, durable goods orders, and the third reading of Q2 GDP are important. In addition, monthly consumption and income data for August provide more information on the third quarter and of course there will be interest in the latest weekly claims numbers after some distortions in recent readings.

Lack Of Fireworks In German Election Aftermath Means Sideways Open

The German elections came and went, with Merkel initially said to have an absolute majority, but in the end being forced to design a Grand Coalition. Still, the punditry has been tripping over each other desperate to make that result (or any other result) positive for Europe , which despite now paving the way for policy continuity, together with the latest round of less than impressive Eurozone PMIs (following the strongest China HSBC PMI in 6 months) failed to inspire appetite for risk in Europe this morning where stocks have traded mixed. What is amusing is that everyone expected, the second Merkel gets reelected things in Europe would start going pump in the night - sure enough, the Italian FTSE-MIB is underperforming in early trade amid reports that Italy's economy minister Saccomanni threatened to step down if the country does not stick to its pledges it made to the European Commission. However to a certain degree, the negative sentiment towards Italy was offset by €4.8bln of coupon payments and €24.1bln of redemptions from Italy which is eligible for reinvestment this week. With a second Greek 2-day strike in one week scheduled for Tuesday and Wednesday, look for Europe's catalytic event to unclog, now that the German political picture is set, culminating with the 3rd (and 4th) Greek bailouts and probably more: after all Europe now needs a lower EURUSD (recall Adidas' warning), and that usually means a localized crisis.

Merkel Wins Federal Election But Coalition Partner Below Bundestag Threshold: Final Outcome Too Close To Call

While the outcome of the election from the perspective of "the grand coalition" is still too close to call, Exit polls make it clear that Merkels CDU/CSU party has won the election with 42.5% of the vote. However, there are some very interesting results that could be a problem for Europe's 'program-based' nations: GERMAN AFD TAKES 4.8% IN FEDERAL ELECTION, ZDF EXIT POLL SHOWS; GERMAN FDP TAKES 4.5% IN FEDERAL ELECTION, ZDF EXIT POLL SHOWS. So the anti-Euro party has more votes (nearly the 5% required to enter the Bundestag) than Merkel's current coalition partner FDP party which creates major uncertainty over the forming of a coalition (which took 3 weeks in 2005) - which as we noted seemed to priced into Greek stocks on Friday. The pirate party is projected to have 2.5% of the vote. If the anti-Euro AfD enters the parliaments, a "Grand Coalition" appears inevitable. However, if it does not cross the 5% threshold, Merkel may end up with an absolute majority in the Bundestag and will not nead a coalition partner.

6 Things To Ponder This Weekend

As we wrap up a most interesting, and volatile, week there are some things that we have discussed previously that are now brewing, interesting points to consider and risks to be aware of.  In this regard we thought we would share a few things that caught our attention:

1) Angela Merkel Election No So Assured
2) The Debt Ceiling Debate
3) The "Taper" Indecision Is Back
4) In The "Economy Is Improving" Camp
5) Syria Already Set To Miss A Deadline
6) Everything Else...

Simply put, complacency is not an option; Stocks are overvalued, rates are rising, earnings are deteriorating and despite signs of short term economic improvements the data trends remain within negative downtrends.   Investors, however, have disregarded fundamentals as irrelevant as long as the Federal Reserve remains committed to its accommodative policies.  The problem is that no one really knows has this will turn out and the current assumptions are based upon past performance.

IceCap Asset Management On Market Discombobulation

When it comes to discombobulated people, IceCap's Keith Dicker notes the financial World has a bunch of them. Leading the pack during the roaring 1990s was the King of Confusion himself – Alan Greenspan. His money reign at the US Federal Reserve was highlighted by bailing out Wall Street’s biggest hedge fund, which planted the seed for the dot-com bubble. Unfortunately for the market, only the combination of retirement and hindsight allowed Mr. Greenspan to become less confused when he admitted he had found a “flaw” in his economic philosophy. Next up on the baffle scale has to be the Eurozone. The decision in 1995 to create a common currency was actually brilliant. The final watered down product - not so much. For now, as markets roll into the fall, investors, politicians, and central bankers remain just as discombobulated as ever... And if you think you are confused... Try being Ben Bernanke for a day.

Eurozone Recovery Fades - Will The U.S. Follow?

It has been a "Summer of Recovery" for the U.S. economy with GDP growth rising from 1.1% in the first quarter to 2.5% in the second and manufacturing surveys showed sharp jumps in new orders and outlooks.  The same occurred in the Eurozone with Markit's PMI reports showing sharp bounces higher and hopes that the recession that has plagued the region was finally coming to an end.  The question of sustainability remains. The recent uptick in the Eurozone has now ended which most likely suggests that the recent pop in domestic production is likely ephemeral.  The next couple of months of data should be telling in the regard and also suggests why employment reports have been much weaker than anticipated. With hopes once again running high that the economy is set to regain "escape velocity" in the coming year there is plenty of margin for disappointment.

Fed Post-Mortem And Overnight Summary

Yes, yes, only the Fed matters. Still, there was some event flow overnight which while completely meaningless for the epic liquidity bubble, may have some implications eventually when the music finally stops. In thie regard, perhaps the best summary of the the lunacy coming out of the Marriner Eccles building is the following sentence from Bloomberg: "Bernanke said he was concerned that market interest rates, driven higher by his own suggestion he would scale back QE, would curb growth." One can't make this up.