"So what did they buy? In short, almost everything. The ECB bought “topical” credits such as VW, Glencore and EdF. They showed little concern with taking credit risk by buying a range of low-BBB names. They bought “high yield” credits such as Telecom Italia and Lufthansa. They bought corporate bonds from US, UK and Swiss companies, and ironically, the ECB’s most popular purchase has been Deutsche Bahn – an issuer where bond yields are the most negative."
After a head-scratching S&P500 rally - which not even Goldman has been able to justify - pushed stocks to new all time highs with seemingly daily record highs regardless of fundamentals or geopolitical troubles, overnight US equity futures dipped modestly, tracking weak European stocks as demand for safe haven assets including U.S. Treasuries and gold rises. Asian stocks outside Japan fall. Crude oil trades near $45 a barrel.
"These developments point to a marked increase in political risks in systemically-significant countries. At the start of the year, we flagged many of these as well as introducing our thesis that rising Geopolitical Risks, accompanied by rising "Vox Populi" risks such as Brexit and changing US politics, were at risk of converging in new and powerful ways. Even so, we did not anticipate quite how many would transpire, let alone within such a compressed timeframe."
Earlier today, alongside the ECB's latest weekly disclosure of total corporate bond purchases under the CSPP program, which as of July 15 had risen by approximately €2 billion to €10.427 billion, suggesting a daily purchase pace of about €400 million, Europe's various regional central banks also disclosed for the first time the CUSIP list of which specific bonds they had purchased over the past month and a half.
Having panciked briefly on Friday night on news of a Turkish coup, which has since not only failed but been cast away as speculation rises that it was staged and designed to give Erdogan even more authoritarian power, markets have moved on and are now focusing on the main overnight event which was the surprising $32 billion bid by Japan's SoftBank for U.K.’s semiconductor giant ARM which has sent comparable semis higher in European trading and pushing the Stoxx Europe 600 Index up by 0.6%, after surging 3.2% last week. After sliding sharply on Friday, US equity futures are up 0.1% in early trading.
JPMorgan has been appointed by the Italian government to work on plans to set up a bank to buy troubled loans from the country’s lenders at approximately 20% of face value. The gross notional size of Italy's Bad Bank #2 would be €50 billion. As part of JPM's plan, the government would acquire some of the bad loans at a price of 20 cents in the euro.
Fethullah Gulen, accused by Erdogan of orchestrating the attempted military coup that rocked Turkey, turned the accusation against his political rival suggesting that Erdogan’s ruling AKP party had staged the uprising. "There is a possibility that it could be a staged coup [by r Erdogan’s AKP] and it could be meant for further accusations” against Gulenists and the military, he said.
On the surface, things seem pretty quiet in mid-July 2016. But underneath the surface, it is a very different story. As you will see below, the conditions for a “perfect storm” are coming together very rapidly, and the rest of 2016 promises to be much more chaotic than what we have seen so far.
The new head of UniCredit, Italy’s biggest bank, has implored the EU to take a more lenient stance on rescuing the country’s troubled banking sector, as The FT reports Mustier urges Brussels should look to a controversial 2004 French government rescue of Alstom as a model. The 13% surge in Italian bank stocks this week - the most since 2011 - offers a further hint that, as Bloomberg's Mark Cudmore explains, there’s only one viable outcome to the fiasco with Italian banks, and it will ultimately be a positive catalyst for global risk assets even if negative for the euro.
"A perfect storm of slow or zero Italian economic growth, low interest rates and politically connected, often corrupt, lending have combined to create a situation where the Italian financial system is in need of a large rescue."
In a stunning study released today, one which refutes all its prior conclusions on the matter, McKinsey slams the establishment's status quo thinking and admits that the economic gains of changes in the global economy have not been widely shared lately, especially in the developed world. It finds that between 2005 and 2014, real incomes in the world's most advanced economies were flat or fell for 65 to 70% of households, or more than 540 million people.
Roughly half the municipal employees in Boscotrecase, Italy (population 11,000) have been arrested for fraud. The employees clock in, sometimes for each other (with boxes over their heads), but don’t show up for work. The arrested are accused of fraud against the state. As a result, there are not enough people to run the town. Services are shut down.