Following the Fed's disappointing "dovish, but not dovish enough" statement which effectively admitted Yellen had committed policy error by hiking just as the US economy "was slowing down" which in turn lowered the odds of a March rate hike to just 18%, it was up to oil to pick up the correlation torch, and so it did, rising in an otherwise mixed session which has seen European stocks slide on continued weakness surrounding Italian banks, many of which have been halted limit down, while Asia was treading water following news of the resignation of Japan’s "Abenomics" minister Akira Amari to over a graft scandal, and yet another day of Chinese stock dropping.
Washington's individual efforts to meddle in Mid-East affairs have now seemingly all melded into one giant, bloody melee and incredibly, America's solution is to go right back in and meddle some more. What could possibly go wrong?
Last week, we noted that Italy is rushing to defuse a €200 billion time bomb in the country’s banking sector as investors fret over banks’ exposure to souring loans. On Wednesday we learn that Italy has indeed managed to strike a deal with Brussels to help alleviate banks’ NPL burden but the agreement falls well short of the type of comprehensive "solution" the market was hoping to see.
"Nobody is really sure where we go from here, and nobody is brave enough to make the call,” Peter Dixon, Commerzbank AG’s global equities economist in London told Bloomberg. “Corporate earnings season won’t provide much of a support - markets may find a floor if the Fed is extremely dovish tonight. At least investors will have time to think and reassess valuations."
It has been another volatile, illiquid, whipsawed session, driven by the only two things that have mattered so far in 2016, China and oil.... and stop-hunting algos of course.
Total gross NPLs in Italy has increased by c160% since 2009 and now represents c18% of loans (vs c8% in 2009). Gross Sofferenze (eg the worst category of NPLs) are c60% of this or c€200bn. While new inflows of NPLs have decreased, there have been limited disposals, possibly due to pricing difference. Banks suffer in multiple ways due to the high stock of NPLs (profitability, capital, funding, lending, etc). The government implemented reforms last summer to improve recovery procedures (Government Proposes NPL Measures), but there is limited evidence so far of the benefit.
Don't look now, but Brussels’ preferred Spanish PM is about to be ousted by a coalition of leftist parties, and that, in turn, suggests that the idea of fiscal retrenchment will be thrown out, along with anything that even looks like austerity. That could trigger a showdown between Madrid and Brussels over Spain’s intention to adhere to EU deficit targets.
Following a rerun of September 2015, when Draghi sent market expectations about ECB action sky-high only to massively disappoint in December (we will have to wait until March to see if it is deja vu all over again) last week, this week is just as big for central bank jawboning with the FOMC (Wednesday) and the BoJ meeting on Friday, with hopes that they will at least hint of more easing if not actually do much.
"I really like what you say but when I look at what you do, I wonder"...
"When the market speaks, as it has done in recent days, it is right that bank executives and shareholders comprehend the need for serious and swift intervention."
In the end we all know that “informal central bank cooperation” doesn’t really amount to anything. That lesson could be applied to the Bundesbank “selling dollars” in 1969, the PBOC “selling UST’s” in 2015 or the worthless, useless Federal Reserve RRP in 2016. They really don’t know what they are doing, they never have and it truly doesn’t matter fixed or floating. Adjust accordingly because we know how this ends; we’ve already seen it.
Led by a broad-based collapse in financial stocks, European markets extended and accelerated their plunge today. Thanks to the increased systemic linkages enforced by The ECB, peripheral sovereign risk is spiking as their national banking systems crash. Every European nation is now in at least correction since the end of QE3.
Considering the stock is up about 10% in the after hours, the Netflix story remains intact. What was the cost of keeping the last FANG momentum "story" alive? A record $276 million in cash burn in the quarter.
S&P's Downgrade (By A German Analyst) Is A "Politically-Motivated" Decision Aimed At Polish AuthoritiesSubmitted by Tyler Durden on 01/19/2016 13:50 -0400
The Standard and Poor’s rating agency, notorious for its controversial assessments, has this time bashed Poland in the wake of the anti-Polish frenzy whipped up by the European media. To be more precise, Poland was assailed by a German S&P analyst who lowered Poland’s rating from A- to BBB+, despite the economic data that by no means warrant such an evaluation.