It has been a night of relentless and pervasive disappointing economic data from just about every point on the globe: first the Chinese HSBC manufacturing data was well short of expectations (50.2 vs. Exp. 50.5), which was promptly spun as bullish and a reason for more stimulus by the PBOC even though the central bank has been constantly repeating it will not engage in western-style shotgun easing. Then Japanese wages, household spending and industrial production came in far below expectations - in fact at levels which suggest Japan is once again in a recession - which once again was spun as bullish, because the BOJ has no choice but to do more of the same failed policies that have made Abenomics the laughing stock of the world. Finally, moments ago Europe reported the lowest inflation data in 5 years, as well as core CPI sliding to just 0.7%, and which was, wait for it, immediately spun as bullish for risk as once again the local central bank would have "no choice but to ease." In other words, thank god for horrible news: because how else will the rich get even richer?
While the bond market is still reeling from Friday's shocking Bill Gross departure, and PIMCO has already started to bleed tens of billions in redemptions (see "Billions Fly Out the Door at Pimco About $10 Billion Is Withdrawn After Departure of Gross"), stocks which may have been hoping for a peaceful weekend after Friday's ridiculous no volume ramp in the last two hours of trading, got hit by a double whammy of first Catalan independence fears rising up again after Catalan President Mas signed a decree committing Catalonia to a referendum bid on November 9th, leading to a move wider in Spanish bond yields, and second the sharpest surge in Hong Kong violence in decades, which led to a 2% drop in the Hang Seng, are now solidly lower across the board, with the DAX dropping below its 50 DMA, while US equity futures are printing about 9 points lower from Friday's close despite another epic ramp in the USDJPY which flited with 110 briefly before retracing to 109.50, and also threaten to push below the key technical support level unless the NY Fed's "Markets group" emerges out of its new Chicago digs and buys up enough E-minis to restore confidence in a rigged market.
"...the rise of Germany’s AfD anti-euro party calls into question the euro bail-out machinery and queries the pitch for any form of QE stimulus that has already been pocketed and spent in advance by the markets. It will force Angela Merkel to take a tougher line on Europe, and further complicates the management of the (already dysfunctional) currency bloc."
This is where our economies are perverted. It’s the final excesses and steps of a broke society. It’s madness to the power of infinity. The only thing that’s certain is that in the end, your money will all be gone. That’s how Mario Draghi ‘saves’ the EU for a few more weeks, and that’s how the big boys of finance squeeze more from what little you have left (which is already much less than you think). A world headed for nowhere.
"Downgrade risks have increased: France has been rated Aa1 with a negative outlook by Moody’s since November 2012. Given recent economic performance and various revisions to deficit projections, we believe it is now less likely that Moody’s revises its outlook to stable on Friday. Instead, we believe it is more likely that Moody’s puts France formally on a “review for possible downgrade” with a conclusion probably coming after the budget (due on 1st October)."
Bank of England plans to make bondholders and depositors bear the cost of bailing out failing banks has led Moody’s to downgrade its outlook on the UK banking sector. Depositors in some Cyprus banks saw 50% or more of their life savings confiscated overnight. Moodys largely ignored, as did much of the media coverage of their report, the real risk that bail-ins pose to people’s life savings and companies capital, the likely negative impact of this on consumer sentiment and employment in already fragile economies.
With Shanghai having limited retail exposure to high-yield bonds, and the Chinese corporate bond market has overtaken the United States as the world's biggest and is set to soak up a third of global company debt needs over the next five years, it is no wonder that, as Bloomberg reports, analysts fear "a prelude to a storm." Privately issued notes totaling 6.2 billion yuan ($1 billion) come due next quarter, the most since authorities first allowed such offerings from small- to medium-sized borrowers in 2012. This week a 4th issuer has faced a "payment crisis" and while officials are trying to expand financing for small companies (which account for 70% of China's economy, with debt-to-equity ratios exceeding 200%, this is nothing but more ponzi. As Goldman warns, it appears China's Minsky Moment is drawing near (as the hangover from Q1's credit impulse kicks in).
It has been a deja vu session of that day nearly a month ago when the Banco Espirito Santo (BES) problems were first revealed, sending European stocks and US futures, however briefly, plunging. Since then things have only gotten worse for the insolvent Portuguese megabank, and overnight BES, all three of its holdco now bankrupt, reported an epic loss despite which it will not get a bailout but instead must raise capital on its own. The result has been a record drop in both the bonds (down some 20 points earlier) and the stock (despite a shorting ban instituted last night), which crashed as much as 40% before stabilizing at new all time lows around €0.25, in the process wiping out recent investments by such "smart money" as Baupost, Goldman and DE Shaw. The result is a European financial sector that is struggling in the red, while adding to its pain are some large cap names such as Adidas which also tumbled after issuing a profit warning relating to "developments" in Russia. Then there was European inflation which printed at 0.4%, below the expected 0.5%, and the lowest in pretty much ever, and certainly since the ECB commenced its latest fight with "deflation", which so far is not going well. The European cherry on top was Greece, whose dead cat bounce is now over, after May retail sales crashed 8.5%, after rising 3.8% in April.
Within the European economic context Germany has been a star performer in recent years, outgrowing in GDP terms its Eurozone peer group as a whole in all but one year since 2006 (complete with a magnificent football/soccer team). This was quite a reversal of fortune from the ten years prior, when Germany consistently lagged in wealth creation. Together with its size and unwavering historical commitment to the EU project, this has created the expectation in political and even financial circles that if Europe faces another major economic crisis Germany will have no choice but to support the most vulnerable member states, possibly even relenting to the mutualisation of the Eurozone's debts. While this is a very complex topic, the following graph puts the odds in favor of one outcome: the next time push comes to shove in a big way, Germany will likely say NEIN!
- Espirito Santo Financial Suspends Shares, Bonds on ESI Exposure (BBG)
- Europe Stocks Drop for Fifth Day as Espirito Santo Sinks (BBG)
- Espirito Santo Creditors Doubt Containment on Missed Payment (BBG)
- French Stocks Seen Extending Losses on Economy Concern (BBG)
- Stocks Slide With Portugal Bonds as Yen Gains; Oil Drops (BBG)
- U.S. Probes Hacking of Government Computers at Personnel Agency (WSJ)... finds terabytes of porn
- It's Congress' fault: Obama rejects criticism over border crisis (Reuters)
- Israel Mobilizes 20,000 Troops for Possible Gaza Invasion (BBG)
- Chinese hackers pursue key data on U.S. workers (NYT)
- Donetsk Primed for Siege as Ukraine Army Hems In Rebels (BBG)
FDIC: “the largest positive contribution to the year-over-year change in earnings came from reduced loan-loss provisions..."
- Obama Decries Big Bonuses at Bank Trading Desks as Risky (BBG)
- India central bank seeks to swap gold to improve reserves quality (Reuters)
- There goes Q3 GDP: Arthur Strengthens to Become First Atlantic Hurricane (BBG)
- Airports Serving U.S. Tighten Checks on Stealth-Bomb Threat (BBG)
- Fear, cash shortages hinder fight against Ebola outbreak (Reuters)
- Brent Declines as Libya Rebels Say Ports Are Open (BBG)
- Shiites Train for Battle in Iraqi Holy City (WSJ)
- Dimon’s Cancer Has 90% Cure Rate With Demanding Therapy (BBG)
- Goldman says client data leaked, wants Google to delete email (Reuters)
- ECB Watchers in the Dark Look to Draghi for Illumination (BBG)
As reported yesterday, The SCOTUS dealt a major blow to Argentina hopes it would avoid making payments on its "holdout" bonds when it enforced a lower-court ruling that said Argentina can't make payments on its restructured debt unless it also pays holdout hedge funds headed by Elliott Management, best known for briefly seizing an Argentina ship in late 2012. The immediate result was a major rout in the country's sovereign bonds, which also sent Argentina CDS soaring. Sadly for Argentina, this would hardly be the end of it, and about an hour ago, Standard & Poor added insult to injury and lowered its long-term foreign currency rating on Argentina to CCC- from CCC+ citing a "higher risk of default on the country's foreign currency debt." As a result, yesterday's drop in bonds has continued, if at a more moderate pace, and the country's USD bond due 2024 hav continued to sink in intraday trading. So what is next for the cash-strapped Latin American country for which the road ahead is suddenly quite "challenging" and default appears increasing like the only way out? For the answer we go to Citi's Jeffrey Williams who has laid out the five most likely developments.
Shanghai Limits Individual Purchases Of Risky Bonds As China Overtakes US As Biggest Corporate BorrowerSubmitted by Tyler Durden on 06/16/2014 21:24 -0500
With China's shadow banking system's collateral chain's collapsing amid government crackdowns on the ponzi, the 'desperate for liquidity' borrowers have increasingly turned to global capital markets' suckers to fund the next malinvestment. As China's currency becomes more internationalized and yields around the world collapse (thanks to central bank largesse), demand from investors has driven, for the first time ever, the Chinese corporate bond market has overtaken the United States as the world's biggest. As S&P warns, this is raising global credit risk as "as much as 10% of global corporate debt is exposed to the risk of a contraction in China's informal banking sector," or around $4-$5 trillion, "causing overall corporate risk to increase globally," and it's not expected to slow anytime soon. It appears the authorities are starting to recognize the bubble as they plan to 'limit individuals' purchases of risky bonds'.
A dispassionate look at the week ahead.