As Welt reported overnight, the ECB just announced a change to its collateral framework, changing the haircuts and acceptability rules for ABS and covered bonds in an attempt to boost moribund and stalled European lending. As part of its announcement, the ECB reduced haircuts applicable to ABS rated A- or higher to 10% from 16% and to 22% from 26%. The bank also cut the minimum rating for ABS subject to loan level reporting requirements to 2 "A" ratings from 2 "AAA" ratings as more and more credit in Europe sinks into the quicksand of NPL-ness. Draghi also announced he would tighten risk control measures for covered bonds and that all the announced changes would have an overall neutral effect on amount of collateral available. Will this latest Hail Mary attempt work to boost lending in Europe? Of course not: Europe's issue is not credit supply constraints but a deterioration in asset quality and an explosion in NPLs, which has lead to an acceleration in overall deleveraging at both the bank and consumer level, and which is unlikely to end any time soon and certainly not before more widespread liability liquidations a la Cyprus.
- Bernanke Seeks to Divorce QE Tapering From Interest Rates (BBG)
- China launches crackdown on pharmaceutical sector (Reuters)
- Barclays, Traders Fined $487.9 Million by U.S. Regulator (BBG) - or a few days profit
- Barclays to fight $453 million power fine in U.S. court (Reuters)
- When an IPO fails, raise money privately: Ally Said to Weigh Raising $1 Billion to Pass Fed Stress Tests (BBG)
- Bank of England signals retreat from quantitative easing (FT) ... Let's refresh on this headline in 6 months, shall we.
- Russia's Putin puts U.S. ties above Snowden (Reuters)
- Smartphone Upgrades Slow as 'Wow' Factor Fades (WSJ)
- Snowden could leave Moscow airport in next few days (FT)
- New Egypt government may promote welfare, not economic reform (Reuters)
Prompted by their FrAAAnce downgrade to AA+, French-owned Fitch has downgraded Europe's last best promise/hope - the EFSF - from AAA to AA+... but the crisis is still behind us - we are assure by such truth-sayers as Juncker, Barroso, and Merkel (pre-elections). The key sentence is "Following the downgrade of France's IDR, the EFSF's long-term debt issues are not fully covered by 'AAA' guarantees and over-guarantees and, for debt issued before October 2011, by the cash reserve." So that's good then... Don't worry though since "Fitch assumes there will be progress in deepening fiscal and financial integration at the eurozone level in line with commitments by euro area policy makers"
Everyone wants to know what day everything will change. Despite all the chaos in Portugal, Greece, Spain, and France; none of this will matter until after this drop-dead date. Nothing is going to be allowed to upset the bratwurst cart and we mean nothing. If more money is needed it will be spent. If favors need to be called the phone will be in use. But in the day following, however...
Dispassionate review of some of next weeks important developments.
On the even of Bastille Weekend and the 100th anniversary of the Tour de France, you know it must be bad when the French-company-owned ratings agency Fitch is forced to remove its AAA rating from France. Key drivers include Debt-to-GDP projections rising and substantially weaker economic output and forecasts. Full statement below...
In a surreal and deja vu-ish turn of events, three days ago we reported that in parallel with the ongoing collapse in CNBC viewership, the ratings of some of its shows namely Jim Cramer's Mad Money and Larry Kudlow's Report had just hit all time lows. This was met with an immediate response by Larry Kudlow himself who, alongside Groundhog Phil-fodder Joe LaVorgna, decided to take Zero Hedge to task for reporting that part-time jobs are not really full-time jobs and invited us over to their show to explain how dare we point out the weakness in the manipulated BLS datadump. We were kind enough to remind Mr. Kudlow that the last time someone from CNBC "invited" us over, i.e., Dennis "Digital Dickweed" Kneale, their show was promptly cancelled. To wit: "While we appreciate the offer, the last thing we intend to do is suffer Mr. Kudlow the same fate as that experienced by his predecessor Dennis Kneale who also invited Zero Hedge on his laughable excuse for a show in 2009, only to be sacked a few months later." Make it two for two as irony strikes again. The NY Post reports that Kudlow's show is over.
- Bernanke Supports Continuing Stimulus Amid Debate Over QE (BBG)
- Portugal president wants 'salvation' deal, including opposition (Reuters)
- Egypt has less than two months imported wheat left - ex-minister (Reuters)
- A rise in long-term interest rates is creating challenges and opportunities for the largest U.S. banks. (WSJ)
- BoJ says Japanese economy is ‘recovering’ (FT)
- More Chinese cities likely to curb auto sales (Reuters)
- PC Shipments Fall for 5th Quarter (BBG)
- Property Crushes Hedge Funds in Alternative Markets (BBG)
- New aid gives Greece summer respite before showdown (Reuters)
- Rajoy Punishes Exporters Sustaining Spain’s Economy (BBG)
The only story this morning remains Bernanke's after hours speech, which solidly trumped the FOMC minutes in market impact, and which, in addition to ramping US equity futures to just about new all time highs, sent the EURUSD soaring by almost the same amount (+300 pips) as the actual QE1 announcement on March 18, 2009. Such is the power of verbal currency warfare, when Bernanke hasn't acutally done anything and merely hinted the Fed is as confused as ever about what to do. Of course, as Commerzbank notes this morning, the U.S. economy would have to lose a lot of momentum for the Fed to cancel tapering, and the central bank would only expand the purchase program if the economy collapses, but none of that matters to the "wealth effect" for the 1% where economic destruction simply means more wealth.
Another day of fraught wonderment ahead of us. What does it all mean? China economic data increasingly suggests there is a serious problem, (that’s still a few points below crisis – but recent experience suggests the politics of mobs can turn ugly with surprising speed!). On the other hand, yesterday’s US auctions went swimmingly well – so we can all relax about the taper? Er.. no. And while Spain gets a cheeky 15-yr bond issue completed (driven on the back of a large single order we strongly suspect), the Italians then get downgraded because of the weakening economy, deteriorating competitiveness and 1.9% negative growth outlook... “You can’t make this stuff up,”
Just more meangingless drivel form a clueless, paid for rating agency (which recently disclosed it would plead "puffery" in its defense against the US lawsuit) now that the ECB is intent on actually lowering the EURUSD, because unlike last year, there is no (immediate) fear of redenomination risk as a result of a sliding EURUSD. Thank you Japanese carry trade.
- ICE's NYSE to determine the rate used by key competitor CME: NYSE Euronext to Take Over Libor (WSJ)
- Japan slams China over maritime disputes (FT)
- The Twinkie Returns, With Less Baggage (WSJ)
- Pentagon Workers From Pennsylvania to Ghana Hit by Cuts (BBG)
- Why Prostitutes Aren't Enough to Deprive the World of Eliot Spitzer (BBG)
- Groups gather in Turkish protest park after night of clashes (Reuters)
- Apartment Rents Rise, But the Pace Is Slowing (WSJ)
- Asiana Seen Saving Millions With Tactic to Bar U.S. Suits (BBG)
- Bin Laden's life on the run revealed by Pakistani inquiry (Reuters)
- Fracking Firms Face New Crop of Competitors (WSJ)
What can be said here that we haven't said countless times before? If the braintrust behind Comcast's acquisition of the CNBC package deal, not to mention assorted increasingly more desperate CNBC producers, had hoped that an artificial "wealth effect" created under a central planning world would lead to greater viewership, more retail stock market participation, and better advertising terms (not to mention revenues), they were wrong. Very, very wrong.
- Greece's Economic Future 'Uncertain,' Creditors Say (WSJ)
- Secret Court's Redefinition of 'Relevant' Empowered Vast NSA Data-Gathering (WSJ)
- Thomson Reuters Halts Early Peeks At Consumer Data (WSJ)
- Larry Summers Circles as Fed Opening Looms (WSJ)
- S&P to Argue Puffery Defense in First Courtroom Test (BBG)
- Geithner joins top table of public speakers with lucrative appearances (FT)
- Losing $317 Billion Makes U.S. Debt Safer for Mizuho to HSBC (BBG)
- Pilot Error Eyed in San Francisco Plane Crash (WSJ)
- Investment group sues U.S. over Fannie, Freddie bailout terms (Reuters)
- Egypt officials 'order closure of Islamist party HQ' (AFP)
- Heinz Kerry Transferred to Boston Hospital for Treatment (BBG) - a boating accident?
Given the US holiday, markets are likely to be thin today but there are some big news stories floating around at the moment. If the fast and furious events from the past few days in a revolutionary Egypt bear a striking resemblance to what happened in the spring of 2011, it is because they are strikingly comparable. Only this time, following the ouster of yet another US-supported "leader" by the US-supported military, the country's CDS has normalized at a level that is roughly double where it was two years ago as the implicit backing of the US looks increasingly shaky, following what was yet another bungled foreign policy venture by the Obama administration. But for now, the people are celebrating, just as they did in 2011. One wonders what happens between now and the next coup, somewhere two years (or less) hence. For now focus merely on who controls the Suez - after all that is really all that matters for the US. The other major story of yesterday, Portugal, continues to be in limbo,