Sovereign CDS

British Default Risk Soars To 3 Year Highs As Hedging Volume Spikes

Investors are increasingly reaching for protection of various sorts ahead of next week's Brexit vote. The credit derivatives market is the latest to experience the surge as corporate CDS indices spike on extremely high volume and perhaps more troubling, UK Sovereign CDS has spiked to its highest in over 3 years as fears of devaluation or default rise...“Many viewed Brexit as unlikely enough that they didn’t have to worry about it, and now they’re panicking to some degree."

US Default Risk Hits 8-Month Highs

While still relatively low, USA sovereign CDS spreads have risen to 8-month highs, surging off early March lows. The reasons are likely numerous though we suggest the 4 surges in the last 3 months appear to line up with notable 'events'...

Furious Rally Fizzles Overnight As Futures Follow Oil Lower

Following yesterday's torrid 2.4% March opening rally, which resulted in the biggest S&P gain since January and the best first day of March in history on what was initially seen as very bad news, and then reinterpreted as great news, overnight futures have taken a breather, and erased a modest overnight continuation rally to track the price of oil lower.

"China Is Not Contained" Credit Market Screams

We have seen this pattern before, and it did not end well. While the most mainstream indications of China's "stability" are droned on about as indicating some level of control (i.e. Yuan volatility suppression), the fact is that no matter how hard China tries to centrally plan the entire world, segments of the credit market are screaming "uncontained."

We Didn't "Financially Engineer" Our Way Out Of The Great Depression, We Won A World War

The arms race of devaluation is not free and has come at the cost of massive global debt expansion. The world has simply shifted private debt to the public balance sheet. The next major global crash will likely be driven by unhealthy sovereign credit rather than corporate credit. The next Lehman moment will be the financial collapse of a major developed country instead of a bank.

The "Great Unwind" Has Arrived

The world is in the waning days of a historic multi-decade experiment in unfettered finance. International finance has for too long been effectively operating without constraints on either the quantity or the quality of Credit issued. From the perspective of unsound finance on a globalized basis, this period has been unique. History, however, is replete with isolated episodes of booms fueled by bouts of unsound money and Credit – monetary fiascos inevitably ending in disaster. We see discomforting confirmation that the current historic global monetary fiasco’s disaster phase is now unfolding.

China Soars Most Since 2009 After Government Threatens Short Sellers With Arrest, Global Stocks Surge

The Shanghai Composite Index had dropped as much as 3.8% to a 4 month low before the news that the cops were going to arrest anyone who was caught "maliciously shorting stocks", when everything suddenly took off, and the SHCOMP closed  a "Dramamine required" 5.8% higher, the biggest daily increase since March 2009! Stocks around the globe followed, with US equity futures wiping out much of yesterday's losses and up 1% at last check.

Forget Mattresses, Greeks Are Stashing Their Cash In Cars

As Greek empty their bank accounts at a record pace, waiting for the capital-controlling, bank-holiday-based 'other shoe' to drop on Grexit, devaluation, and drachmatization; they are not stashing their cash in the proverbial mattress. Instead, as The Telegraph reports, there is a slightly surprising sign that Greece is in the classic throes of a bank run (as we saw in Russia last year): car sales jumped by 47% in April.

First Euroarea Deflation Since Lehman Sends Futures Higher; Brent Tumbles Below $50 Then Rebounds

Things in risk land started off badly this morning, with the worst start to a year ever was set to worsen when European equities came under early selling pressure following news of German unemployment falling to record low, offset by a record high Italian jobless rate, with declining oil prices still the predominant theme as Brent crude briefly touched its lowest level since May 2009, this consequently saw the German 10yr yield print a fresh record low in a continuation of the move seen yesterday. However, after breaking USD 50.00 Brent prices have seen an aggressive bounce which has seen European equities move into positive territory with the energy names helping lift the sector which is now outperforming its peers. As a result fixed income futures have pared a large majority of the move higher at the EU open. But the punchline came several hours ago courtesy of Eurostat, when it was revealed that December was the first deflationary month for the Eurozone since the depths of the financial crisis more than five years ago, when prices dropped by -0.2% below the -0.1% expectation, and sharply lower than the 0.3% increase in November, driven by a collapse in Energy prices.

Futures Surge After ECB Verbal Intervention Talks Up Stocks, Day After Fed

If the last three days all started with a rout in futures before the US market open only to ramp higher all day, today it may well be the opposite, when shortly after Europe opened it was the ECB's turn to talk stocks higher, when literally within minutes of the European market's open, ECB's Coeure said that:

  • COEURE SAYS ECB WILL START WITHIN DAYS TO BUY ASSETS

Which was today's code word for all is clear, and within minutes US futures, which until that moment had languished unchanged, soared by 25 points. So will today be more of the same and whatever early action was directed by the central bankers will be faded into a weekend in which only more bad news can come out of Ebola-land?

Futures Higher On Geopolitical Tensions Which Are Either Easing Or Looming

Since there is nothing on today's data docket, it will be all about, you guessed it, geopolitical risks, where "consensus" is best summarized by these two Bloomberg headlines:

  • Stay USD Long as Geopolitical Risks Loom
  • USD is mixed and world stock markets rise as concerns over geopolitical risks ease

That pretty much covers it, although in addition to the Ukraine civil war one can now add an Iraq coup to the list of geopolitical fiascoes instigated by US foreign policy.

Europe Continues To Deteriorate Leading To Fresh Record Bund Highs; All Eyes On Draghi

There were some minor fireworks in the overnight session following the worst Australian unemployment data in 12 years reported previously (and which sent the AUD crashing), most notably news that the Japanese Pension Fund would throw more pensioner money away by boosting the allocation to domestic stocks from 12% to 20%, while reducing holdings of JGBs from 60% to 40%. This in turn sent the USDJPY soaring (ironically, following yesterday's mini flash crash) if only briefly before it retraced much of the gains, even as the Pension asset reallocation news now appears to be entirely priced in. It may be all downhill from here for Japanese stocks. It was certainly downhill for Europe where after ugly German factory orders yesterday, it was the turn of Europe's growth dynamo to report just as ugly Industrial Production which missed expectations of a 1.2% print rising only 0.3%. Nonetheless, asset classes have not seen major moves yet, as today's main event is the ECB announcement due out in less than an hour. Consensus expects Draghi to do nothing, however with fresh cyclical lows in European inflation prints, and an economy which is clearly rolling over from Germany to the periphery, the ex-Goldmanite just may surprise watchers.

Overnight Futures Levitation Mode Engaged But Subdued

Despite yesterday's lackluster earnings the most recent market levitation on low volume was largely due to what some considered a moderation in geopolitical tensions after Europe once again showed it is completely incapable of stopping Putin from dominating Europe with his energy trump card, and is so conflicted it is even unable to impose sanctions (despite the US prodding first France with BNP and now Germany with the latest DB revelations to get their act together), as well as it being, well, Tuesday, today's moderate run-up in equity futures can likely be best attributed to momentum algos, which are also rushing to recalibrate and follow the overnight surge in the AUDJPY while ignoring any drifting USDJPY signals.