Economic principles explain why the Saudis began, in late 2014, to pump crude as fast as they could – or close to as fast as possible. In fact, there is a good reason why the Saudi princes are panicked and pumping.
Italy is scrambling to secure a privately-backed bailout of Monte dei Paschi di Siena, the most exposed of the country’s troubled lenders, including a plan to raise €5bn of fresh capital so as to avert nationalisation, the FT reports. The bank needs to obtain some €5 bilion in capital ahead of Friday's stress test, or else a dire "contagion" scenario could unfold that could impair not only all Italian banks, but promptly spread first to France and then to Germany...
In a turbulent session for FX, the Yen soared as much as 1.4%, the most in three weeks, after Finance Minister Aso says the government will "leave actual policy measures to BOJ", sending the Nikkei lower by 1.4%. European stocks and U.S. equity index futures are little changed despite the slide in the key carry pair as the Fed starts its two day meeting.
There has been little notable market moves overnight, with the record rally in the S&P500 set to continue and European stocks climbing as German IFO business confidence proved more resilient than economists predicted in the month after Britain voted to leave the European Union, falling less than expected from 108.7 to 108.3, above the 107.5 consensus, with expectations printing at 102.2 above the 101.2 expected. Bonds fell with gold as the dollar gained before central bank meetings in the U.S. and Japan this week.
In less than half an hour, the Turkish central bank will steal the public spotlight, if only very briefly, from Erdogan when it announces whether it will cut rates by 50 bps, 25 bps, (or - less likely - it won't cut at all). But in light of the recent stunning transformation in the country's political landscape, does this decision really matter? According to the market yes; according to Bloomberg's Richard Breslow, it is simply one more indication of how surreal the response to the Turkish turmoil has become.
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.
In an otherwise quiet overnight session, which among other things saw Germany sell 10Y Bunds with a zero coupon and a negative yield (-0.05%) for the first time ever (despite being uncovered with just €4.038BN sold below the €5.00BN target) anyone hoping for a confirmation that China will be able to prop up the world economy once more, was left disappointed when earlier this morning China reported June exports and imports that once again dropped substantially in dollar terms as soft demand at home and abroad continued to weigh on the world’s largest trading nation.
Contagion is the reason Italy’s banking crisis is all of a sudden Europe’s biggest existential threat. Greece’s intractable problems are out of sight, out of mind; Brexit momentarily spooked investors and bankers; but Italy’s banking woes have the potential to wipe out investors and undo over 60 years of supranational state-building in Europe.
S&P 500 futures are set to open at new all time highs, with global stocks rallying as the yen weakened and the Nikkei soared on speculation Japan is about to unveil the first instance of "helicopter money"-lite, as well as due to a continuation of better-than-expected U.S. jobs data. Further speculation that Italy's (and Europe's) insolvent banks will be bailed out has further boosted sentiment.
It’s been almost 10 years in the making, but the fate of one of Europe’s most important financial institutions appears to be sealed. But, if the deaths of Lehman Brothers and Bear Stearns were quick and painless, the coming demise of Deutsche Bank has been long, drawn out, and painful.
In a session where bleary-eyed traders followed the all-night tragic developments out of Dallas and initially sold off risk assets, it is good to see that some normalcy prevailed with the traditional post Europe-open futures ramp, which was further assisted by the successful resolution of the Dallas standoff, which has pushed futures modestly higher ahead of today's main event for markets, the June payrolls report due in under two hours.
Have no fear, Banco Popolare has run its own stress test (on itself) and has stated that it is "resilient to shocks." However, it appears investors do not believe them as Italian banks, led by Monte Paschi (which as a reminder is under a short-sale ban) plunged to new record lows.
"Any state intervention will likely be small, in our view, confined to a very small number of lenders and broadly within EU rules. As such, it is unlikely to represent a decisive fix of Italy’s banking problems. Retail investors will probably be protected as fears of a severe market backlash and subsequent deposit outflows may prevail. Such a compromise may limit the negative political fallout for PM enzi, but increased concerns among households about their savings are likely to hit the already-dwindling popularity of the government in any case."