Overnight Sentiment: The Printer Is Now In Draghi's Court

Tyler Durden's picture

The two primary events of the overnight session have been the "agreement" on a single European bank supervisor (more on this in a subsequent article), and the just announced conclusion of the third Greek bailout, whereby the Eurogroup finally agreed to fund the much delayed bailout tranche to Greece. The Greek funding would consists of EUR34.3 billion available immediately, and EUR49.1 billion by the end of March, which funding would come from the European central bank CDO-squared equivalent, the EFSF, in other words sterilized through all member nations and any potential investors. Of course, none of these two developments were remotely surprising, yet together with news that Spain sold its first 2040 bonds, even if at a token EUR540 million, since 2009, the overnight tone should have been far more bullish, alas it has simply led to a sell off in the EURUSD, which was last seen trading at the lows of the day and to continued widening in peripheral bonds.

Why the lack of follow through? Because, according to preliminary desk talk, just as we predicted yesterday now that the Fed has reengaged the QEasing machine, the ECB will too have to intervene and ease on its own once again to push the EURUSD lower (as otherwise the internal devaluation for most European countries will be simply unbearable). Which means one thing: the time to drag the Spanish insolvency out of cryogenic sleep is coming, and if Rajoy still refuses to request a bailout, he will get some much needed assistance from Frankfurt to make up his mind, allowing the ECB to inject hundreds of billions into the market and in doing so to keep up with the Fed or else risk dropping too far behind in the global race to debase (with a footnote that in Europe, a drop in the currency always raises redenomination risk now and going forward).

In other news, the SNB came out with its much expected monetary policy assessment, and much to the disappointment of all those hoping the EURCHF peg would be raised to 1.25 based on a flurry of recent rumors, supposedly not started by Jim O'Neill whose one absolute certain trade from a year ago was to buy EURCHF on a raise in the peg. So much for that. Of course, now that Credit Suisse and UBS are doing the SNB's work for it, and have effectively dropped the deposit rate to negative, there is little if anything Herr Jordan can and will do in the coming months, even though the fund flow continues to be very aggressively out of the EUR and into the CHF.

And with all that out of the way, the real news of the day, at least as market critical kneejerk algos are concerned, will continue to be any and every news on the Fiscal Cliff, which now is impossible to get resolved by Christmas, and very much improbable by New Year's Day. That, and of course speculation on why yesterday was the first time in Fed history that the halflife of its announcement was a few hours tops, perhaps leading to the first more notable decline in the Shanghai Composite which dropped 1% to 2061, following the epic plunge in the Baltic Dry index.

More from DB's Jim Reid:

Be warned. Tonight is apparently the peak night for Xmas parties. Every year my own revelry takes another notch down as age catches up. This is no bad thing as after my first ever Xmas office party in the city nearly 20 years ago I nearly burnt my flat down after accidentally leaving a spitting grill on all night after arriving home at 4am eager for some sustenance. By contrast over this past week I've been in bed every night at about 830pm with a cup of hot honey trying to get rid of a bout of man flu. How times change.

Talking of Xmas parties, Bernanke seemed to place the proverbial punch-bowl right in the centre of the table last night with the surprise move to keep "this exceptionally low range for the federal funds rate" for "at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.” This surprise was alongside the very widely expected move to roll the expiring Operation Twist into outright purchases of longer-term Treasuries at a rate of $45bn per month and of similar average duration (about 9 years). The S&P 500 rallied as much as half a percent whilst the Dollar index fell as much as -0.3% immediately after the announcement.

However the S&P 500 closed +0.04% (0.7% off the post announcement highs) as Bernanke's press conference took the shine off things by suggesting the Fed cannot offset the full impact of the fiscal cliff and his tone indicated that he didn't have any insider knowledge as to its progress. The market may have also taken the view that his soft targets were pretty much in-line with what they might have expected them to be and therefore this didn't change too much.

So although the market gloss was taken off the new guidance, last night really indicated the difference that still exists between the Fed and the ECB. Although the ECB has changed significantly, we're a long, long way off a world where the ECB would say that they would buy Spanish Government bonds for as long as Spanish unemployment remained above a certain level. Whilst on the subject on central banks, it was interesting to read BoE governor-in-waiting Carney's comments from a couple of days ago. He was being quoted by the FT to have said that central banks should consider more radical measures such as commitments to keep rates on hold for an extended period of time and numerical targets for unemployment. To take this a step further Carney even said that should these fail to work central banks should consider scrapping their inflation targets. He also suggested that a nominal GDP target could in many respects be more powerful than flexible inflation targeting. So its possible that 2013 will start to see more central banks target actual economic  variables when setting out the guidelines for their actions. Maybe the FOMC last night is the first step towards specific targets being formalised.

Turning to the Fiscal Cliff it is fair to say that another day has gone without any apparent signs of progress. House Speaker Boehner told the media that Republicans have “some serious differences” with Obama’s budget plan.

Referring to phone call he had with President Obama on Tuesday, Boehner said he and the president were frank about “how far apart we are”. Cliff uncertainty is also taking a toll on corporates’ capex plan. A survey conducted between 12-30 November found that 23% of US CEOs expect their firms to reduce capex during the next 6 months. This number was 19% in September.

In Italy Berlusconi told the press that he would now support Monti as PM if he agreed to run as the candidate for a center-right coalition. The Italian stock market (+1.15%) outperformed the rest yesterday along with a 8bp decline in the  BTP 10-year yield. In other news President Bashar al-Assad’s forces have fired 6 Soviet-designed Scud missiles at rebel fighters inside Syria (NYT). Syria is a worry for 2013. We wrote a short section on geo-political risk in our outlook for those that want to know more about Syria and other potential hotspots.

Asian markets are mixed overnight. The Nikkei (+1.8%) and the KOSPI (+0.7%) are pacing gains as we type with the Shanghai Composite (-0.6%) being the major under-performer. JPY weakness is helping equities in Japan ahead of what is probably going to be a LDP victory (per polls) in the Japanese elections this weekend. As we go to print there are reports of Chinese planes entering into Japan’s air space over the disputed Diaoyu/Senkaku islands which has prompted the Japan Air Self-Defense Force to send F15s fighter jet to the area (Kyodo). Japan’s Chief Cabinet Secretary Fujimura calls the act as ‘regrettable’. UST 10-year yield is 1bp higher at 1.713% while credit markets are generally holding firm in the overnight session.

In other overnight news, the FT reported that after 12 hours of talks Eurozone finance ministers struck a deal for the ECB to begin direct supervision of big eurozone banks from early 2014. The ECB will have direct responsibility for banks with more than EU30bn in assets, or representing more than 20% of a states’ national output. This is said to cover almost all French banks but leaves most of Germany’s retail banking sector and the network of its savings banks effectively exempt. The ECB retains the power to intervene in any bank should it decide to do so. The package still requires approval from the EU parliament and the Bundestag a process that could take several months, said the FT.

In terms of the day ahead retail sales, jobless claims, PPI and business inventories will be the key data out of the US. In Europe we will get CPI data in Spain and Italy as well as the ECB’s monthly report for December. The main focus however will probably be the Eurozone finance ministers’ meeting on Greece’s next aid payment.

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LongSoupLine's picture

In other words, Buy PM's as the worlds fiat creating fuckheads continue to shovel future inflation up the ass of the middle class.


Fuck you Bernanke, Fuck you Draghi and a big fuck you to Goldman and MIT for shitting out these assholes.

GetZeeGold's picture



Brussels.....we have a problem. We're totally out of yellow ink.


If we can't print money...I'm not sure how we're gonna cover our precious metal shorts. Hey....you told us to do it!

swissaustrian's picture

Illussional foreigners thought the SNB would raise the EUR/CHF floor?

We need at least 1% price deflation for that.

Cangaroo.TNT's picture

I think that's "Air" Jordan.  Same guy, right?

Ghordius's picture

TD:"...just as we predicted yesterday now that the Fed has reengaged the QEasing machine, the ECB will too have to intervene and ease on its own once again to push the EURUSD lower (as otherwise the internal devaluation for most European countries will be simply unbearable)."

I disagree TD, as often when you touch the EURUSD and "what the plan for it is". It's a matter of degree and trading partners - we are talking about a mercantilistic/industrialist continent, remember? And how is the ECB supposed to match the trillion-dollar-per-year printfest? one-to-one?

Jim Reid:" ...last night really indicated the difference that still exists between the Fed and the ECB. Although the ECB has changed significantly, we're a long, long way off a world where the ECB would say that they would buy Spanish Government bonds for as long as Spanish unemployment remained above a certain level."

there you have it from the MegaBank curiously situated in Germany DB's mouth

it's a matter of degrees

If the EUR goes too much down, all the "satellites" will disingage/decouple, and this would really, really mean bad business. So the Swiss, the Danes and so on have to be kept on board

interesting times

GetZeeGold's picture



it's a matter of degrees


Better let the ink dry before you frame that degree.

Ghordius's picture

you just spoiled an addition I wanted to make and now I've lost it. was I misunderstood? with degree I mean "moderation", "how much"..,

btw, when do you ever make a "serious comment" that is not a shoot from the hip? I joined this club because I have the impression that the otherwise brilliant TDs have a bit a of a lack of understanding for some european motivations, and they are not alone in this

- the fact that the eurozone still has 17 members just shows to me how badly US/UK commentators understand us continentals

- John Paulson lost quite a bundle making bets on a breakup, for example

- December last year Sharon Bowles, the British chair of the economic affairs committee of the EU parliament was saying "we are potentially facing the demise of the EUR by Christmas", for example

- lots of UK journalists predicted riots (not demonstrations - those have a purpose) all over the continent - and they happened in London

- no English speaking commentator ever comments about how average Germans think, for example, no explanations of "Ordnungspolitik" or (gasp!) "Social Market". And when it comes to France it's even worse, it's all "OMG! Help! Socialism!" for internal US/UK political consumption

- and no US/UK pundit ever mentions how we continentals feel about both our national and european identity, two strong feelings - much stronger than the winners of two world wars and heirs to a mighty military and commercial empire might understand - which propel our confederative projects EU and ECB

ah, well, we'll see, and in the mean time I'm shopping physical, just in case

GetZeeGold's picture



I'm shopping physical, just in case


You should have led with that.....it would have been a lot less work.

Ghordius's picture

ok, now let's see if you "grok" this:


there is a middle way between nailing people on a cross of gold and burning them in a paper hell


and this middle way involves both mediums

GetZeeGold's picture



there is a middle way between nailing people on a cross of gold and burning them in a paper hell


I'll take William Jennings Bryan.....and any gold you've got laying around for a thousand......Alex.


Ghordius's picture

ah, so there is an interesting mind behind the simpleton's mask. and so you do think you have his sword for this garbled knot?

From Germany With Love's picture

"no English speaking commentator ever comments about how average Germans think, for example, no explanations of "Ordnungspolitik" or (gasp!) "Social Market". And when it comes to France it's even worse, it's all "OMG! Help! Socialism!" for internal US/UK political consumption"


Ordinary Germany don't think that way, only the economically interested do - which are only a few. Ordinary Germans are highly skeptical about the Southerners and whether they might end up dragging them down but they also leave their politicians more or less free hand for as long as they dont get to feel any ill effects.

That is the sole key aspect to keep in mind when it comes to German voters. As long as they dont feel any significant burden, everything is fine and dandy. If not, expect payments to run dry.

HoaX's picture

Funny thing is that calculations have been made in Germany as of the actual costs of "bailing out" (they have actually all been loans) Southern Europe. So far they have made a profit of around 85bn on interest payments alone.

When I have some time I´ll look it up.

Greece of course is another story, if we perhaps do have to write some of its debt off next year, which wouldn´t surprise me.


and for a bit of comincal relief rom YiannisMouzakis Twitter:

Best reaction BY FAR by : I hear we got the tranche, going out to spend it like a motherf...r, might even switch the heating on

From Germany With Love's picture

Funny how noone calculates how much profit the US has made of the European Souvereign Debt Crisis. It must be because noone would bother to ask the US to bailout Greece more or less directly. If some economies are s**t and investors are fleeing, does that morally oblige people from different economies to not profit from that? Does it even warrant transfers back in?

HoaX's picture

Some of their hedge-funds sure made a killing (not John Paulson admittedly).

The rest of your comparison is a bit silly, if not, as you admit yourself, amoral. You don´t happen to work for Deutsche Bank do you? I would in that sense for sure not get TOO cocky being German at the moment. With your pride and joy DB hiding 12bn in losses during the crisis, involved in Libor AND Euribor rigging, not to mention the nice CO2 emission right tax deduction scam they are now jailing their execs for. Although at least someone is getting jailed over there.

From Germany With Love's picture

No pride and joy here. German banks misallocated the money they have been entrusted with on a huge scale. Cue the bank bailouts... I mean the "PIIGS bailouts".

That said, the influx of capital into the current safe haven Germany is a result of the incompetence in periphery nations. Whether that has decreased German interest rates is irrelevant, if PIIGS nations were being seen as reliable destinations for investment,none of it would happen. Sorry, but european economies are, among other things (for sure),  competitors for global investor capital. At least that has been the case so far. And there is no point in apologizing for your profits if a competitor is struggling.


WaEver's picture

If the fed is really serious about lowering the unemployment rate they should massively hire. The main qualifications would be breathing (although not sure about that) and capable of mubling expensive words (even parrots can do this so shouldn't be an issue). This means plenty of unemployed  people available to fill the central bank palaces. Et voilà your unemployment problem is solved.

GetZeeGold's picture



OK so the Fed hires 20 million unemployed prople......now what?


Do you go to MIT?

WaEver's picture

Did you sell your sense of humour for gold

GetZeeGold's picture



Naw.....I was just seeing if you did.

fonzannoon's picture

The ECB is badass . They got away with just threateneing to print. Apparently they have found a way for their banks to survive without constant flow. Good for them. As for the U.S our printing sends commodity prices down. Peter Schiff must be having a full blown stroke today.

jover's picture

My sincere cliffmas wishes to ben and his friends!

HoaX's picture

Tyler, you do know that the address bar still reads: overnight-sentiment-printer-now-bernankes-court ?


caShOnlY's picture

As for the U.S our printing sends commodity prices down

.. not really.  printing just gives more ammo to the "right ones" to manipulate the paper markets.  Take the paper market away to what the "real market value" is.