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Futures Rebound On Latest European Bank Failure And Bailout

Tyler Durden's picture




 

Following a ghastly week for stocks, the momentum algos were desperate for something, anything to ignite some upward momentum and stop the collapse which last week pushed the DJIA into the red for the year: they got it overnight with the previously reported bailout of Portugal's Banco Espirito Santo, where the foreplay finally ended and after the Portuguese Central Bank finally realized that the bank is insolvent and that no more private investors will "recapitalize" it further, finally bailed it out, sticking the stock and the subs into a bad bank runoff entity, while preserving the senior bonds. So much for Europe's much vaunted bail in regime and spreading of pain across asset classes. At least the depositors did not get Cyprused, for now. 

On the back of BES bailout, stocks traded mixed in Europe where algos aren't quite clear that horrible news is great news, with the German DAX index underperforming where Adidas (-1.6%) remained under pressure as investors continued to fret over the Russian sanctions, while analysts at Berenberg downgraded the company to sell from buy.

In terms of other notable stock movers, HSBC (+2.8%) shares briefly slumped after the bank reported pretax down 12% vs. Exp. down 10%. Focus in the US will be on earnings by AIG, Marathon Oil, Cardinal Health and Pioneer Natural Resources. Bunds recovered from a lower open and moved into positive territory, as the somewhat cautious sentiment amid concerns over the implication of Russian sanctions on profitability of EU majors, together with risks associated with the looming risk events weighed on sentiment. Nevertheless, PO/GE 10y spread tightened aggressively this morning after it was announced that Banco Espirito Santo is to be split into ‘good’ and ‘bad’ banks in a EUR 4.9bln rescue package that wipes out equity and subordinated debt holders, but protects taxpayers and senior creditors.

There is far less macro and economic news on this week's calendar which means the usual geopolitical tensions points: Russia, Gaza, ISIS, as well as the spread of the Ebola epidemic, and of course, speculation on what the Fed may or may not do, will drive risk in the coming days.

The earnings calendar winds down in the US although we still have 73 S&P 500 companies lined up this week. AIG, Walt Disney and News Corp are some of the notable ones. In Europe we have 69 companies reporting with some of the major financial services group (HSBC, Unicredit, Standard Chartered, ING) expected to report. In the US about 360 S&P 500 companies have reported so far with the EPS beat:miss ratio standing solid at 77%:23% although sales performance has been bit more subdued at 65%:35%. European earnings are still coming through but so far EPS beat:miss are running at a more balanced 55%:45% whilst sales revenue are less impressive at 45%:54%. Our usual earnings season tracker updated in the PDF.

 

Bulletin Headline Summary from RanSquawk and Bloomberg:

  • Bund futures remain bid into the North American cross over, despite initially gapping lower, as the DAX continues to be sold as participant confidence ebbs
  • Treasuries little changed, 10Y notes holding just below 2.50% level; Bank of Portugal said it will take control of Banco Espirito Santo’s assets and deposit-taking operations by transferring them to a new company.
  • While Banco Espirito senior bondholders and depositors were left unscathed, sub debt holders face losses as regulators try to avoid leaving taxpayers on the hook for losses caused by failed lenders
  • Investors may be underestimating the pace at which the Fed will raise interest rates over the next two years, said Richmond Fed president Jeffrey Lacker
  • A Chinese central bank loan that’s almost the size of the U.S. bailout of AIG has spurred speculation that policy makers have adopted a new form of monetary easing to shore up growth
  • China’s non-manufacturing PMI fell to 54.2 in July from a previously reported 55.0 in June
  • The spread of Ebola in Liberia threatens to erase the economic progress the West African nation has made since the end of the civil war in 2003, Vice President Joseph Boakai said
  • The outbreak has killed more than 800 in Sierra Leone, Liberia and Guinea, threatens to spiral out of control
  • Militants from Islamic State took control of two oil fields and some predominantly Kurdish towns in northern Iraq following clashes, according to the Northern Oil Co.
  • Israel held its fire in parts of the Gaza Strip to allow for humanitarian relief as violence defied diplomatic efforts to end four weeks of conflict
  • Sovereign yields mostly lower. Euro Stoxx Banks gains 1.2% after sliding 3.4% last week. Asian and European equities mixed, U.S. stock futures rise. WTI crude, gold and copper little changed
  • Chinese equities shrug off a six-month low in non-manufacturing PMI as hopes for reform of state-owned enterprises send the Shanghai Composite and the Hang Seng Index higher
  • Today’s calendar is relatively quiet ahead of a slew of central bank decisions (BoE, ECB, RBA, BoJ) all due later this week

US Event Calendar

  • 9:45am: ISM New York, July (prior 60.5) Supply
  • 11:00am POMO: Fed to purchase $950m-$1.15b notes in 2036-2044 sector
  • 11:00am: U.S. announces plans for auction of 4W bills
  • 11:30am: U.S. to sell $28b 3M bills, $25b 6M bills

FIXED INCOME

Bunds recovered from a lower open and moved into positive territory, as the somewhat cautious sentiment amid concerns over the implication of Russian sanctions on profitability of EU majors, together with risks associated with the looming risk events weighed on sentiment. Nevertheless, PO/GE 10y spread tightened aggressively this morning after it was announced that Banco Espirito Santo is to be split into ‘good’ and ‘bad’ banks in a EUR 4.9bln rescue package that wipes out equity and subordinated debt holders, but protects taxpayers and senior creditors.

EQUITIES

Stocks traded mixed in Europe, with the German DAX index underperforming where Adidas (-1.6%) remained under pressure as investors continued to fret over the Russian sanctions, while analysts at Berenberg downgraded the company to sell from buy. In terms of other notable stock movers, HSBC (+2.8%) shares briefly slumped after the bank reported pretax down 12% vs. Exp. down 10%. Focus in the US will be on earnings by AIG, Marathon Oil, Cardinal Health and Pioneer Natural Resources.

FX

There was little in terms of tier-1 macroeconomic releases in morning, with only the latest UK Construction PMI data for market participants to digest, which came in broadly in line with exp. The report noted that British house building accelerated last month at the fastest rate since November 2003 and construction activity grew for the 15th successive month. Nevertheless, both EUR/USD and GBP/USD remained range-bound, given the lack of fundamental news flow to drive the price action and as market participants remained on the side-lines ahead of a slew of risk events

COMMODITIES

Gold has traded sideways overnight and through the European session, though off last week’s NFP-inspired highs, yet remaining above the USD 1290 level as the tensions in the Eastern European and the Middle East keep prices elevated. The energy complex trades rangbeound yet off its lows, as markets factor out effect of Coffeeville, which saw the complex sell off last week.

* * *

DB's Jim Reid concludes the overnight recap:

Clearly the sell-off also partly has its roots in Geopolitics and the Argentinian default but while we were in QE infinity mode these events would have been easier to shrug off. However as the market runs out of the extreme liquidity and attention now shifts towards when the Fed will lift rates we might have entered a new period of higher volatility. Our view is that the Fed will have to err on the side of caution when lifting rates but that the market will now likely be more sensitive to data and Fed speak and we'll have regular tension between the hawks and the doves with the doves eventually winning out but not without turbulence and a fight.

As we've published a few times we thought what we're now seeing in markets might happen in the autumn but now it’s happened earlier we don't think its worth chasing it wider at these weaker levels. Our feeling is that markets will be stronger by the end of August even if we still might not start the month well.

One of the recent reactions for markets has been the BES story, and according to the FT, late on Sunday a EUR4.9bn bailout plan was announced by Portugal’s central bank. This will see the bank restructured into a ‘good’ and ‘bad’ bank. The move would see a small Portuguese bank rescue fund acquire BES’s healthy assets and the fund will be bolstered by EU and IMF loans left over from Portugal’s international bailout. The WSJ noted that depositors and senior bondholders will be spared from any losses while the bank’s subordinated creditors and current shareholders will be in line for losses. In the world of credit all eyes will be on how iTraxx Financial Senior, Sub and Main respond to the news. Senior holders across markets should be relieved as again policy makers have been reluctant to impose losses on them.

For now the developments appear to be well absorbed by markets overnight. Indeed most risk indicators are firmer in Asia with the S&P 500 Futures (+0.3%), the Shanghai Composite (+1.1%), Indonesia CDS (-7bps), and the AUD (+0.1%) all higher as we type.

Recapping the data flow on Friday, payrolls (209k v 230k consensus) were modestly weaker-than-expected. Likewise Private payrolls (+198k v 227k consensus) were also softer. Joe LaVorgna thinks this means Yellen will keep a dovish script when she keynotes the Jackson Hole conference later this month. The latest data also allows monetary policymakers more breathing room with respect to the timing of the first Fed funds rate hike, as market participants in recent days had been bringing rate hikes forward. Away from jobs the manufacturing data was firm though with a better-than-expected July ISM manufacturing index (57.1 v 56.0 expected) on Friday. Whilst the S&P 500 (-0.29%) closed a touch lower on Friday, Treasury bulls were probably encouraged by the softness in payrolls. The 10yr rallied 7bp rally to 2.49% with the curve also bull steepening led by outperformance at the front end.

Following a roller coaster data week in the US last week we have the usual post-payrolls lull in the coming days. The focus this week will probably turn to Europe with the ECB's and BoE's policy meetings on Thursday being the key highlights. In terms of the ECB, Mark Wall and Gilles Moec believe the current growth and inflation picture leaves the ECB room to pause and reflect. Nevertheless an outlook of prolonged low inflation means the ECB will maintain its conditional dovish stance. We expect the ECB to repeat the message that should the June 5th announcements (in particular the TLTRO) not have the desired effect of stimulating growth, lending and inflation, the ECB is prepared to implement an ABS purchasing scheme. However, Mark and Gilles do not see ECB making a call on this call till H1 2015. Turning to the BOE, consensus expects rates to be left unchanged although George Buckley now expects the first rate hike to be delivered in Nov this year (vs previous view of May 2015) following the recent comments by Carney.

In terms of the data flow, the main focus in Europe will likely be the services PMI and retail sales tomorrow followed by Italy's Q2 flash GDP on Wednesday. Those aside we will also get German factory orders (Wed), UK and Italian Industrial Production (Wed), German and UK trade data (Fri), and French IP (Fri). On the other side of the pond, we will get the ISM services and factory orders tomorrow, US trade data on Wednesday, the usual jobless claims on Thursday, and wholesale inventories on Friday. Away from the West, we will get the final HSBC China Services PMI for July tomorrow and Chinese Trade data on Friday. The BoJ will begin its two day meeting on Thursday.

The earnings calendar winds down in the US although we still have 73 S&P 500 companies lined up this week. AIG, Walt Disney and News Corp are some of the notable ones. In Europe we have 69 companies reporting with some of the major financial services group (HSBC, Unicredit, Standard Chartered, ING) expected to report. In the US about 360 S&P 500 companies have reported so far with the EPS beat:miss ratio standing solid at 77%:23% although sales performance has been bit more subdued at 65%:35%. European earnings are still coming through but so far EPS beat:miss are running at a more balanced 55%:45% whilst sales revenue are less impressive at 45%:54%. Our usual earnings season tracker updated in the PDF.

 

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Mon, 08/04/2014 - 07:13 | 5042938 Sudden Debt
Sudden Debt's picture

at least the bailouts come faster and faster.

why should a bank even bother to make profits anymore when you see the speed of intervention?

And what about the bonusses the bankers got just before it went bankrupt?

Mon, 08/04/2014 - 07:15 | 5042941 kowalli
kowalli's picture

and like always no one go to the jail for a fraud...

Mon, 08/04/2014 - 07:22 | 5042944 GetZeeGold
GetZeeGold's picture

 

 

Is that anything like being "made"?

 

If you have any problems.....just talk to Pauly. Let me know if you need to borrow a match.

http://www.youtube.com/watch?v=ZPtjyqgZAUk

Mon, 08/04/2014 - 07:39 | 5042970 fonzannoon
fonzannoon's picture

How funny....so after all the bullshit scary quotes a bank failed over there and they were bailed out, and the depositors were not bailed in. So they avoided the Lehman moment right from the beginning.

Party on.

Mon, 08/04/2014 - 07:45 | 5042978 GetZeeGold
GetZeeGold's picture

 

 

Sooooo......is everything now fixed?

 

Well that's certainly some damn good news!

Mon, 08/04/2014 - 07:50 | 5042986 fonzannoon
fonzannoon's picture

This is a pretty big deal. You can't bail this dude out and then bail the next dude in. That seems to illustrate that when they have to take the pain they will go the QE route instead of the bail in route. That should be bullish for gold long term and by bullish I mean it should not go down too much more...

Mon, 08/04/2014 - 07:54 | 5042992 disabledvet
disabledvet's picture

Russia is heading straight to bankruptcy...or worse.

Just speculating here but I would not be surprised at all to see natural gas prices to head right back to two bucks...or lower.

Mon, 08/04/2014 - 14:26 | 5044888 roadhazard
roadhazard's picture

Butt, Butt, Putin.

Mon, 08/04/2014 - 07:55 | 5042993 GetZeeGold
GetZeeGold's picture

 

 

it should not go down too much more...

 

Thanks.....insipiring words. Do you do motivational speeches in your spare time?

Mon, 08/04/2014 - 07:59 | 5043002 fonzannoon
fonzannoon's picture

I have definitely become that uncle that your family does not talk to anymore. 

Mon, 08/04/2014 - 08:08 | 5043015 quasimodo
quasimodo's picture

YES! It's all fixed. Time to sell all metals and anything else of real value.

 

Mon, 08/04/2014 - 07:47 | 5042980 disabledvet
disabledvet's picture

Perrty much. Still makes Portugal insolvent though. And needless to say that family's importance to the Portugese economy has diminished to diminimus.

Now what to do with all that Nazi Gold in Lisbon...

Mon, 08/04/2014 - 07:52 | 5042988 disabledvet
disabledvet's picture

I would add if asked to served by the Prince I would consider it. Not that he would consider me fit of course. Sometimes the best way to get an Army is simply to ask for one actually.

Mon, 08/04/2014 - 07:17 | 5042945 Hindenburg...Oh Man
Hindenburg...Oh Man's picture

"...the momentum algos were desperate for something, anything to ignite some upward momentum and stop the collapse..."

Since when do we need "anything" for futures in the green? I think that I've seen one day in the past month where futures weren't comfortably green, pre-market, in the range of about 0.30 percent. It's a given anymore.

Mon, 08/04/2014 - 08:03 | 5042983 Renfield
Renfield's picture

<<Since when do we need "anything" for futures in the green?>>

That's so, isn't it.

Hyper-inflationary crack-up boom. The stock market is mostly imaginary, guys. How long will 'investors' continue playing in this silly markets sandbox? Most of the capital represented by these markets isn't real.

Not blaming the Hedge for following the markets closely - they're a finance blog and it's their job to report no matter how irrelevant and fake the numbers are.

But as readers, really, at this point we expect anything different? hehehe

At this point I'm not sure how seriously 'investors' would take even a major crash. They'll just print more...right? Of course they will. Too many 'investors' measure their assets by price rather than value. This is the same measure the legendary First Nations used in selling Louisiana for a biiiig pile o' beads. (They did get a great price for it, in beads.)

I'll look up from my coffee when the Fed raises rates to 20%. Outside of that, I'll continue peeking in at these charts and stories when I can spare the time from real life. But as far as I'm concerned, these markets are now about as real and relevant as the usual media entertainment. With central planners continuing to tinker and nudge and tuck and taper, and central planners now being the ONLY sign of life in the markets - well, it all just looks like the same old hyperinflationary crack-up boom that I've been watching evolve for the last year and a half.

Mon, 08/04/2014 - 07:20 | 5042949 medium giraffe
medium giraffe's picture

Bullishit!

Mon, 08/04/2014 - 07:21 | 5042950 stocktivity
stocktivity's picture

It's all Bullshit!!!

Mon, 08/04/2014 - 07:25 | 5042953 craus
craus's picture

This is bad news where will it end?

I fully expect the NYSE to rally on this news.

Mon, 08/04/2014 - 07:26 | 5042956 Global Hunter
Global Hunter's picture

BTFUF  Buy The Fucking Unexpected Facts

Mon, 08/04/2014 - 07:28 | 5042958 buzzsaw99
buzzsaw99's picture

Lady of the house wonderin' where it's gonna stop
House boy knows that he's doing alright
You shoulda heard him just around midnight...

[/Brown Sugar]

Mon, 08/04/2014 - 07:31 | 5042959 Eyeroller
Eyeroller's picture

WHY is Madoff in jail, while these banksters freely practice their ponzi schemes...

Mon, 08/04/2014 - 07:44 | 5042961 GetZeeGold
GetZeeGold's picture

 

 

Shades of grey Amigo......shades of grey.

 

Same reason full time SEC employees can watch porn all day and normal citizens can't work over 29.5 hr/wk.

 

Justice Roberts was blackmailed.....you control the right guy....you control everything. Madoff had nothing left to offer....so he's gone.

Mon, 08/04/2014 - 08:10 | 5043019 Callz d Ballz
Callz d Ballz's picture

Madoff himself said this very thing in an interview.

Mon, 08/04/2014 - 14:28 | 5044901 roadhazard
roadhazard's picture

He fleeced the rich, bad form.

Mon, 08/04/2014 - 14:57 | 5044998 SickDollar
SickDollar's picture

very good question, the answer will show you how deep the rabbit hole goes in this game

 

Mon, 08/04/2014 - 07:33 | 5042960 junction
junction's picture

On CBS This Morning a few minutes ago, Prince William making a speech to some old people to mark the centenary of World War One said "We salute those who died to give us our freedom."  That sound bite shows how unreality and false statements have become the norm when the ruling class describes disasters.  World War One had nothing to do with freedom.  A few days ago, a Portugese bank collapsed due to insider dealmaking that went massively bad and that collapse is ignored by the mainstream press.  Don't upset the peasants who may wonder about other big banks in trouble in their neighborhood.  Decades from now, who knows if some historical illiterate will say that the collapse of big financial institutions in 2008 helped give us economic freedom.  Yeah, right.

Mon, 08/04/2014 - 07:50 | 5042987 disabledvet
disabledvet's picture

If that million man American Army had been not just sitting but in fact attacking at the "Center that could not be held" (Semper Fi!) then two million man armies would have been wiped out and Paris would have fallen in a day.

I do agree...what the various States decided to do with their "independence" afterwards was quite the catastrophe however.

Mon, 08/04/2014 - 07:55 | 5042996 Renfield
Renfield's picture

The irony of a 'prince' expressing gratitude on behalf of the people for their 'freedom' was, apparently, lost on his audience...

Mon, 08/04/2014 - 07:34 | 5042962 falak pema
falak pema's picture

I take exception to the word "ghastly".

Any stock movements DOWN is wonderful news; as we all know.

It encourages the Reset.

Mon, 08/04/2014 - 07:37 | 5042967 Vincent Vega
Vincent Vega's picture

'Bad bank run off entity'. Bwahaaaaaa!

Mon, 08/04/2014 - 07:41 | 5042972 JRobby
JRobby's picture

90% funded by a loan from the Portugese taxpayers. Same old same old. Nationalized bank.

Mon, 08/04/2014 - 07:45 | 5042976 buzzsaw99
buzzsaw99's picture

You go back Jack do it again...

Mon, 08/04/2014 - 08:03 | 5043011 Ban KKiller
Ban KKiller's picture

I keep wondering who keeps their notes in these banks?

Now...back to normal! (No definition)

Mon, 08/04/2014 - 08:58 | 5043168 TabakLover
TabakLover's picture

Uh-oh.  Time to freak-out.

 

Economy

Dennis Gartman: 'Let's calm down everybody'
Mon, 08/04/2014 - 09:06 | 5043192 yogibear
yogibear's picture

Rather than letting the banks fail they get bailed out.

Why should banks be responsible? 

Banker are encouraged to act like corporate raiders because they know they'll get bailed out. 

Extract any capital, ship it to  off-shore accounts and when the money is all gone ask for a bailout. Afterwards your sitting with 10's or 100's of millions in wealth in off-shore accounts waiting for you when you leave the financial institution. Others that helped with the fraud are also sitting pretty. In the mean time the government and Central banks hide the fraud and dump it on the taxpayer. 

Mon, 08/04/2014 - 09:13 | 5043219 NYPoke
NYPoke's picture

Portugal is a Templar stronghold, post executions in France.  They shouldn't get hit has hard as the rest of Europe, though they will get hit.  Scottland & Switzerland very similar.

Mon, 08/04/2014 - 10:32 | 5043544 q99x2
q99x2's picture

The markets are a software program run by the FED. BTFD.

PS there's a bold pomo coming on the calendar.at 11.

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