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SNB Said To Be Buying EUR Crosses In Aftermath Of ECB's Greek Fiasco; Europe Boosts Its Own Growth Forecast
If yesterday's newsflow was bizarre, then today's market reaction has been outright surreal, and the day hasn't even really started.
First, weeks after the ECB's folded on Europe's deflationary specter and what is now seen by most as an all out triple-dip recession in the Eurozone, where only the endless adjustment of the definition of GDP has prevented this from flowing through to the bottom line, and hours after the ECB implicitly did everything in its power to create a banking panic in Greece, risking an all out Grexit and much worse down the line, the European Union decided that it was time perfect time to, drumroll, raise European growth forecasts!
According to the WSJ, "the European Union’s official economists said the sharp drop in global oil prices and a weaker euro should boost growth in the eurozone this year, raising their forecasts for the currency area’s largest economies."
The economists at the European Commission, the EU’s executive arm, said the eurozone should grow 1.3% this year and 1.9% in 2016. In November, they expected growth of 1.1% this year and 1.7% next. The commission raised its growth estimates for most of Europe’s largest economies, including Germany, France and Spain.
“Europe’s economic outlook is a little brighter today than when we presented our last forecasts,” said Pierre Moscovici, the European economics commissioner. “The fall in oil prices and the cheaper euro are providing a welcome shot in the arm for the EU economy.”
And then, as always in the case of Europe (whose central bank conducted a stress-test with a worst case that excluded deflation as a possible outcome when two months later the same ECB launched bond buying precisely to prevent deflation), it immediately shot itself in the foot, explaining just why these forecasts are already null and void:
The cutoff date for the forecasts is Jan. 23. The left-wing Syriza party was swept to victory in the Greek elections two days later on a platform of getting Greece’s official creditors to loosen austerity mandates on the country and restructure its debt. So far, Germany and others eurozone nations have refused. The commission did lower its forecasts of Greek growth, saying the decision to call early elections had hurt confidence.
Worse, the forecasts "don’t account for the threat that the crisis could return in full force now that the eurozone is again headed for a showdown with Greece, which is asking the bloc’s other members to rewrite the bailout plan they signed with Athens." The result: "The commission cut its estimates for the Greek economy. Growth is expected at 2.5% this year, down from a November estimate of 2.9%. “The growth momentum was fairly firm in the second half of 2014, although the early election has affected confidence and investment,” the commission said."
2.5% growth in Greece in 2015: remember that. Or rather, forget it.
In other words, just your usual run-of-the-mill propaganda by an artificial monetary and political block which has all but run out of "political capital."
However, the same block has not run out of printer ink. The reason being that just before Europe came in to start trading in the aftermath of yesterday's ECB shocker which has since seen Greek bank stocks and bonds tumble yet again, a day which absent some hail-mary from the central banks, would have been a total bloodbath, someone started buying EUR crosses particularly the EURCHF and EURUSD, and buying, and buying, and buying more...
... until finally that someone was rumored to have been revealed as the Swiss National Bank, the same bank which - as we wrote yesterday - had doubly lost the markets' confidence after not only did it end its hard CHF ceiling, but three weeks later, saw its "soft ceiling" in the form of the EURCHF 1.05-1.10 corridor breached as well.
In other words, one central banks shoots itself in the foot by trying to make a very explicit political statement to a rebelious Greece, and another central bank is supposed to bail it out, a central bank that has become a hedge fund with a nominal losing FX position that is fast approaching the entire GDP of Switzerland.
Call it unintended consequences of "style drift."
So what else is going on? A quick recap courtesy of RanSquawk and Bloomberg
The Headlines:
- Greek negotiations remain the dominant theme with European equities in the red and Athens Stock Exchange opening 8.9% lower
- EU commission forecasts: Euro area 2015 GDP 1.3% (Prev. 1.1%), 2015 CPI 0.1% (Prev. 0.8%), 2015 unemployment 11.2%
- Looking ahead, at 1130GMT/0530CST the Greek and German finance ministers are scheduled to brief the press, with the BoE rate decision, ECB’s Praet and Knot all scheduled later today. Out of the US there is Challenger job cuts, weekly jobs numbers and the December trade balance data
- Treasury yields slightly higher in overnight trading; yields have been rising amid firm U.S. economic data and rebounds from record lows reached last week by U.K., German and Japanese 10Y yields.
- Greece lost a critical funding artery as the ECB restricted loans to its financial system, raising pressure on the government to yield to German-led austerity demands to stay in the euro zone
- “The decision of the newly elected Greek government to stop cooperating with the Troika shows how unpopular sharing sovereignty rights with foreign creditors is, even in cases in which national expenditures are largely dependent on external financial help,” ECB’s Jens Weidmann said
- The European Commission raised its euro-area growth forecasts and cut its inflation outlook as cheaper energy proves both a blessing and a curse
- CME Group Inc. will close most of its futures pits in Chicago and New York by July 2, with open outcry trading dwindling to just 1% of CME volume
- The Fed is stepping up efforts to fend off congressional audits of its policies, with one official warning they would constitute a threat to its independence; Sen. Rand Paul (R-KY) last month re-introduced an audit bill
- RadioShack Corp. is closing in on an agreement with creditors and other parties that would put the retailer in bankruptcy as soon as today, people with knowledge of the discussions said
- Weatherford Intl plans to cut 5,000 positions by the end of the first quarter, joining its larger competitor Schlumberger Ltd. in responding to lower oil prices
- Sovereign yields mixed, Greece 10Y rises ~62bps to 10.30% Portugal, Spain and Italy also higher. Asian stocks mixed; European stocks mostly lower, U.S. equity-index futures rise. Brent, WTI rise; copper and gold fall
US Event Calendar
- 7:30am: Challenger Job Cuts y/y, Jan. (prior 6.6%)
- 8:30am: Non-farm Productivity, 4Q preliminary, est. 0.1% (prior 2.3%); Unit Labor Costs, 4Q, est. 1.2% (prior -1%)
- 8:30am: Initial Jobless Claims, Jan. 31, est. 290k (prior 265k); Continuing Claims, Jan. 24, est. 2400k (prior 2.385m)
- 8:30am: Trade Balance, Dec., est. -$38b (prior -$39b)
- 9:45am: Bloomberg Consumer Comfort, Feb. (prior 47.3)
ASIA
Asian equities trade mixed with outperformance seen across Chinese stocks, after the PBoC cut its RRR rate for the first time in over 2yrs. Shanghai Comp (-1.18%) and Hang Seng (+0.35%) were earlier led by financials, however have now pared its gains. ASX 200 (+0.58%) traded in the green, gaining for an 11th consecutive day, equalling the all-time record set in 2003. Nikkei 225 (-0.98%) fell amid dampened risk-appetite fuelled by the ECB stance to restrict financing to Greece.\
EUROPE
Yesterday’s aftermarket announcement from the ECB stating that they are removing its current waiver for the minimum credit-requirement for Greek collateral took focus this morning, with Greek asset classes feeling the consequences. Greek banks opened lower with the banking index down 22.8%, while the Athens Stock Exchange fell 8.9% and the GR/GE 10y spread widened by over 100 bps at the open of the Greek stock exchange.
All major European indices opened lower on the news, however have been paring some of the losses through the morning, while Bunds come off their best levels as the market factors in the significance of the move, which is less than first predicted, with the March contract now back to flat ahead of the N.A. open. Looking in greater detail, Greek banks will only have to convert ~EUR 30bln of financing into ELA financing which is not as severe as some had feared. However, one big concern that remains is that yesterday's decision by the ECB could lead to deposit flights and a possible run on Greek banks. Focus regarding Greece will now move to the meeting between the Greek and German finance ministers scheduled for 1130GMT/0530CST.
US earnings this afternoon see Phillip Morris and Teva report pre market, with Twitter scheduled to report after market, while yesterday saw Allergan report Q4 Adj. EPS USD 2.17 vs. Exp USD 1.83.
FX
FX markets have seen EUR strengthen gradually to pare back the fast money move lower following the ECB announcement last night regarding Greek collateral. The EUR strength was supported by EU commission forecasts, estimating Euro area 2015 GDP at 1.3% (Prev. 1.1%) but with 2015 CPI at 0.1% (Prev. 0.8%). EUR strength was further supported by stops tripped in EUR/CHF, with RANsquawk sources reporting renewed talk that the SNB are active in the CHF. Elsewhere, GBP/USD trades near session highs with weakness in the greenback and on the back of better than expected UK Halifax house prices data (M/M 2.0% vs. Exp. 0.0%, Prev. 0.9%, Y/Y 8.5% vs. Exp. 7.7%, Prev. 7.8%), while commodity linked currencies are moderately stronger across the board. (CAD, AUD, MXN) following the trend higher in crude futures throughout the European morning.
Fed’s Rosengren (Non-voter, Dove) has also spoken during the European morning, stating that with inflation this low, patience is still required, however these comments saw no reaction in the USD as they are in line with Rosengren’s stance.
Looking ahead, the BoE rate decision (1200GMT/0600CST) is expected to be a non-event after last month’s decision saw the vote move back to 9-0 from 7-2 as a consequence of low inflation.
COMMODITIES
WTI crude futures trade higher into the North American session, back above USD 49.00, paring back some of the significant losses after falling approximately 10% from yesterday’s high to the overnight low. US traders will now look ahead to challenger job cuts and the weekly jobs data in the run up to this Friday’s nonfarm payrolls release. In addition we also await December Trade Balance data in US alongside the weekly EIA NatGas storage change, which is expected to show a drawdown of 119 (Prev. draw 94).
DB's Jim Reid concludes the event summary
Greece and Oil continue to twist and turn like my kneecap. We'll move to the 6% drop in Brent (nearly 9% in WTI) a little later but first Greece. After a major early week rally, the ECB last night announced the suspension of GGB eligibility in Eurosystem refi operations from February 11th. They previously allowed Greek government debt to be used as collateral under a waiver as although its sub-IG, the country has been in a program. This basically means the majority of Greek bank funding shifts to the (emergency) ELA which the ECB reviews every two weeks. This was going to happen at the end of the month but the fact that the ECB have done this now is a surprise and means that they no longer see Greece as being part of an approved program. It probably also reflects an overall EU move to raise the stakes as negotiations start to become more serious. That the ELA is reviewed at this level of regularity makes one wonder whether the ECB is saying to Greece that if you don't adhere to the EU demands then your banking system could be left out on a limb very quickly.
It makes an interesting backdrop to today's meeting with finance minister Varoufakis and his German counterpart Schaeuble. Before the headlines the ASE yesterday closed +0.89% for its third consecutive day of gains, led by a further rally for banks (+8.44%). Greek yields were more subdued relative to recent moves. 3y yields closed 2bps tighter and 10y yields finished 13bps wider. Post the news, a Greek equity ETF dropped 10% in late NY trading so I think we can safely say it won't be a great opening for Greek assets this morning. There was little in the way of news pre the ECB announcement. Chatter from European officials was along the lines of what we had previously seen this week. The European Council President Tusk was noted as saying that ‘negotiations will be difficult, will require cooperation and dialogue as well as determined efforts by Greece’ whilst Merkel was quoted as saying that ‘I don’t think that the positions of the member states within the euro area with regard to Greece differ, at least in terms of substance’. Elsewhere Greece held a 6 month T-Bill auction yesterday where we saw demand fall to a six year low as the €812.5m raised (per Bloomberg) came in at an average yield of 2.75% and the bid-to-cover ratio fell to 1.3x – the lowest since July 2006.
In terms of market reaction yesterday, in the minutes prior to the ECB/Greece story hitting the headlines, the S&P 500 was trading +0.24% on the day, 10y Treasuries generally flat at 1.81%, CDX IG at 66.5 and the Euro a touch lower at $1.145. In the short time between the headlines being released and markets closing, the S&P dropped some 0.6% to close the day at -0.42%, 10y Treasuries rallied 6bps into 1.75%, CDX IG widened 3bps and the Euro weakened nearly 1% to $1.135. Market reaction this morning is more mixed with the Hang Seng (+0.54%), Shanghai Composite (+0.97%) and ASX (+0.58%) all firmer however the Nikkei (-0.74%) and Kospi (-0.60%) are both weaker. Obviously China's RRR cut is having some influence and we'll discuss this later.
Back to oil markets yesterday, both Brent (-6.48%) and WTI (-8.67%) finished lower yesterday to trade at $54.16/bbl and $48.45/bbl respectively – more or less reversing Tuesday’s gains. Yesterday’s change in sentiment appears to be the result of the latest EIA report which showed crude stockpiles climbing 6.33m barrels last week to the highest level on record and well ahead of expectations of 3.25m, dampening hopes somewhat of production levels in the US falling. Energy stocks (-1.61%) dragged equities lower over the day, although in reality it was a volatile day for risk assets with sentiment bouncing on Greece, oil and macro data. Staying on the oil theme, the FT reported yesterday that Standard & Poor’s has now downgraded 19 high yield oil and gas companies since October including 8 in January. The report points out that it is the largest set of ratings downgrades since the financial crisis in 2009. Although unchanged yesterday, US HY energy spreads are 28bps wider so far this year although had actually widened as much as 72bps as of mid-January.
Yesterday’s data was supportive on the whole. Ahead of payrolls this Friday, the ADP employment print came in touch below consensus at +213k (vs. +223k expected) but still marked eight consecutive months of +200k prints. Elsewhere the final January reading for the services PMI was largely as expected (54.2 vs. 54.1 expected) and the ISM non-manufacturing print improved to 56.7 from an upwardly revised 56.5 reading in December.
The other main news yesterday centered on China with the announcement from the PBOC that it has cut the RRR by 50bps for all banks and cut the RRR by an extra 50bps for some municipal and rural commercial banks. DB’s Zhiwei Zhang notes that although the cut is in line with his expectations, it happened earlier than he thought. The move should likely release liquidity of RMB640bn into the banking sector and Zhiwei believes that although the impact on the real economy is positive, it is not enough to stabilize the economy as although it helps to raise loan supply, demand may remain weak. Zhiwei expects more easing to come, possibly as soon as Q2 with a similar 50bp cut.
In Europe and away from Greece yesterday, the Stoxx 600 closed +0.49% with stronger sessions for the DAX (+0.19%) and CAC (+0.39%) whilst peripheral markets underperformed as the IBEX (-0.19%) and FTSE MIB (-0.33%) closed softer. Credit markets were broadly unchanged and 10y Bunds finished 2bps higher. Peripheral yields firmed however as 10y yields in Italy (-3.8bps), Spain (-4.4bps) and Portugal (-10bps) closed tighter. Yesterday’s PMI prints were on the whole supportive. The final composite reading for the Euro-area printed at 52.6, ahead of expectations of 52.2. Regionally, better than expected readings for Germany (53.5 vs. 52.6 expected), Italy (51.2 vs. 50.1 expected) and Spain (56.9 vs. 54.6 expected) helped offset a weaker reading for France (49.3 vs. 49.5 expected). Elsewhere, retail sales for the Euro-area improved significantly to 2.8% yoy in December, well ahead of expectations of 2.0% and up from 1.6% previously.
Before we look at today’s calendar, as we noted yesterday with negative yields now increasingly pervasive, it was perhaps unsurprising to see the first negative yield debt primary issuance from a Eurozone member. Amazingly, Finland yesterday issued 5-year debt at an average yield of -0.017 at an auction yesterday with a bid-to-cover ratio of 1.7x. What a crazy world we have. In terms of the day ahead and away from the obvious ‘Greece-watch’, this morning in Europe we’ve got factory orders due out of Germany followed closely by UK house price data. Later in the day we’ve got the BoE decision with rates expected to stay on hold at 0.5%. Across the pond this afternoon in the US, we kick off the releases with nonfarm productivity and unit labour costs as well as jobless claims data. Trade balance data rounds off the day’s releases.
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This is what losing control looks like.
Schizo SNB.
https://www.youtube.com/watch?v=yloaBw80fV4
Roll out the barrel, we'll have a barrel of fun.......
Days of our Central Bank Lives..
They made a forecast for a date that has already past? Fine work, gentlemen. Fine work. You've really outdone yourselves.
"EU raises growth forecasts" .... picking yourself up by your own boost straps !
"When it becomes serious, you have to lie," .... Juncker
Anyone know of investment opportunities with a chocolate company where I can pay them to loan my money?
Nestle comes to mind?
Sweet!
And of course US futures shoot higher on the "news"! But it should be a rocky day.
Is Brian Williams toast? Sure looks that way
http://tinyurl.com/qgf3lqb
As long as he hasn't said anything bad about Obama.....he should be gold.
We'll just have the NSA watch him for awhile.....just to be sure.
The lying bastard, I sure hope so, but I doubt it! People worship these freaks, they cannot critically think anymore, the shitshow will move forward, soviet!
I woke up early just to check that the dip was being bought and silver was being slammed. Time for a run. Adios.
Right turn Clyde, always right turns!
Give up. CBs have won.
It is always darkest (and coldest) just before dawn. The only question is how much damage will the CB's do before they are exposed for what they are in the blazing midday sun.
Read a little history my friend. This is not the first time CB's, or their functional equivalent, have ruled the world before flushing it, and themselves, down the sewer.
One word that brings fear to a bankers heart......nailguns.
Don't know who those guys are....but they seem organized.
CB- sometimes it's darkest before it goes completely black.
I think of that just before I try to go to sleep.
When you have built this marvelous pyramid upon a pile of shit, at what point are you going to stop calling it shit? NEVER! They will still be in denial at the gates of hell. THEY NEVER SAW IT COMING!
I saw an article and it had a pyramid upside down, ya that's it, one good shove and it falls over!
CD -> quite true. The banking creature gives a little kick of movement before it dies. The is this rocky rise in USD before death and it's retirement.
ZH this article reads well. Excellent collection of news
The good news for the financial masters of the universe is that 98% of the population are completly clueless as to the insanity that is going on.
Clueless may not be the correct word, since the majority had no basic understanding of our debauched system in the first place, so it may seem normal to them.
Like watching a Yo-Yo, just wait until the string pops. It's looking mighty frayed!
It's sort of like driving a car and sensing something is wrong. But because it still stops, goes forward and reverse and turns you keep driving anyway. Unlike the Fed, at least the car has idiot lights to let you know you are about to be stranded on the side of the road.
Driving??
We are tied-up and in the trunk, sir.
If the average Joe Blow doesn't know he is tied up and in the trunk....is he?
For some people their ignorance is their blissful reality.
Like I've said before, I will say it again, if the average person knew what was going on all over the world, there would be revolution by tomorrow at noon!
Problem is the average person is perfectly happy to be clueless. I gave up trying to educate friends and family a while ago, as I lost several friends, and my family thinks I am crazy Ivan.
oh well...
The question: Is it better to be the sheep that goes over the cliff with the rest of the heard or the lone smart sheep that gets eaten by the wolf ?
This sheep has guns, so I will take my chances! I will never surrender!
Now you scared me.
Off to the gun show this weekend!
The US is number one in gun ownership....but we're 111th in murders.
We have the tools.....what the hell are we doing wrong?
https://www.youtube.com/watch?feature=player_embedded&v=pELwCqz2JfE&x-yt-ts=1421914688&x-yt-cl=84503534
Saving our ammo...thats what.
When I try to discuss with my neighbours or friends or family that "maybe something is not going as it should be" in Europes economy and governance. That CB's are intervening, maybe even manipulating the markets and all the huge amount of debt will most probably not be paid back in full, countries might go bankrupt and the EUR might not have been such a good idea after all and could possibly break apart "some day" (notice I toned down everything to a hypothetical case and phrased it in soft easily digestible language, not to seem too crazy immediately), they mostly still look at me with big eyes and clearly put me in the box labeled "this guy is nuts". There is still a massive belief in "the system" out there.
So yes, sadly, this is all great news for the TPTB to do their thing.
But hey, it's also great news for us: More time to buy precious metals at almost obscenely low paper price levels.
Now you understand why democracy is a useless system. Especially if you give women the right to vote.
I would disagree. It's mostly men that are full of themselves and convinced of their opinion... And it's not democracy's fault either.
Your right. Women don't even have an opinion.
For many of us we have little choice but to live in a sort of manic depressive state. As a small business owner I think I understand whats going on, yet I still have my employees and customers to think of. Not to mention a wife, who while having some concept of reality, still also has to go to work. Until we can figure out how to live without money, we are trapped. Of course this is the excuse we all use and TPTB know this. That is their lever. They know as long as we have any hope at all, we will not sacrifice what we already have, regardless of how meager. This is why their lies and manipulations are so blatant, coming fast and furious. THEY MUST KEEP US HOPEFUL and that is what the lies do. We know they are lies, but hearing them, even knowing they are lies, somehow satiates us. Not happy, not satisfied but still in the game.
Cognitive dissonance, no?
"According to the WSJ, "the European Union’s official economists said the sharp drop in global oil prices and a weaker euro (combined with counting hookers & blow toward GDP) should boost growth in the eurozone this year, raising their forecasts for the currency area’s largest economies."
Ok, I added that part.
What part did you add? The entire sentence looks reasonable to me.
;-)
It's Crime, Prostitution and Drugs that give the added value, ya missed the crime bit .. bad panda.
And rightly so as the corruption of our central governments kills the primary economies, natural trade creates an illegal one, such as Greece has experienced. It is what crushes the governments power, but of course it is being replaced by a truly criminal one that government was created to suppress in the first place. A vicious circle.
Its just funny to watch these corrupt governments claim the economic activities of their supposed nemesis. This has been going on for years as they have legalized booze, gambling and tobacco after condemning them to capture their revenue streams.
I see what you did there! When will air become an asset added to GDP?
It already has been, albeit to a very small degree.
Damn, you two, I had forgotten about the carbon credits...oh well, BACK TO THE DRAWING BOARD! The beatings will continue until moral improves!
There is no morale hazard in any of this is there? /s
Well dirty air already is. Carbon credits anyone? How much do these add to the GDP?
It takes very little imagination to think what all they might possibly include into their delusion sustaining metrics. Of course the danger is that as they do so it becomes more and more transparent. This is the flaw with corruption as it relies on lies and false premises to rationalize its existence and doing so, as with any lie, it requires becoming an exponentially increasing lie until it's membrane of obfuscation grows so thin as to become transparent to even the blind.
At this point the slightest pin prick detonates it.
No slow fizzle here.
BTFD
I just got an email from Ron Jeremy and I am boosted my own growth forecast too.
I like the phrase, “triple-dip recession”.
WTH is that supposed to mean?
First dip - taxpayers got to bailout the banks.
Second dip - taxpayers got to bailout GM and the other loser companies.
Third dip - third taxpayer bailout is yet to come?
When they fire up the helicopters, you'll know it is game over!
Plain Englash
First dip - taxpayers got to bailout the banks.
Second dip - taxpayers pay double the first dip total.
Third dip - taxpayers pay triple the first and second dips total. Third dip payment is now underway
:-))
This will all come to an end real quick. Not when a CB does anything or a government, but when a regular Joe in Europe can no longer feed his kids and watches them suffer, gets his gun and shoots whoever he thinks is responsible out of plain frustration and anger.
The MSM will make up a quick history on the now dead dad, speculation linking him to some terrorist organization or country and the real shit starts.
It has happened before, it will happen again.
Looks to be a busy day, I wonder when things are gonna settle down, even just a wee bit...NEVAH!
The "Greece is 'fixed' " headline sends everything to the moon...
"fixed"?
I thought they had been neutered years ago.
Socialism is the equivalent of androgynous, everything being "equal" and incapable of productivity, only consumption.
the illusion of value in fiat paper is still strong. the banksters and esp the FED depend on that illusion..they must support that at all costs-money from thin air is the sin. from that crimes to justify it and profit from the lie become everyday operations- the smart ones profit- the elite.
if money was backed by something of value (gold as exp) there is labor and effort behind every cent of paper money, there is something real there..without that kind of reality, we get the CB's printing nothing of value and having to rape the people to keep the illusion going - see neg interest on savings. taxation. ..
Central Bankers as traders; what could possibly go wrong? WTF.
www.traderzoo.mobi
Electronic fiat .... makes buying a loaf of bread with a wheelbarrow of Marks .... obsolete .... masks the inflation beast .... nobody figured that into the equation .... this is unexplored territory .... this is not your Grandmother's crash !
Last time around the SNB had plenty of help keeping the peg. All the hedge funds jumped on board becuase they were backstopped. That ship has sailed and now the SNB is on it's own. In fact I would guess most of the money will be betting against it. SNB is once again throwing good money after bad.