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Stocks In Holding Pattern With All Eyes On Draghi And Whether ECB Will Pull Greek Liquidity
There was much confusion yesterday when algos went into a buying frenzy on news that Greece would submit a request for a 6 month loan extension, believing this means Greece has caved and will agree to a bailout programme extension as well. Nothing could have been further from the truth as we explained first moments after the headline struck, and also as Reuters validated moments ago when it said that "Greece will submit a request to the euro zone on Wednesday to extend a "loan agreement" for up to six months but EU paymaster Germany says no such deal is on offer and Athens must stick to the terms of its existing international bailout." But since the political nuances of diplomacy are lost on the math Ph.Ds who program the market-moving algos, the S&P did manage to roar above 2100 on what was another headfake and then forgot to sell off on the reality.
As a result, the key event today is not the FOMC minutes which will have some nebulous discussion of just what "patient" means or doesn't, as pundits bang their heads whether the Fed will hike in June completely oblivious to the "GDP-crushing" record cold weather outside and the West Coast Port strike that will lead to a plunge in February and March retail sales and Q1 GDP, but the ECB's decision whether to boost, keep unchanged or even reduce Greek access to emergency funding, a step which will put the Greek endgame into play concluding with either a full capitulation by the government or a Grexit.
As previously noted, the impact on the market from all of the above was based on the headline kneejerk reaction, where algos read into the "bullish" and ignored the nuances between the lines. As a result, yesterday’s source reports suggested that Greece are to request an extension of the loan program for 6-months which was later confirmed at the open having already supported sentiment globally as the S&P closed at record highs and the Nikkei saw out the session higher by 1.2%. The improved sentiment filtered through to European equities as they reside in the green, however Bunds and UST’s have remained directionless and trade relatively flat on the session. Greek asset classes have also been buoyed by the news out of Athens with the ASE outperforming European stocks and Greek yields falling lower in the morning. In other news, the Swiss government is preparing tighter capital requirements for 'too big too fail' banks (UBS and Credit Suisse) which now see the SMI underperform albeit still in positive territory.
Sources indicated that the ECB is considering removing ELA for Greek banks in order to increase pressure on Greece to accept an extension of their current bailout programme. However, sources said the ECB are unlikely to do that immediately.
Asian equity markets rose led by a strong Wall Street close which saw the S&P 500 finish at a record high, amid reports that Greece could ask for a 6-month loan extension as early as today. Consequently, the Nikkei 225 (+1.2%) rallied to trade at its highest levels since Sept’07 while the ASX 200 (+0.7%) rose to levels last seen in May’08. The latter was further underpinned by M&A activity as Japan Post offered to buy Toll Holdings (+46%) for USD 5.1bln. As a reminder, Chinese, South Korean and Taiwanese markets are closed due to the New Lunar New Year, while the Hang Seng (+0.2%) was only open for the first half of trade.
Meanwhile, the overall positive UK jobs report which saw the UK Jobless Claims Change (Jan) M/M -38.6k vs Exp. -25.0k allied with hawkish comments from the BoE minutes, with two members of the MPC stating that a rate hike could occur in the year lifted GBP/USD by 53 pips on a break through 1.5400 and sent short sterling lower by 3 ticks. Elsewhere, EUR/USD was under selling pressure at the open spurred on by the recovery in the USD led by USD/JPY after RANsquawk sources note macro funds buying in the pair. However, upside was not sustained as the USD has since come off highs.
In the commodity complex, Brent and WTI crude have edged lower in the session breaking below USD 62.00 and USD 53.00 respectively in the process, ahead of the build expected in the DoE crude inventories data release tomorrow. Elsewhere, heightened risk appetite has sent Gold lower coupled by slowing demand for Gold due to the Chinese Lunar holiday as Chinese markets are closed for the week-long holiday. In the latest update, the United Steelworkers Union are considering increasing the scope of their strike to their Californian port.
In summary: European shares remain higher, close to session highs, with the media and bank sectors outperforming and food & beverage, utilities underperforming. Greece may request an extension of its loan agreement for six months, according to a person familiar with the matter. Bank of England sees U.K. inflation accelerating in 2016 on strengthening labor market. U.K. 4Q unemployment below estimates. FTSE 100 trades just below record reached in December 1999. Ukraine starts troop withdrawal from key town of Debaltseve, fighting was reported near coastal city of Mariupol, hryvnia weakens to record. The Italian and Swedish markets are the best-performing larger bourses, U.K. the worst. The euro is weaker against the dollar. Italian 10yr bond yields fall; Spanish yields decline. Commodities decline, with Brent crude, WTI crude underperforming and wheat outperforming. U.S. mortgage applications, housing starts, industrial production, capacity utilization, PPI due later.
It’s a busy day in the US with January housing starts and building permits kicking off the economic reports, along with the latest PPI reading. Later we also get industrial and manufacturing production for January along with the capacity utilization print.
Market Wrap
- S&P 500 futures down 0.1% to 2094.6
- Stoxx 600 up 0.7% to 379.5
- US 10Yr yield up 1bps to 2.14%
- German 10Yr yield up 0bps to 0.38%
- MSCI Asia Pacific up 0.6% to 144
- Gold spot down 0.5% to $1204/oz
- 16 out of 19 Stoxx 600 sectors rise; media, bank outperform, food & beverage, utilities underperform
- Asian stocks rise with the Nikkei outperforming.
- MSCI Asia Pacific up 0.6% to 144; Nikkei 225 up 1.2%, Hang Seng up 0.2%, Kospi closed, Shanghai Composite closed, ASX up 1%, Sensex up 0.6%
- 9 out of 10 sectors rise with energy, health care outperforming and utilities, telcos underperforming
- Euro down 0.19% to $1.1389
- Dollar Index up 0.15% to 94.2
- Italian 10Yr yield down 7bps to 1.6%
- Spanish 10Yr yield down 6bps to 1.55%
- French 10Yr yield down 1bps to 0.68%
- S&P GSCI Index down 0.8% to 422.7
- Brent Futures down 2% to $61.3/bbl, WTI Futures down 1.5% to $52.7/bbl
- LME 3m Copper up 0.5% to $5676.5/MT
- LME 3m Nickel down 1.2% to $14070/MT
- Wheat futures up 0.8% to 536.3 USd/bu
Bulletin Headline Summary from Bloomberg and RanSquawk
- Positive sentiment continues to filter through in Europe after Athens confirmed that they wish to extend their loan agreement up to 6 months
- Today’s FOMC minutes release is again expected to show the wide-ranging views on the FOMC between the more hawkish members who favour a hike in mid-2015
- Looking ahead, sees US Housing starts, Building Permits, Industrial Production, US Fed minutes and API crude inventories, Fed’s Powell
- Treasuries decline, 10Y yield approaches 2.161% 100-DMA before Fed releases minutes of Jan. meeting, seen as primer for Yellen’s Humphrey-Hawkins testimony next week.
- Greece may today request an extension of its loan agreement for six months, according to a person familiar with the matter, a step that could ease a standoff with creditors over the country’s future financing
- Greek state cash reserves will be depleted next week, Kathimerini reports, without citing anyone; Merkel adviser says ECB must stick to its own rules in struggle to find compromise for helping Greece, must not fund governments
- U.K. unemployment fell to its lowest rate in more than six years as pay growth picked up in the fourth quarter in a sign that pressure on labor costs may be starting to build
- U.K. Chancellor of the Exchequer George Osborne riled his European counterparts with a lecture on the consequences of failing to reach a deal with Greece, two people with knowledge of the meeting said
- Ukraine started to withdraw its forces from an encirclement at the strategic crossroad town of Debaltseve, where heavy fighting with pro-Russian rebels is threatening a truce reached last week
- The Bank of England said U.K. inflation may accelerate quickly in 2016 once the impact of plunging oil prices fades as wage and unemployment data showed labor-cost pressure is starting to build
- The rebound in oil will reverse because rising U.S. production is deepening the global supply glut, according to UBS AG, Bank of America Corp. and Commerzbank AG
- JPMorgan is reviewing the size of capital-intensive units such as rates trading, prime brokerage and its so-called delta-one equities desk, according to Daniel Pinto, CEO of firm’s corporate and investment bank
- Kentucky Senator Rand Paul is looking to announce his presidential bid the second week of April—if he decides to run—a person familiar with his plans; Paul’s libertarian views provide a contrast to other top-tier GOP candidates
- Sovereign yields mixed; Greece 10Y yield falls ~36bps to 9.924%. Asian, European stocks and U.S. equity-index futures rise. Brent and WTI fall, gold declines, copper gains
US Economic Data
- 7:00am: MBA Mortgage Applications, Feb. 13 (prior -9%)
- 8:30am: Housing Starts, Jan., est. 1.070m (prior 1.089m)
- Housing Starts m/m, Jan., est. -1.7% (prior 4.4%)
- Building Permits, Jan., est. 1.069m (prior 1.032m, revised 1.058m)
- Building Permits m/m, Jan., est. 0.9% (prior -1.9%, revised 0.6%)
- 8:30am: PPI Final Demand m/m, Jan., est. -0.4% (prior -0.3%, revised -0.2%)
- PPI Ex Food and Energy m/m, Jan., est. 0.1% (prior 0.3%); PPI Ex Food, Energy, Trade m/m, Jan., est. 0.1% (prior 0.1%)
- PPI Ex Food and Energy y/y, Jan., est. 2.0% (prior 2.1%); PPI Ex Food, Energy, Trade y/y, Jan., est. 1.3% (prior 1.3%)
- 9:15am: Industrial Production m/m, Jan., est. 0.3% (prior -0.1%)
- Capacity Utilization, Jan., est. 79.9% (prior 79.7%)
- 4:00pm: Net Long-term TIC Flows, Dec. (prior $33.5b)
- Total Net TIC Flows. Dec. (prior -$6.3b)
- 2:00pm: FOMC Minutes, Jan. 27-28
DB's Jim Reid with the full overnight summary
Nervously we again lead on the latest on Greece. I say nervously as so far both bad and good news hasn't really impacted the wider market that aggressively and perhaps we've been devoting too much space to it. Indeed we ourselves have been saying for several months that the ECB's QE program and other central bank action would be the main story in 2015 and this continues to be the case. However if you don't devote a lot of space to a scenario where one false move could possibly bring about the start of the end of the Euro then you might be failing to understand the wider repercussions of negotiations that are highly likely to come to a head this week. A 'Grexit' wouldn't necessarily bring chaos in 2015, especially with QE providing firewalls, but it would set a dangerous precedent in the years ahead if and when other countries faced similar pressures.
Our base case remains some kind of compromise though and the latest twist in this saga is that press reports (Bloomberg, the FT, local papers and Reuters amongst others) last night suggested that Greece will today request a 6-month extension of its international bail-out along the same lines as the one rejected by EU finance ministers on Monday but similar to the one initially proposed by EU officials.
The headlines themselves are perhaps unsurprising after we heard that Varoufakis was reported to be willing to accept an extension on Monday (albeit under different terms) before the Eurogroup changed tact. Clearly the sticking point to any sort of extension will centre around the substance of the terms themselves. For now however, markets will probably see the news as a positive step with a view to a Friday Eurogroup meeting, although the more important and time-consuming details of it still need to be negotiated. Greek press Ekathimerini have noted that a proposal from Greece will be sent to Eurogroup Chief Dijsselbloem this morning who will then decide if it merits an extraordinary meeting on Friday. Given the necessary parliamentary ratification process required before February 28th, this is much closer to one minute to midnight than the other Eurogroup meetings held so far.
It’s also perhaps not a big surprise that the reports emerged ahead of today’s ECB review of the ELA facility. According to reports in the Greek press, deposit outflows in recent days have amounted to €300m-€500m per day. The reports and eventual request could well be a move to keep the ECB onside in the near term.
This breaking news late in the day yesterday gave a boost to markets. The Stoxx 600 recovered from an initial drop of -0.8% to finish +0.12%, the Euro finished +0.5% stronger versus the Dollar and in the US the S&P 500 also pared back earlier losses to finish +0.16% and at a fresh record high. Meanwhile Treasuries weakened ahead of today’s FOMC minutes with the 10y yield finishing 8.8bps wider at 2.138% and in fact back to levels not seen since the start of the year. Although Greece played a part, comments from the Philadelphia Fed’s Plosser perhaps also contributed to the moves. Specifically Plosser added to some more recent hawkish commentary and was quoted on Bloomberg saying ‘I think we’re really close’ with regards to raising rates and that ‘my own view would be the committee should try its best to get patient out of the statement in March’.
Our US colleagues believe that today’s minutes could well serve as a preview of what Fed Chair Yellen could say at her semi-annual monetary policy testimony next week, although it’s worth noting that the minutes were collated before the latest strong employment report. Looking ahead to the March meeting, our colleagues note that the majority of labour market indicators on Yellen’s ‘dashboard’ have improved and that since the last payrolls print, three voting Fed Presidents have reiterated that a June liftoff in rates should be in play. It’ll be worth seeing if we get much forward guidance from today’s minutes as a result. We're still not convinced they'll be able to pull the trigger in June but we accept that the Fed are appearing trigger happy at the moment. However a lot of water is still to flow under the bridge by then.
In other markets, Gold yesterday closed weaker (-1.84%) and is now over 7% down from the January highs. The Dollar also closed softer with the DXY finishing 0.14% lower. Macro data offered few surprises with the NY Fed empire manufacturing print coming in slightly below expectations for February (7.78 vs. 8 expected) and the NAHB housing market index dropping 2 points to 55 (vs. 58 expected). Elsewhere, oil markets continue to rise with WTI (+1.42%) and Brent (+1.84%) closing higher at $53.12/bbl and $62.53/bbl respectively, although not without some intraday volatility with WTI in particular trading nearly 4% lower during the session at one stage.
Closer to home yesterday, along with the better sentiment around Greek extension headlines, macro data yesterday was also supportive. The German ZEW survey of current situations improved 23.1pts to 45.5 and the expectations survey climbed 4.6pts to 53.0 – the highest reading in 12 months. In the UK meanwhile, headline CPI dropped to +0.3% yoy from +0.5% and was a tad below expectations of +0.4%. The month-on-month reading of -0.9% for January was in fact the lowest on record since Bloomberg began compiling data. Given the disinflationary effects of oil prices however, the core print actually ticked up one-tenth to +1.4% yoy which could well give the BoE some breathing room for now. UK PPI (-1.8% yoy vs. -1.1% previously) was also unsurprisingly softer although the core (+0.5% yoy vs. +0.8% previously) dropped less than expected (+0.4% expected).
Refreshing our screens this morning, bourses are following the US lead and trading higher as we go to print. The Nikkei (+0.98%), Hang Seng (+0.19%) and ASX (+0.98%) in particular are stronger. Markets in China meanwhile closed for a week long holiday today. In Japan, the BoJ has announced that it will continue to buy ¥80tn of assets per year as largely expected. In terms of the statement itself, the BoJ said that the economy ‘has continued its moderate recovery trend’ and that exports and production have ‘been picking up’. On inflation, the statement said that ‘inflation expectations appear to be rising on the whole from a somewhat longer-term perspective’.
The Bank of Indonesia meanwhile yesterday joined our growing list of Central Banks easing the year following a surprise 25bp cut in the benchmark rate to 7.5%. With that, our list now stands at 37 countries (assuming the ECB covers 19 nations).
Away from the obvious focus on Greece and also the release of the FOMC minutes later today, attention this morning will likely centre on the UK with employment data due along with the release of the Bank of England minutes. It’s a busy day in the US with January housing starts and building permits kicking off this afternoon activity, along with the latest PPI reading. Later this afternoon we also get industrial and manufacturing production for January along with the capacity utilization print.
So a busy day, especially if Greece make the extension request suggested by the media
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Extensions....mulligans....what's it gonna be?
Who runs Bartertown bitch?
Just DO it!
Watch Greece announce the New Drachma today and tell the Troika TAKE THIS DEBT AND SHOVE IT!
i do not envy the guys feeding information to algos ... even if they are making good money today ...
tomorrow another story ....
Take out a six month loan, and time will fly by like nothing.
that photo of draghi, hes listening to Radiohead's 'how to disappear completely'
"I'm not heeeeaaaar...... this isnt happenniniiiing"
The world financial markets are living in denial. Greece has already defaulted, what the world community is struggling with is the echo of the image - of a unified EU. Like a chronic gambler hoping if he double's down it will get better..
The reign of the bankers is closing, their machinations of perpetual servitude through debt will end. Their basis of power will erode, corrode, and dissapate.
well the US state dept has an answer for greece,"They just need jobs! "no fuck einstein, and so do about 50 million americans, but you can't do dick for them.
As per Black's law Dictionary:
Bankrupt: The state or condition of one who is unable to pay his debts as they are, or become due. Bankruptcy Act: A federal law (11 U.S.C.A.) for the benefit and relief of creditors and their debtors in cases which the latter are unable or unwilling to pay their debts. The Act was substantially revised in 1978, effective October 1, 1979. Straight bankruptcy is in the nature of a liquidation proceeding and involves the collection and distribution to creditors of all the bankrupt's non-exempt property by the trustee in the manner provided by the Act. The debtor rehabilitation provisions of the Act (Chapters 11 and 13) differ however from straight bankruptcy in that the debtor looks to rehabilitation and reorganization, rather than liquidation, and the creditor looks to future earnings of the bankrupt, rather than property held by the bankrupt to satisfy their claims. How many times can a Nation legally go Bankrupt without actually being made Bankrupt? How can you legally repackage an undeclared, informal Bankruptcy debt and roll-over the same old debt into a new package? Who does it benefit?banks and banksters and pols paid by same, next question?
tomorrow another story ....
"Like sands through the hourglass, so are the Days of Our EU Lives."
yeah EU ... old times ... before that we had germanic teutonic tribes such as bavaria, slovenia etc... than we got to prussia .... and moved on
they gave it a try though got to handed it to them ... i like this schwaube fellow ... a real sychiopath
There's only one way I can make sense of why they're waiting. Each day they let Euro deposits slip out of Greek banks the effectiveness of the new Drachma is reduced. They really, really, don't want to go, they just want more lenient terms. The only thing greater than their hatred of the troika is their certainty that they'll hyper-inflate their own currency and immolate themselves. They'll stay in. The leftists may be out of power as fast as they came in.
I think Italy is a more likely case. There's a first mover advantage: if the belief that the Euro may fail begins to swell there will be a rush out all Euro deposits. Italy could stand up their own currency. After they re-denominate their debt in new Lira and shed 90% of it through floating the new Lira they could tie their currency to gold and have a reserve currency in months.
NOTT!!
You make NO sense saying Greece won't do it cause they fear hyper-inflation but Italy will do it and hyper-inflate.
What sense does that make?
That's not what I'm saying - Italy won't hyper-inflate - but they would take a one-time devaluation to reduce debt. So the official conversion comes out as 1-1 Lira to Euro and redenominate all sovereign debt in Lira. Then they float the Lira, it drops maybe 80 or 90% instantly, cutting their debt burden to 10-20% of the current debt. Then they can have a stable currency, indeed, they have enough gold to make it the strongest currency in Europe if they chose.
Jonathan Farrow takes exception with anyone that says Greece has blinked. Tsipras has not blinked.
-Bloomberg
What's the definition of a cult? One way in, no way out.
The country that gets out the earliest is the winner.
Welcome to the Hotel California
They stab it with their steely knives.....but they just can't kill the beast.
Welcome to the BDSM club with Brussels and Frankfurt tugging over lead Dominatrix Queen, you can check in anytime you like, but you can never leave (without some form of bad bruising - see Greece and fellow slaves).
Then why does foot always get out first? That's really a fantasyland you're living in there fellow.
in holding pattern poised to make new all time highs.
Schauble needs to eat a cartoon of laxettes.
The Schauble-face is killing me.
Stocks In Holding Pattern Because It's Not TuesdayFixed it for you.
Will Greece turn to China-Russia?
1. They have their own problems.
2. Always wait till someones panicking before you start negotiations.
Negotiations already started in the background.
What is need SASPO is a nice big False Flag. We've done the planes into buildings so next up an alien attack.
Reid is clearly not a sailor.
>>>
Given the necessary parliamentary ratification process required before February 28th...
<<<
This, actually, is where the problem lies.
Germany (actually Merkel) would, of course, pay anything to keep the United States of Europe project going.
And no-one connected to the ECB is going to take any sort of decision that in later years will look like a decision that cancels their own job by destroying the EUR.
But, The Netherlands is just a mercantile EU state without WW2 hang-ups.
And, AFAIK, any new Greek money requires permission from their parliament.
And, IMO, they are not going to give it.
So no money goes to Greece unless Germany pays not only Germany's share (which Merkel would do in an instant), but _also_ the share of The Netherlands.
And that last step is just a step too far...
Watson
In fact, just noticed that Netherlands Target-2 numbers are much better than they were.
So collapse would produce losses, but only small, so seems like good sense to force a wind-up now.
Unless Germany is prepared to offer a loss-shield to the Netherlands?
Watson
No need to take sides .... the EU and Greece .... are pathetic and disgusting .... no wonder Muslims are invading the Broken Continent .... there's no one to just say NO !
Come on Draghi, give your heroin addicted client another free fix.
In just the right dose so he comes back for more, but this addict (Greece) is trying to shake it off and the dealer is NOT happy about that.
Beware of the 'hot shot'.
Yes....beware Portugal, Spain and Italy....we will make an example out of Greece!
Precedence is a real bitch......cause you're stuck with it.
Well. to be honest Greece is not trying to get off of the Euro, they want the Euro - they just don't want the debt obligations. The ECB has not been printing money - although they are about to start. The only "heroin" the PIIGS got was unrealistically low interest rates. That poison has infected the world because of the Fed and later the BoJ, not the ECB.
And that is the fundamental economic distortion of our time - there is no market price for capital. We are under the mass delusion that capital can be created by the mere desire of a few academics in a conference room. That mass delusion will end; brutally.
should ask the math phds who write the algos if kicking the can ad infinitum is possible, probable or likely
ask Troy about how cunning the greeks are. EU is walking into a trap. bankster days are ending with a default that will be heard round the world
could happen hope it does somebody has got to call the fiat money printers for the fakes they are
Any commentary is not necessary when the Italian 30yr debt is 20 basis points lower than the US 30yr debt. You can never put any sense into that - it's a sh&tshoem
A few predictions: (1) Poor economic reports, (2) slightly hawkish Fed and (3) smashing to new highs when news reading algos "misinterpret" something the ECB is going to do
Read Geethner's recent comments on Draghi's "whatever it takes" sound bite that put a bedrock base under all EU sovereign debt. Apparently Draghi was talking out of his ass. Colour me surprised, but as EU commissar Juncker famously said: "when it gets serious, you have to lie". The Non-Aggression Principle must always apply, but with recent events, particularly in Greece, you can understand how the guillotine came to be seen as a good idea at the time. And this should be of particular relevance to the German elite who sold their countrymen down the river in pursuit of a Continental empire built on sand.
"the S&P did manage to roar above 2100 on what was another headfake and then forgot to sell off on the reality."
The same old story day after day, week after week, year after year ever since the GFC.
This schizophrenia is making me crazy.
Schauble looks like he is going full tilt Hitlerian as he scowls at Draghi.
As Chateaubriand once said of Talleyrand and Fouché : Le Vice appuyé sur le bras du Crime.
Are Draghi and Schauble/Mutti now playing that game with Yanis and Greece, already fleeced ?
Here is the exact historical reference :
Ensuite, je me rendis chez Sa Majesté : introduit dans une des chambres qui précédaient celle du roi, je ne trouvai personne ; je m'assis dans un coin et j'attendis. Tout à coup une porte s'ouvre: entre silencieusement le vice appuyé sur le bras du crime, M. de Talleyrand marchant soutenu par M. Fouché ; la vision infernale passe lentement devant moi, pénètre dans le cabinet du roi et disparaît. Fouché venait jurer foi et hommage à son seigneur ; le féal régicide, à genoux, mît les mains qui firent tomber la tête de Louis XVI entre les mains du frère du roi martyr ; l'évêque apostat fut caution du serment.
Chateaubriand, Mémoires d'Outre-tombe
I don't get what Greek liquidity have to do with the price of the SnP.
You're clearly not playing the game well. Don't think, just buy. Buy buy buy! When it pulls back, BTFD! We touched 2100, the sky's the limit.
The Fed pumped bots need a headline so they can buy.
The Italian is always smiling and the Kraut looks like he's ready to have a Bowel-movement....
Draghi, does it matter anyway?
It's BS fiat backed by nothing. You can print out a few trillion.
US FED will come to the rescue.
It is for the children.