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Futures Surge On First Chinese State Bankruptcy, Greek Capital Controls And Approaching Default
Explaining the catalysts that move the "market" overnight has become so farcical it is practically an exercise in futility and absurdism.
We start in China where shortly following the default on offshore bonds by one of China's largest property developers, Kaisa, overnight we learned that Baoding Tianwei Baobian Electric Co Ltd would become the third listed Chinese firm to publicly default on an interest payment to bond investors on an onshore issue. Unlike the previous two defaults, the bond in question was traded on the interbank market, which is much larger and restricted to institutional investors.
More importantly, the company is also a subsidiary of a large central state-owned enterprise, unlike China's first two defaulters. Which means that should the default proceed without a bailout, the Chinese bond issuing pipeline will likely once again get clogged up over fears of future defaults across the corporate spectrum, which would also suggest even further easing by the PBOC in the coming weeks, and an even more parabolic move by the Chinese equity bubble.
Sure enough, the Shanghai Composite soared 1.8% on the news, and the Hang Seng closed 2.8% higher.
But wait, there was more bad news.
BBG reported that shortly after Greece launched "soft" capital controls, the ECB is now studying measures to rein in Emergency Liquidity Assistance (ELA) to Greek banks, as resistance to further aiding the country’s stricken lenders grows in the Governing Council, people with knowledge of the discussions said. As a reminder, ELA is the only reason why Greek banks are still operating. Without this, and the Cyprus style pervasive capital controls would become a reality in Greece next.
Not surprisingly, shortly thereafter Euro bonds of various Greek banks tumbled to fresh record lows:
- ETEGA 4.375% 04/30/19 down 0.6 pt to 55.74, record low
- EUROB 4.25% 06/26/18 down 0.6 pt to 55.34, record low
- ALPHA 3.375% 06/17/17 down 0.4 pt to 64.15, record low
- TPEIR 5% 03/27/17 down 0.2 pt to 62.23, record low
Not helping matters was Lord Nigel Lawson, who was chancellor of the exchequer in the government led by Margaret Thatcher, who said "there is a game of chicken going on" between the Germans and the Greeks in an interview with the WSJ. He added that Greece should never have joined the euro and will most likely default, according to a former United Kingdom government finance chief.
As a result of Greece getting ever closer to financial Armageddon, the Euro tumbled as low at 1.0660 overnight on fears that the ECB will be forced to buy plenty of other stuff (because it won't be bonds: the ECB has almost run out of those) to keep the situation in the Eurozone stable if only for popular consumption purposes. Keep an eye on the 10Y Bund: if the German benchmark slides to 0% or under in the coming days, that will likely be a sign that Greece is indeed finished. But as for stocks, it was up, up, up.
Oh, and let's not forget that yesterday the US sent ships to the Yemen coast in what appears to be an escalation and one designed to engage the Iran mini flotilla which as we wrote last week was also sent to show support for the Houthi rebel forces.
In short: a relentless barrage of negative news from around the globe, and US equity futures ramped as high as 14 point overnight before trimming their gains to just 7 points as of this writing: perhaps there was some good news that hit and we are unaware of?
EQUITIES/ FIXED INCOME
European equities trade mixed after initially opening higher on strong earnings and strong performance from Chinese equities but the uptrend was reversed as German ZEW missed expectations (53.3 vs Exp. 55.3) falling for the first time since October 2014. This pushed equities lower alongside significant losses in Greek banks (National Bank of Greece -8.7%, Alpha Bank -4.3%) as the equity market refocused its attention back on to Greece after ECB sources suggested that the ECB may reduce their support for Greek banks (initially only FX markets reacted to the ECB sources, however Greek Banks then placed the squeeze on European equities). Nonetheless, the DAX (+0.5%) has outperformed the Eurostoxx50 (unchanged) helped by good earnings from SAP (+3.1%). Of note, look out for related stocks such as Oracle in the US session.
Elsewhere, UST’s have traded flat alongside core fixed income markets with little fundamental news dictating much direction while the GR/GE spread is seen considerably wider compared to its Eurozone counterparts with the 3y +46.2 bps and 10y +10bps.
FX
EUR is weaker across on crosses on Greece which has boosted the USD (+0.5%). The strong USD has helped pare losses for AUD/USD which was weaker overnight after the RBA Minutes showed that further policy easing may be appropriate in the period going forward as markets expect more than 50% chance of a rate cut in May.
COMMODITIES
Strong USD (+0.5%) has extended on yesterdays’ gains which has weighed on WTI (-0.2%) and Brent (-0.3%) with spot gold (+0.1%) trading relatively flat, albeit below the USD 1,200 level.
To summarize: European shares mixed, off earlier highs, with the tech and financial services sectors outperforming and basic resources, banks underperforming. ECB said to study measures to rein in ELA to Greek banks. Euro weakens for second day against dollar, Greek 10-yr bonds drop for a seventh day. German ZEW below estimates. 3-month Euribor drops below zero for first time. The Swiss and German markets are the best-performing larger bourses, Italian the worst. German 10yr bond yields rise; Portuguese yields increase. Commodities decline, with corn, wheat underperforming and natural gas outperforming.
Market Wrap
- S&P 500 futures up 0.3% to 2098.1
- Stoxx 600 up 0.5% to 408.9
- US 10Yr yield down 2bps to 1.87%
- German 10Yr yield up 1bps to 0.08%
- MSCI Asia Pacific up 1.1% to 154
- Gold spot up 0.2% to $1198.8/oz
- Eurostoxx 50 -0%, FTSE 100 -0.1%, CAC 40 -0.1%, DAX +0.5%, IBEX +0.2%, FTSEMIB -1%, SMI +0.7%
- Asian stocks rise with the Hang Seng outperforming and the Sensex underperforming.
- MSCI Asia Pacific up 1.1% to 154; Nikkei 225 up 1.4%, Hang Seng up 2.8%, Kospi down 0.1%, Shanghai Composite up 1.8%, ASX up 0.7%, Sensex down 0.8%
- Euro down 0.5% to $1.0684
- Dollar Index up 0.34% to 98.27
- Italian 10Yr yield up 1bps to 1.5%
- Spanish 10Yr yield up 2bps to 1.49%
- French 10Yr yield up 1bps to 0.36%
- S&P GSCI Index down 0.3% to 429.3
- Brent Futures down 0.5% to $63.1/bbl, WTI Futures down 0.2% to $56.3/bbl
- LME 3m Copper down 0.2% to $5969/MT
- LME 3m Nickel down 0.7% to $12710/MT
- Wheat futures down 0.9% to 493.8 USd/bu
Bulletin Headline Summary From Bloomberg and RanSquawk
- European equities were initially stronger on large cap pre-market earnings, however gains were erased following disappointing German ZEW survey and a focus back on Greece uncertainty
- ECB sources suggest concerns over Greece and that the ELA haircut may be raised has subsequently weighed on Greek asset classes
- Looking ahead, today sees a light economic calendar with API crude inventories and a raft of US large cap earnings from Verizon, United Technologies, Amgen, Lockheed Martin
- Treasuries higher with bunds as German investor sentiment falls, ECB said to study curbs on funds to Greek banks; focus remains on next week’s Fed meeting after stretch of weaker than forecast U.S. data.
- ECB is studying measures to rein in Emergency Liquidity Assistance to Greek banks, as resistance to further aiding the country’s stricken lenders grows in the Governing Council, people with knowledge of the discussions said
- ECB staff have produced a proposal to increase haircuts banks take on the collateral they post when borrowing from the Bank of Greece, the people said
- As Greece struggles to find cash to stay afloat, local authorities say they oppose a government decision to use their reserves for short-term financing
- Germany’s ZEW index of investor expectations fell to 53.3 in April, lower than expected, from 54.8 in March; Bundesbank yesterday said recent data suggest German growth momentum weaker than expected
- A Chinese power-transformer maker has become the country’s first state-owned company to default on an onshore bond, flagging the government’s rising tolerance for nonpayments as it allows market forces to play a bigger role
- Koichi Hamada, an adviser to Japanese Prime Minister Shinzo Abe, says that additional easing is needed if BOJ’s inflation goal can’t be met even on a core-core CPI basis, Nikkei reports, citing comments made by Hamada at seminar in Tokyo today
- Obama will oppose an effort by prominent Senate Democrats to amend a proposed fast-track trade bill with provisions punishing countries for manipulating their exchange rates
- Sovereign bond yields mostly higher. Asian stocks gain, European stocks and U.S. equity-index futures rise. Crude oil lower, copper little changed, gold higher
US Event Calendar
- No Data
DB's Jim Reid concludes the overnight recap
We start in Asia this morning where equity markets have recovered somewhat falling yesterday’s large losses. The Hang Seng (+2.12%) is trading firmer following two successive down days, while China equities have also recovered with the Shanghai Comp (+0.86%) and CSI 300 (+1.38%) higher. Bloomberg has noted that the Shanghai Comp is stronger despite a 4% fall for a subsector of real estate names after the news that Kaisa has officially defaulted on its US Dollar debt. The developer confirmed that it missed two interest payments, meaning it now becomes the first Chinese developer to default on US Dollar debt (which stands at around $2.7bn). Elsewhere, the Nikkei (+1.03%), and ASX (+0.560%) are higher.
Moving on, it was Greece who once again took up much of the attention yesterday. Towards the end of the European session, news emerged that PM Tsipras had signed a legal decree obliging state bodies (with the exception of pension funds) to transfer reserves to the Bank of Greece. The move highlights the desperate liquidity situation, with Greek press Ekathimerini reporting that the move is expected to tap around €1.2bn which should be enough to pay civil servants’ salaries and pensions this month. Critically however, with it looking less and less likely that any sort of agreement and subsequent release of funds will be made at this Friday’s Eurogroup, it’s not obvious if the reserves will be enough to cover the €770m IMF payment due on May 12th. Despite the decree meaning that no parliamentary vote is needed, this looks set to cause some political unrest for Greece with the Mayor of Glyfada (the third largest municipality) commenting that ‘the government’s decision to seize our reserves not only raises legal and constitutional issues, but also a moral one’. Patoulis, the Mayor of Marousi, also commented that ‘it is a politically and institutionally unacceptable decision’ and that ‘no government to date has dared to touch the money of municipalities’.
In the meantime, the ECB’s Constancio yesterday said that the ECB is convinced that there will not be a Grexit and that in the event of a default, then Greece cannot be legally expelled from the Euro. Constancio also noted that capital controls will only be provided upon a request from the Greek government. Meanwhile, the ECB’s Nowotny reinforced the view that although a Grexit would be a huge problem for Greece itself, the contagion effect is likely limited compared to that of two years ago.
Back to markets yesterday, despite relatively limited newsflow and data, equity markets rebounded somewhat as tech stocks bounced and led the gains. Indeed, the S&P 500 (+0.92%) and Dow (+1.17%) recovered to close more or less at their highs for the day. As mentioned, despite all components closing up it was tech stocks (+1.79%) which provided the support as the likes of Apple (+2.3%), Microsoft (+3.1%) and Facebook (+2.9%) rallied with much of the sector due to report this week. On the subject of earnings, Morgan Stanley reported better than expected Q1 results during the session to help support the better tone. In the corporate space however, it was IBM, Royal Caribbean Cruises and Halliburton who caught our eye thematically.
In the case of Halliburton, despite producing better than expected earnings, the energy services provider announced that it was to accelerate the pace of job cuts, taking total job cuts to more than 10% of headcount over the past two quarters. At the same time, the company also announced plans to cut capex by 15% this year, in a similar theme to what we’ve seen in the energy space thus far. IBM and Royal Caribbean also reported profit ahead of analyst expectations, however top line revenues for both companies were less than expected, with the stronger Dollar theme a feature in the management calls after. In the case of IBM, currency movement was said to have accounted for two-thirds of the drop in revenues while Royal Caribbean slashed its full year forecast having cited the stronger Dollar impacting margins significantly. We’ve seen plenty of evidence through this earnings period so far of the stronger Dollar theme playing out and having a negative impact on results.
Away from yesterday’s earnings, it was largely quiet elsewhere in the US session. Data was thin on the ground with just a weaker than expected Chicago Fed National Activity Index to report of (-0.42 vs. +0.10 expected). Fedspeak was centered on the NY Fed’s Dudley who commented that he’s relatively optimistic that the growth prospects for the US economy will improve over the remainder of 2015, however that it’ll be important to determine whether the softness in the March employment report was temporary or, if it foreshadows a more substantial slowing in the labor market. Ultimately Dudley reiterated that timing of normalization remains uncertain because how the economy evolves in also uncertain. The Dollar yesterday climbed for the second consecutive session with the DXY finishing +0.43%. 10y Treasuries ended 2.4bps wider at 1.890%.
10y Bunds extended their gains yesterday as they fell 0.3bps to 0.075%. Peripheral markets were more mixed however, reflecting the Greek headlines as yields in Spain (+1.2bps) and Italy (+0.9bps) widened while Portugal (-0.6bps) was a touch firmer. Much like the US, European equities clawed back some of Friday’s losses as the Stoxx 600 (+0.79%), DAX (+1.74%) and CAC (+0.86%) all finished strongly. Performance in Greek assets was unsurprisingly weaker however as Greek equities finished 0.1% lower and 3y yields widened 161bps to now yield 27.4%.
Turning over now to today’s calendar, its particularly data light for the most part in both the European and US time zones with just the German ZEW survey expected. 35 S&P 500 companies reporting in the US will likely provide much of the direction however. Amgen, Verizon and Yahoo being the highlights
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Following this logic, once the nukes start flying, record highs for all
'cept gold
You make too much sense, you terrrist.
He's right!
Just think of how complete obliteration would create massive demand for commodities and labor!
But then again, there wouldn't be any labor left to do it.
I'm picturing all life on earth, completely dead but still all those Johnny Five HFT's churning out higher indices in the human-void stock market.
Maybe hundreds, or thousands, of years later, an alien civilization visits the dead planet and notices these machines constantly bidding up an electronic stock market. They be thinking, "Man what the fuck was up with these guys?"
BONUS TIME!
Bullish!
Added to this we have seen yet another addition to the list of negative interest-rates in Europe.
Well except for Greece that is....
Trading is a war. Prepare your weapons.
Fred & EntendanceInvestors Beach
As treasury begs Greeks to find solution in interest of "world". Macedonia looks to spring. Pathetic
If you can't dazzle em with brilliance, bubble 'em with BS...
Quit call them "markets".
Markets were effectively eliminated in 2009 by the FED.
Exercise in futility and absurdism seems to sum it up quite nicely.
DavidC
Hey ZH. I just want to say that as far as I'm concerned, you guys ARE the news! Tanks.
Tanks.
Lots of Tanks. Everywhere.
The Germans just ordered another 100.
The Russians have like 16,000
We have quite a few. Tanks everywhere.
So something's going to tank?
Tanks for the mammaries?
Tank top party at subway.
I'll have a tanqueray and tonic, please.
Uggghh.. Don';t remind me..
I got tanked last night..
On Tank-eray and Tonic?
On Tank-ila!
yeah, but the russians dont have you
Ok, ok. I get it. Thanks for that.
Japan and China breaking out the box of QEasy.... Faux markets popping a big chubby.
=== om een stempel te drukken op de Europese besluitvorming moet je ... ===
http://www.volkskrant.nl/buitenland/europa-heeft-er-een-nieuw-land-bij-l...
De fracties van VVD en PvdA zijn vanochtend bijgepraat over de gecontroleerde paradigma-wisseling naar het systeem 'Leven en Laten Leven'.
http://www.volkskrant.nl/politiek/overleg-illegalen-kan-nog-paar-dagen-d...
Netwerk @SuperWil: "Ik ben bang dat dit het begin van een heel foute tendens is."
http://www.gelderlander.nl/regio/achterhoek/aalten/uitkeringsgerechtigde...
De Europese Centrale Bank (ECB) krijgt steeds meer waardeloos onderpand van de Griekse kredietverstrekkers.
Spell check?
I think a vowel key or two may be stuck on your keyboard.
Ask them why they don't have tits over there, that's what we want to know.
It's all Bullishit folks.
Some folks cleaned up some bullishit.
We 'marketed' some folk....
It is funny....
Increasingly, China is behaving in a capitalist manner.
While America is behaving in a socialist (bail outs, food banks etc) as well as communist manner (police and social media surveillance, highest prison population in the world, not to mention killing black people everyday etc)!
10 years ago one would have thought America would behave in a capitalist manner and China would be killing its domestic population while having the largest population in the world. One would have taken for granted that China would have had the largest population of people in prisons or China would be doing mass surveillance.
Where did America go so wrong?
I blame excel.
Just have to remember what the CBs Keynesian god said.
“The market can stay irrational longer than you can stay solvent.”
If your trying to pick a top. They'll just keep taking it higher.
More outrageously priced IPOs please.
There is nothing farcical about being handed, 7 yrs ago, the keys to the kingdom, for EVERYONE, everyone who dispensed with traditional metrics in order to determine where best to invest their money. The signal was the FED's tactic of keeping the Jews of Wall Street in clover, splashing around in the lap of luxury, simplyi because they demanded it.
The real farce is the majority who look at a duck and say it's a chair.
Congratulations to all those who, on this blog, have likely secured their retirement or enough extra cash by using the most consistent contrarian blog we've ever seen, to buy the Porsche 969, they dreamed about, or the condo on St. John's Beach on St. Bart's, now having a breakfast of Langouste and pomme frites, in the nude.
Stop with the accusations that this market makes no sense, since it makes you look insane to make sense out of data that is telling you disregard your own ego, and go with the flow, and stop fighting the tape.
hrrmpphh.
If you want to go short then thie blog will to do a U-ee, and then, maybe the longs will finally get their due. But that's not the way to bet.
Why are you wasting your time writing this from your retirement home at at Bart's.
Porsche 969 eh? I know nobody who admits to me that they dream of owning a Porsche.
I dream of roads good enough to run my Ferrari 312PB.
hey, don't be dissin' my sex dreams.
Tm.
That's because they've never driven one. You'd understand if you had a fetish for dynamic sports cars. You likely know no one who dreams of any of them. Or any vehicle for that matter.
We are a tiny bunch, who realize that even unified we cannot overturn the existing power/elite/top 10% who own our government so we might as well enjoy what ever butters our waffles.
Substitute your own dream.
BTFD
There is so much awesomely good news around the globe that the stawk markets do not have time to take it all in.
So they just keep hitting the buy button, knowing we have entered the forever good sector.
Jubilation is the word! Can't you just feel it?
With news like that who needs friends.
INVESTORS AND ALGORITHMS ARE CALLING THE FED’S BLUFF ON RATE HIKES. THEY ARE EXPECTING CHEAP 0% MONEY PERMANENTLY.
THIS IS THE NEW NORMAL !!
Investors dies along with the manufacturers back in 1980.
You are either following their lead now or not, and that is called gambling.
Which is cool as long as you win, or have a lot of fun trying to play this game.
It's a bag of magic.
What differnece a weekend makes. The system is a fraud and the world knows it!.
I like the way usd/jpy almost instantly levitates 50 pips on absolutely nothing. No news is the same a good or bad news. BTFF
Buy The Fucking Farce...
Is the Fed and whoever or whatever it is allied with so all powerful after all? I now think that it must be. For all these years I kept thinking something like this: "Somehow you will fail. Something will defeat you. Life will defeat you.’ "
That's from Orwell's _Nineteen Eighty-Four_. Here it is in fuller context:
"As usual, the voice had battered Winston into helplessness. Moreover he was in dread that if he persisted in his disagreement O'Brien would twist the dial again. And yet he could not keep silent. Feebly, without arguments, with nothing to support him except his inarticulate horror of what O'Brien had said, he returned to the attack.
‘I don't know — I don't care. Somehow you will fail. Something will defeat you. Life will defeat you.’
‘We control life, Winston, at all its levels. You are imagining that there is something called human nature which will be outraged by what we do and will turn against us. But we create human nature. Men are infinitely malleable. Or perhaps you have returned to your old idea that the proletarians or the slaves will arise and overthrow us. Put it out of your mind. They are helpless, like the animals. Humanity is the Party. The others are outside — irrelevant.’
‘I don't care. In the end they will beat you. Sooner or later they will see you for what you are, and then they will tear you to pieces.’
‘Do you see any evidence that that is happening? Or any reason why it should?’
‘No. I believe it. I know that you will fail. There is something in the universe — I don't know, some spirit, some principle — that you will never overcome.’
‘Do you believe in God, Winston?’
‘No.’
‘Then what is it, this principle that will defeat us?’
‘I don't know. The spirit of Man.’
‘And do you consider yourself a man?.’
‘Yes.’
‘If you are a man, Winston, you are the last man. Your kind is extinct; we are the inheritors. Do you understand that you are alone? You are outside history, you are non-existent.’ "
And now I'm afraid what I thought and hoped before is a lie and a delusion. They really can't be beaten, by anyone or anything.