ECB Warns There Is "Significant Risk Of Abrupt Market Reversal"

Tyler Durden's picture

One week after the BIS issued an unexpectedly stern, if completely ignored warning, that the surge in the USD is leading to an abrupt tightening in financial conditions around the globe, making the repayment of trillions in USD-denominated cross-border debt increasingly more difficult and suggesting that the Dollar index itself is the new "fear indicator", overnight another central bank, the European Central Bank warned that the risk of "abrupt" global asset market corrections "have intensified" on the back of rising political uncertainty, posing a threat to banks, stability and economic growth.

More volatility in the near future is likely and the potential for an abrupt reversal remains significant amid heightened political uncertainty around the globe and underlying emerging market vulnerabilities,” the ECB wwarned in its twice-yearly Financial Stability Review published on Thursday.

“Elevated geopolitical tensions and heightened political uncertainty amid busy electoral calendars in major advanced economies have the potential to reignite global risk aversion and to trigger a major confidence shock.”

In its report, the ECB warned about the recent period of dramatic, unexpected political results that started with the Brexit vote and culminated with Donald Trump’s victory, which have increased volatility and herald profound economic-policy changes whose implications for the euro area are still hard to gauge. “Financial stability implications for the euro area stemming from changes in U.S. economic policies are highly uncertain at this point in time.”

The Central bank noted out that while the currency bloc’s economy and financial system have remained resilient so far, more political instability in coming months may put pressure on weak banks and countries with high sovereign debt.

The ECB also focused on domestic banks and admitted that “vulnerabilities remain significant for euro-area banks,” confirming the ongoing Deutsche Bank lament that “profitability prospects overall remain low across the euro area in a subdued economic growth environment.” The good news is that - largely unexpectedly - the Trump victory has spurred a pick-up in bank stocks as investors saw the risk of ever tighter regulation recede. If sustained, this would “provide some support for euro area banks’ profitability prospects,” according to the ECB. The ECB also said that steeper yield curves “may provide some support for euro-area banks’ profitability prospects."

The good news is that “despite relatively volatile global financial markets, bank and sovereign systemic stress indicators for the euro area have remained fairly stable at low levels.”

The ECB also warned about the risk of a return of market pressure on the region’s highly-indebted countries as the spread of populism hinders reforms. “Higher political uncertainty may lead to more domestically focused, growth-hindering policy agendas,” the report said. “This, in turn, could delay much needed fiscal and structural reforms and could in a worst-case scenario reignite pressures on more vulnerable sovereigns” and that “concerns about debt sustainability might re-emerge despite relatively benign financial market conditions.”

It also cautioned about Europe's failure to address its hundreds of billions in NPLs, noting that “banking sector structural challenges stem from high stocks of non-performing loans, high operating costs and excess capacity, with different incidence across countries.”

Speaking at a press conference in Frankfurt, ECB Vice President Vitor Constancio said that “we are in a new phase of weaker world trade” and that “if, on top of that, there would be a wave of protectionist measures, world trade, and world growth would suffer.”  Constancio confirmed that the despite the risk build-up, the ECB still sees euro-area growth around 1.6 percent in 2017, with inflation rising to about 1.25 percent in the spring. Even so, he stressed that some of the region’s lenders remain weak and need to continue addressing excessive costs and a high burden of non-performing costs.

Ultimately, the ECB threw the problem at the politicians' feet, warning them that if they succumb to "populist" whims, i.e., democracy, then all bets are off and the ECB's "whatever it takes" will be retracted: “Higher political uncertainty may lead to more domestically focused, growth-hindering policy agendas. This, in turn, could delay much needed fiscal and structural reforms and could in a worst-case scenario reignite pressures on more vulnerable sovereigns.”




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Dragon HAwk's picture

These Guys are Robots with Antennas sticking out of the back of their heads,

Paul Kersey's picture

"Significant Risk Of Abrupt Market Reversal"

Wish I had a $10 for every time something like that is posted on ZH.

Haus-Targaryen's picture

"The Central bank noted out that while the currency bloc’s economy and financial system have remained resilient so far, more political instability in coming months may put pressure on weak banks and countries with high sovereign debt."

Read: Italy.

I still fail to understand why Draghi is so focused on "growth" when the "growth" being measured is simply the increase of consumption, not the "growth" of savings or net worth, but consumption ... irrespective of how said consumption is brought about.  We as a society have completely lost our barometer for what wealth and economic success is.  The consequences of which will be dire.  

Do not lose sight of the end-goals fellow ZH'ers.  Wealth is freedom, and freedom can only be had when you are independent of the financial system and your self-worth and most definitely your survival is not dependent upon the constant flow of cash.  Save.  Put things away for a rainy day, because such days are already above the horizon and quickly on the way. 

I wish we could get this party started so as to finish off the current system in order to bring in one that is better, fairer and more truthful. 

jellen's picture

"Ultimately, the ECB threw the problem at the politicians' feet, warning them that if they succumb to "populist" whims, i.e., democracy, then all bets are off and the ECB's "whatever it takes" will be retracted:"


Looks like the globalist plans are right on track

Arturo's picture

Draghi just want the ECB to buy cheap stocks.

Ghordius's picture

SilverTongue speaks about "growth" because it's a sweet, sweet sound in the ears of the whole financial news and forecasting business. It keeps them off his back, a bit

"We as a society..." are you still on this continent when you say that? Or on the other one, the one that has huge things like Student Debt and Mortgage Securitization?

note the whole fight that broke out about Basel IV: it's all about mortgages that sit on european bank balance sheets. American analysts have to puke when they see such alien things. I still think that't the rational way to handle mortgages. It starts with this kind of "little" things

Haus-Targaryen's picture

"We as a [Western] society ..."

Hope that helps. 


Mountainview's picture

He fears the Italian referendum at first. The EURO is going down the drain but Draghi will not move an inch before December 5th.

coast's picture

slow down....I need about 4-6 months, according to many I take as "a wise man has many counselors" (proverbs), seems I may make it just in time.  ...altho, you mention a better and fairer system....dear jesus, do you not view henry kissinger youtube video interviews?  They are already planning the future...SDR's.   For instance, January 2015, kissinger says China will be the engine, and soon China will be part of the SDR's......October 1, 2016, China became part of the SDR's....Take what you will from my post, but I plan on spending time listening to satanic kissinger...he may be satan, but satan tells his plans ahead of time, if we listen...heed my warning.

asteroids's picture

"Growth" is impossible with increasing debt and a declining population. Debt is a sleeping monster soon to awaken.

Captain Chlamydia's picture

"Significant Risk Of Abrupt Market Reversal"

Wish I had a $10 for every time something like that is posted on ZH. - Paul Kersey


I would go for "since Lehman" for a dollar each time it came up. I would be a Zillionaire by now. 

UnschooledAustrianEconomist's picture

What would ZH be like without "since Lehman", Dennis Gartman and MDB?

Pretty boring I guess.

cossack55's picture

Anything that threatens the banks is OK with me.

olebugger's picture

Reminds me of the Greenspan warnings in 1995 and 1997. The markets bubble still inflated furhter. 

Davidduke2000's picture

If Trump does not blow up the market bubble before taking office he will be blamed for it. it must be blown up during obama's presidency.

Oldwood's picture

It is no longer Obama's economy. It has never been in the eyes of the media, but since the ascendancy of Trump, they have successfully transitioned all economic downside to Trump. He was castigated as a threat to our economy. The majority of economic pundits were predicting massive market collapses with the unlikely election of Trump, and we did see an initial selloff that somehow mysteriously turned into a major run up. What happened? Were the pundits just wrong about the threats of Trump's economic agenda?

I don't think so. I think they were doing as told, no thinking about it involved.

This Bubble has been deliberately inflated to massive highs, in contradiction to every prognostication.

Meanwhile, we see growing claims of election fraud, intimidation of electors, Soros funded riots, an even further inflamed MSM rhetoric, and a woefully silent Obama and Hillary in regards to violence.

Now we sit with a market made of hot air....just waiting for the prick to pop it, and it will ALL happen BEFORE  inauguration.

Many of us have said for years that all of this is a means to an end. An economic collapse that would put our world into crisis and enable the imposition of a true tyranny. A crisis of economic and social upheaval will provide as no other, and Trump will be the villain who takes the fall. He would never see office as, if he is anything of what his supporters believes he is, he would NOT allow this to happen.

Even a Hillary presidency would not provide those seeking world domination this kind of opportunity, and as it IS such an opportunity, I do NOT believe it will be missed.

A. Boaty's picture

The Prez. always gets credit for good times and blame for bad times, irrespective of whether or not the Prez. had anything to do with it.

Sir SpeaksALot's picture

Funny thing is most people still believe that Trump is not loyal to the 1%.

Mahatma Coat's picture

The ECB is already politically and morally bankrupt.  Now they're staring down the barrel at finanical oblivion.  It was always going to come.

cossack55's picture

Oceana has always been at war with the ECB

Mahatma Coat's picture

"If there is hope," wrote Winston, "it lies in the proles." - George Orwell, 1984.

Ghordius's picture

bah. they have one job, and just one job, and that "politically and morally" has really not much content or sense

King Dollar is surging. Our problem. The current proposed solution is monetary stability. Hence the ECB, a monetary alliance of national currencies that otherwise would be fully exposed to the effects of the Global Reserve Currency

What "barrel of financial oblivion"? It's eurozone banks that are trembling. Draghi already trolled a few times that perhaps there are too many of them around

nope. the EUR is working as designed, so far. Stabeeeleeeteee. If you have to produce and export because for example you need all that energy from Uncle Vlad and others, then all that autarkic thinking that some engage into becomes something similar to the rants of children

if you have to produce, and world competition is stiff, you need to calculate well, and price calculation becomes important. again, hence price stability, hence the EUR, all without having megabanks and hedgefunds and other speculative forces meddling on a daily basis

one pricelist... valid for a year. that's price stability. if you are not a producer, you might not understand

luri's picture
luri (not verified) Nov 24, 2016 8:16 AM


Oldwood's picture

Relevant issues will only become relevant when "needed".

A crisis is a very valuable commodity in this world, and must be managed like any other "asset", to be used at the optimal time. Currently derivatives are used to bolster bank profitability. When the time comes that bank liability is required to facilitate the next big "Market destruction to save the markets" action, derivative defaults will be all the rage.

The are building a tsunami that will wash away all existing "constrainments" to allow a "new" arrangement. One that will resist all known tsunamis, the ultimate "owned" market that is impervious to all interventions providing absolute power and zero accountability.

cossack55's picture

Just check out who "runs" ISDA

Bam_Man's picture

If "they" don't tell you about it, it's like it never even happened.

As Mario would say, "Capische?"

Stu Elsample's picture

"""""Ultimately, the ECB threw the problem at the politicians' feet, warning them that if they succumb to "populist" whims, i.e., democracy, then all bets are off and the ECB's "whatever it takes" will be retracted:"""""

The panicking Chicken Little globalists and bankers have come to realize that their NWO dream is over....string 'em all up.

Safelyundergroundlul's picture

Draghi is a fine pos as well. 

highly debtful's picture

Fourth turning reaching cruising altitude, if you ask me.

Off topic: excellent piece on Trump in The Automatic Earth.

Fisherman Blue's picture

No shit there is risk. These fuckers have been manipulation everything for a pretty long time now. Shit like that has a self life.

Youri Carma's picture

The real economy is going down the drain anyways so risk for whom?

People Not In Labor Force Surge By 425,000 To 94,609,000

NYC Homelessness Surges To The "Highest Levels Since The Great Depression"

Italy Jobless Rate Climbs To 7-Month High In September

Spain Unemployment Rises In October

Estonia Unemployment Rate Rises In Q3

Greece Jobless Rate Climbs Again In August

Sweden Jobless Rate Rises In October

French Unemployment Rate Rises In Q3

Turkey Jobless Rate Climbs More Than Expected To 20-Month High

South Africa Q3 Jobless Rate Climbs Unexpectedly

Finland Jobless Rate At 4-Month High

Croatia Unemployment Rate Climbs In October

Oleg the Man's picture
Oleg the Man (not verified) Nov 24, 2016 8:50 AM

And Mr. Putin should be warned about this guy

Russia's Biggest Alt-Right Leader's Opinion on Latest Western Trends


bada boom's picture

Just maybe a few traders will eat and drink too much today.  Perhaps we can expect a few keyboard errors in the weeks to come as they throw up all over the place. 

bardot63's picture

What do you suppose Trump is going to do when he discovers Vlad Putin and Won Hung Lo have all of Ft. Knox's gold? Anyone?

bada boom's picture

There not going to tell him, are they?

gregga777's picture

Who sold all the US gold reserves and replaced them with 400-Troy ounce gold-plated tungsten bars?

The Fort Knox Conundrum: Chinese say they received bogus bars of gold traced to U.S.

By Pat Shannan

Could over 1 million bars of gold, much of which is still held in Fort Knox, Ky., be counterfeit? An October 2009 discovery that suggests this may be true has been suppressed by the mainstream media but has been circulating among the “big money” brokers and financial kingpins. It is just now being revealed to the public.?…?In October 2009, China reportedly received a large shipment of gold, containing some 6,000 bars, weighing 400 ounces each. When it was received, the Chinese government asked that tests be performed to guarantee the purity and weight of the gold bars. In this test, four small holes were drilled into the bars, and the metal was analyzed. Officials were shocked to find the bars were bogus. They contained cores of tungsten, with only an outer coating of real gold. What’s more, these gold bars, containing serial numbers for tracking, originated in the United States and had reportedly been stored in Fort Knox for years.

According to gold expert Theo Gray, there are very few metals that are as dense as gold. With only two exceptions, they all cost as much or more than gold. The standard gold bar for bank-to-bank trade, known as a “London good delivery bar,” weighs 400 troy ounces (more than 33 pounds), yet is no bigger than a paperback novel. To put it in perspective, a bar of steel the same size weighs only 13.5 pounds.

The Chinese claim that in 1995—during the Clinton administration (Robert Rubin, Alan Greenspan and Lawrence Summers)—between 1.3 million and 1.5 million 400-ounce tungsten blanks were manufactured by a sophisticated refiner in the United States, amounting to more than 16,000 metric tons. Some 640,000 of these tungsten blanks were then gold plated and shipped to Fort Knox, according to the Chinese, where they are said to remain to this day. The Chinese contend that the remaining collection of these 400-ounce fakes was eventually gold-plated and then “sold” into international markets.

The global market is literally “stuffed full of 400 ounce salted bars,” said one unnamed expert. “It’s enough to destroy the world markets.”

tarabel's picture



Well, the first thought that crosses my mind when I read this (yet again) is that the only way anybody can get gold out of Fort Knox is through a Treasury auction or through some dirty underhanded deal.

Since this alleged Fort Knox gold came through some rip-off of the American people, I'm GLAD they paid for gold and got a nice Fort Knox souvenir doorstop instead.

But I don't seriously believe that it happened.

jamesmmu's picture

I will load up more VIX Monday, risk protection is too cheap to ignore!!!

Batman11's picture

The free flow of capital is important to make the global economy really unstable.

In 1997, most of Asia was devastated by little more than a rumour causing a stampede of hot money out of the region.

George Soros gloating (it was him):

Whole families in South Korea committed suicide together - another notch on his belt.



Bam_Man's picture


You mean there is a risk that the DOW and S&P, FTSE and DAX will not reach new all-time highs each and every day from now on?

small axe's picture

Translation: Our best customer (government) is bitching about rising funding costs, so we're going to issue a crash alert and try to talk down equities with the purpose of bringing down rates. Hopefully no one will notice that the whole shebang is teetering on the edge of collapse and outright insurrection as government loses the consent of the governed.

In any case, carry on. The bondholders must be paid.


MrNoItAll's picture

It sounds like the ECB is telling us what is in store for the global economy.  As if we didn't already know.  ECB playing CYA.  Now they can say "see how smart we are, we told you so, suckers!".


Last of the Middle Class's picture

They're going to do everything they can to whip Trump in line. We'll see what happens. They did the same to Obama and he promptly bent over if you recall his first months in office.

MrNoItAll's picture

I recall that Obama got bent over just like you point out, and promptly got all the hope and change pounded out of him.  Obama came into office as an idealist.  Trump comes in as a realist.  Now we'll have to wait and see who gets to grab their ankles.  Grab the popcorn and pull up a chair, this show is getting started.

Last of the Middle Class's picture

No shit! When the players walk away from a fixed game the whole fucking charade collapses! Tell me something I don't know.

Jason T's picture

Socialist Debt is worthless... it's backed by the contents of the cesspool.

Let it blow up in their faces.

yogibear's picture

Pound dirt Draghi! Your insignificant now.

The trading bulls are in control.