Following Nomura's Bob Janjuah's 'wine into water... are we there yet?' note in February, the market has followed his script almost perfectly with a continued push to new highs and a small sell-off that was bought excitedly. While he remains convinced that "in terms of positioning and sentiment, we are 'not there yet'," for his 50% S&P 500 plunge; he does believe Q2 will see a 5-10% dip to 1450 as the shambolic policy responses to Cyprus and the 'cat' that #DieselBoom 'let out the bag' add to increasingly weak global growth data. While this dip will also likely be bought, the bearded bear expects the market's comeuppance to arrive late 2013.
It would appear, all else being equal, that the algos have found a new leverage asset to save stocks. Given the uncertainty in Europe, EURUSD and EURJPY have lost their effectiveness; Treasuries won't play along due to the safety bid and Fed footprint; high-yield won't budge as fundamentals are making people nervous; and even VIX won't shift as protection is sought. So it seems, given the entire lack of any fundamental reasoning for today's move, that WTI crude is the asset of choice to ramp correlations with stocks higher. This last 3-day push is the biggest move in WTI since August of last year as it pushes back towards the year's highs (and RBOB is following suit) - not exactly boding well for the price at the pump shortly.
From Deutsche Bank: "Maybe the lesson from all of this is that if you are fortunate enough to have a fair degree of money you might be better off spending it! Maybe that’s the master plan here? Boosting activity by forcing people to use their money rather than deposit it! Indeed I wonder how long it’ll be before an equity strategist suggests that this is bullish as money might now leave deposit accounts and go into equities!"
In this past weekend's missive we showed, in rather excruciating detail in multiple charts, that complacency in the financial markets is at extremely elevated levels. Investors behave much the same way as individuals who addicted to gambling. When they are winning they believe that their success is based on their skill. However, when they began to lose, they keep gambling thinking the next “hand” will be the one that gets them back on track. Eventually - they leave the table broke. It is true that bull markets are more fun than bear markets. Bull markets elicit euphoria and feelings of psychological superiority. Bear markets bring fear, panic and depression. What is interesting is that no matter how many times we continually repeat these “cycles” – as emotional human beings we always “hope” that somehow this “time will be different.” Unfortunately, it never is, and this time won’t be either.
UK's deVere advisory group reports, "more and more expats in Spain, Italy, Portugal and Greece are now not unreasonably worried for their deposits in these countries," and are seeing a "surge" in the number of British expats seeking advice about moving funds out of eurozone's most troubled economies. As EUBusiness reports, "Whether the institutions like it and accept it or not, there is a real risk of a major deposit flight from these countries as people feel their accounts could be plundered next." It is hardly surprising obviously (as we noted earlier the bid in German bunds) but we fear this escalation in cash exodus from the periphery will increase the need for a broader EU capital control scheme sooner rather than later.
There are some good features of the Cyprus deal and, of course, some bad aspects. However, its repercussions for the Eurozone as a whole are exceptionally ugly and will, we submit, mark a turning point for Europe; a point at which Europe took a nasty turn toward a set of mutually disagreeable outcomes.
The Bank of Spain just sent a stark message. In its annual update of economic forecasts, it estimates Spain's economy will shrink 1.5% in 2013 - that is three times as bad as the official government forecast of -0.5%. As Reuters reports, this is even worse than 2012's 1.4% contraction as the bank notes that, Spaniards "remain immersed in a process of deleveraging...and families have seen a notable shrinking of income." The GDP estimate is around consensus which was roundly ignoring the Spanish government's 'lying' optimism but under the cover of the Cyprus debacle, the Spanish have been pushing to ease their deficit restrictions as the deficit is expected to reach 6% in 2013 (well above the 4.5% target set by the EU). With unemployment expected to rise over 27.1%, we suspect youth unemployment will once again take center stage as the European Union's scariest chart.
Close-to-close, headlines will be happy that things do not appear to be collapsing in Europe. The broadest equity indices only lost a fraction of a percent and bonds ended unchanged. But the action in the last hour or two (which saw Spanish and Italian bonds weaken considerably) and the relentless leak lower in Italian and Spanish stocks (now down 4.5 and 3.5% on the week respectively) suggest risk-appetite is fading fast. German and Swiss 2Y rates are negative once again as safety is chased and EUR-USD basis swaps are holding their lows. EURUSD tried to rally but failed and ended at the lows of the session as European banking credit markets continued to weaken - now at 5-month wide spreads (and their stocks still playing catch down).
If you had a deposit greater than EUR100,000 in any peripheral European bank, where would you place it (assuming it was not already under some anti-European Union capital control)? It seems we have the answer - German 2Y Bund yields just went negative for the first time this year as investors and savers scurry for safety...
In an unsurprisingly supportive tone for the ECB and the Eurogroup, Cypriot Central Bank governor Demetriades says:
*DEMETRIADES SAYS SUPPORTED FIRST EUROGROUP PROPOSAL ON CYPRUS, and
*DEMETRIADES SAYS ECB DOING ITS JOB RIGHT ON CYPRUS BANKS
But, it seems, in recognition that there are 'leaks' in their current capital control scheme, Demetriades has just admitted that:
- *DEMETRIADES SAYS CAPITAL CONTROLS TO BE SAME FOR ALL BANKS
- *DEMETRIADES SAYS CAN'T GO INTO MORE DETAILS ON CAPITAL CONTROLS
Not only that but he clarified that if the deal had not happened then ATM limits would be EUR30 per day not the current EUR100 per day. Now that all the Russian money is gone, the only question remains just how big the capital shortfall will be - earlier we learned that it will be at least EUR2.5-3 billion.
UPDATE: Well that didn't take long - The Portuguese Finance minister just denied his earlier comments and added that the Cyprus deal is NOT a template for future actions (EURUSD doesn't believe him).
The shambles continues in Europe. This morning we saw a plethora of EU officials explaining how the Cyprus 'deal' is a unique, one-of-a-kind debacle helping to talk back #DieselBoom's mis-words, only to have their credibility destroyed by the actual transcript and his actual words. Then we get the fact that a new EU-wide bill on deposit bail-ins is introduced... and now the Portuguese finance minister has added to the dysphoria by explaining that, "the Cyprus deal sets Euro precedent on deposit protection," and we therefore assume on deposit impairment. It seems EURUSD also sees this...
Here we go again:
EUROPEAN PARLIAMENT TO PUSH FOR DEPOSITORS WITH ABOVE 100,000 EUROS TO FACE BAIL-IN UNDER NEW BANK RESOLUTION LAW - EU LAWMAKER - RTRS
Basically, this is DieselBOOM ver 2.0. How long until someone scrambles to announce that this, too, was taken out of context?
Hopefully the memory of the new Eurogroup head, who in a one day lost more credibility than his admittedly lying predecessor Juncker ever had, will be jogged courtesy of this full transcript provided by Reuters and the FT of what he told two reporters - on the record - and for the whole world to read. Because, by now, we are confident everyone has had more than enough with watching the entire Eurozone rapidly and tragically turn itself into a complete and utter mythomaniac, kletpocratic circus.
Russian Withdrawals Quantified As Cyprus Central Bank Set To Expand Emergency Credit By Up To €3 BillionSubmitted by Tyler Durden on 03/26/2013 10:32 -0400
When we reported yesterday that over the past week, the Russian depositors in Cypriot banks had managed to find loopholes through which to pull out billions in supposedly halted deposits (courtesy of bank shutdowns and capital controls) some, accurately, balked: if that were the case the Cyprus Centeral Bank would need a proportionate increase in emergency funding from the ECB (in the form of ELA) to make up for the deposit outflows. Which is why moments ago Welt reported precisely what we had been expecting to read all morning: the Cyprus Central Bank is about to demand even more cash from the ECB to plug the holes left from the stealthy Russian outflows.
- CYPRUS CENTRAL BANK PLANS EXPANDING EMERGENCY CREDIT: WELT
- CYPRUS PLANS EXPANDING EMERGENCY CREDIT BY EU2.5B-EU3B: WELT
Remember: this is just a feeler by the Cypriot Bank in direction Frankfurt - the last thing Cyprus wants is to expose just how big the full liquidity hole is resulting from the Russian deposit outflows. We expect when all is said and done, the full incremental bailout needs to rise in the double digits.
Houston we may have a problem: with the DJIA trumpetedely hitting new all time highs day after day in March, one would expect that its traditional second derivative - US Consumer Confidence, would be at all time highs as well, or close thereby. One would be wrong, because according to the Conference Board, March consumer confidence plunged to 59.7 from 69.6, and well below expectations of a 67.5 print. Both components of the index dipped, with both the present situation and expectations indices sliding from 61.4 and 72.4, to 57.9 and 60.9, respectively. And just to make sure the S&P ramps to all time highs on ongoing miserable economic, corporate profit and, of course, sovereign insolvency news, we got both New Home Sales, dropping from 431K to 411K, missing expectations of 420K, and the Richmond Fed also missing expectations of a 6 print, dropping from last month's 6 to 3. All in all, if this latest round of ugly and rapidly getting worse economic data doesn't send the S&P to new all time highs, nothing will. Well, perhaps another European country going broke may do the trick...