European cash equities are in the red across the board at the midway point, as the bourses fail to reverse the trend of the past few sessions. With data points very light today, participants continue to focus on the macroeconomic themes as speculation regarding a Greek exit maintains focus. A medium-term maturity Spanish bond auction slightly eased fears, selling to the top of the indicative range, however the appearance of solid demand was countered somewhat by limited supply and sharply higher yields across all three lines. Following the auction results, EUR/USD saw some modest support and the Bund exhibited slight weakness, but this was short-lived as the macroeconomic concerns took over once more. Unexpectedly, the 3-month Euribor rate fixing came in with its first increase since December last year, prompting some selling pressure on the Euribor strip. This move was retraced as it was rumoured that one bank had not submitted a rate due to the Ascension Day market holiday across certain European markets, prompting the incline.
- As ZH warned last week, JPMorgan’s Trading Loss Is Said to Rise at Least 50% (NYT)
- Spanish recession bites, may be prolonged (Reuters)
- Obama Lunch With Boehner Ends With Standoff Over Budget (Bloomberg)
- Hilsenrath: Fed Minutes Reflect Wariness About Recovery's Strength (WSJ)
- N. Korea Ship Seizes Chinese Boats for Ransom, Global Times Says (Bloomberg)
- Greece Plans for June 17 Vote Under Caretake Government (Bloomberg)
- Hollande turns to experience to fill French posts (FT)
- ECB Stops Loans to Some Greek Banks as Draghi Talks Exit (Bloomberg)
- Spain Urges EU to Provide More Support (WSJ)
- North Korea resumes work on nuclear reactor: report (Reuters)
- Fed’s Bullard Says Labor Policy Is Key to Cut Joblessness (Bloomberg)
- China Expands Scope for Short Selling, Securities Journal Says (Bloomberg)
It was such a promising morning for Spain which sold some €2.5 billion in 2015 and 2016 bonds earlier in yet another meaningless and symbolic LTRO-covered exercise, when things went from bad (bank run, pardon, withdrawal meme) to worse, as local Expansion newspaper says Spanish bank ratings will be downgraded in a few hours.
The problem with bank runs is that once they start, they don't stop. And while the world was conveniently distracted by events in Greece, debating whether or not people were withdrawing money in droves (they were), the real bank run happened elsewhere, namely in Spain, where just nationalized bank Bankia moments ago plunged 30% and was halted following an El Mundo report that "customers had withdrawn €1 billion over the past week." In other words - a bank run (but whatever you do, don't call it that - it's not the politically correct and accepted nomenclature) which has sent shockwaves through Europe, pushed the EURUSD under 1.27, and bond yields in their traditional "Europe is open" direction - wider.
Thucydides was probably born about 460BC and was for a time a General on the side of democratic Athens against aristocratic Sparta in what is known as the Peloponnesian War in which most of Greece took a side. After being exiled he wrote his famous history. The passage that we’ve quoted here, in our opinion, one of the finest passages of classical antiquity, describes the breakdown of civil society and in doing so it perfectly describes every civil war and revolution that has taken place in the almost two and half thousand years since it was written. We bring it to your attention in the vain hope that those who have blindly pursued the policies which have brought Greece to the brink and risks plunging the whole of Europe into the abyss, might consider more keenly the consequences of their actions and change course before it’s too late.
Supply and Demand are what drive share prices in the stock market and Chrales Biderman of TrimTabs takes to task the plethora of complicating factors that are run in front of our eyes day after day on why we should be buying stocks. While he is short-term bullish, expecting a 2-3% jolt to stocks on post-Facebook IPO euphoria (as selling positions to fund the IPO allocation will fade), he remains medium-term bearish with an eye for being short stocks and long gold. His discussion of Stock Trading 101 is noteworthy and fits somewhat with our incessant annoyance at the money-on-the-sidelines ignorance that remains among so-called professionals who seem to remain ignorant of the closed-loop nature of buyers and sellers in the financial markets - leaving the important driver of market movements not earnings or macro-data explicitly but the buybacks (or lack thereof) of corporations (and money flow). An interesting alternate perspective.
Two months ago, Congress voted down the "Obama budget" by a vote of 414-0. Today, the Senate chimed in. The result was just as definitive. Final outcome, between the Congress and the Senate, a grand total of zero votes were cast for the Obama budget... and a mere 513 against.
Well, my hat is off to the global central planners for averting the next stage of the unfolding financial crisis for as long as they have. I guess there’s some solace in having had a nice break between the events of 2008/09 and today, which afforded us all the opportunity to attend to our various preparations and enjoy our lives.
Alas, all good things come to an end, and a crisis rooted in ‘too much debt’ with a nice undercurrent of ‘persistently high and rising energy costs’ was never going to be solved by providing cheap liquidity to the largest and most reckless financial institutions. And it has not.
After a day full of depressing news, what is the best way to unwind? By pretending one is former Goldman employee Mario Draghi and having to grapple with 4 make believe scenarios, of course. These are: deflation, price stabeeleetee, high inflation and hyperinflation. But instead of actually being in his shoes, and stuck in a damp Frankfurt basement with the manual for Heidelberg: Mainstream 80, Web-fed Rotary Printer, figuring out how to put it into overdrive, one can have fun from the comfort of one's own REOed and mortgage-free (thank you Congressional Politburo) home courtesy of the following ECB video game. Good luck, and may the printiest man win.
There was a time when retail investors were mocked and derided by all: after all whenever the big boys needed to unload they jest blew the whistle, and like obedient lap dogs retail would buy at the very peak of the market because "stocks are a once in a lifetime buy", leading to what some call distribution, and others, a plunge. Not any more. In spite of the recent 20% surge in stocks, following a pattern absolutely identical to the one from September 2010 to March 2011, for the entire 32 week duration of the artificial central bank induced rally beginning October 5, there were a total of 3 weeks of inflows into the market, totaling a whopping $2.8 billion. The outflows: 29 weeks for a total of $96.6 billion, with $2.4 billion pulled out in the most recent week. And as speculated that in the absence of the traditional greater fool (that would be you dear reader hidden behind your E-Trade platform) stepping in, the prop desks, prime brokers, and hedge funds had no other choice... but to sell to each other, in the process exposing sophisticated 'Qualified Institutional Buyers' as nothing more than glorified, stock-peddling Pied Pipers who are good at only one thing: manipulating the less sophisticated crowd. Which works until it doesn't.
We already posted a full run down from JPM on what the immediate costs from a Greek EMU exit would be (starting at €400 billion and going higher), but one point that bears repeating is just how much borrowing capacity Greece has under the ELA in the aftermath of today's news that the ECB is leaving Greek banks to fend for themselves until such time as the Greek recapitalization payment is wired over to Greece, which the ECB has defined simply as "soon." The answer: woefully inadequate, and certainly not enough to backstop the remaining Greek deposits of €170 billion as of the end of March (likely far less now), at €65 billion. And that's an upside estimate: as JPM says "The true maximum amount that Greek banks can borrow via ELA is likely though to be significantly smaller because not all loans are accepted as collateral via ELA." Remember: this is all just one giant game of chicken - Greece's Syriza has bet the farm that the cost from a Greek fallout is just too big to Europe and the terms of the hated "Memorandum" will be adjusted, while to Europe, on the other hand, the outcome to Greece, at least according to Europe and the IIF's Dallara will be "between catastrophic and armageddon." So... Who blinks first?
S&P 500 e-mini futures closed at their day-session lows, below yesterday's day-session lows, and heading for overnight lows rapidly - once again giving up some decent early gains amid much heavier volume into the close. Markets were a mess today. Risk-assets in general had the highest intra-correlation in a long-time - with FX, credit, rates, curves, and stocks moving in almost lockstep all day (up then down). Equities were smashed left, right, and center by comments from the Ira Sohn conference (as it seems people have given up reading hedge fund 13Fs) with Einhorn's comments in particular showing up just how fragile and thin the real liquidity picture is so many stocks. Silver plunged just after the European close (margin/collateral calls?) and dragged the rest of the commodity complex down with it as stocks basically turned on a dime after hitting yesterday's closing VWAP this morning. Treasury yields rose and plunged in the same pattern - ending the day marginally lower than overnight low yields at the long-end but marginally higher at the short-end (post FOMC minutes). Financials were the worst performer again, down around 1.5%, with the majors in particular now starting to catch up to credit market's long-held conviction on these names (with MS -10.5% YTD and BofA plunging today but still +27.8% YTD). Gold remained relatively stable getting a lift post-FOMC (along with silver as the inevitability of QE was clear - but an equity plunge necessary before it can occur) - though we note the Gold/Silver ratio is now unch YTD. Credit markets are not done worrying yet - and that weighed on JPM (-2%) as IG9 pushed above 150bps offered for the first time this year and HYG (the high-yield bond ETF) collapsed along with HY credit spreads. Still doesn't feel capitulative as overnight nerves for Greece remain high.