Those wondering why the overnight ramp has not yet materialized despite promises from BOJ's new governor Kuroda to openly-endedly monetize Fukushima radiation if necessary in order to reflate the economy, will have to look at Europe where a raft of horrifying PMIs confirms what most have known: the relapse into a multi-dip European recession is progressing nicely, and the hoped for rebound in the core economies of France and Germany is once again on track to not happen, but at least there will be Cyprus to blame it all on this time.
The excuse this time was French and German Flash Manufacturing and Services PMI for March, all of which came far below expectations: German Mfg PMIs printed at a contracting 48.9 vs Exp. 50.5 (down from 50.3), while Services came at 51.6, down from 54.6 on expectations of a rise to 55.0, while French Mfg PMI stayed stubbornly flat at 43.9, despite hopes of a "bounce" to 44.3, even as the Service number ticked even lower from 43.7 to 41.9, below expectations of 44.3 and the lowest since February 2009. End result: Eurozone March Services PMI down from 47.9 to 46.5, vs Exp. of 48.2, while Manufacturing slid from 47.9 to 46.6 on hopes and prayers of a bounce to 48.2.
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So much for the economy, which as everyone now knows is irrelevant for the market which means that all else equal we can expect K-Hen and the BIS boys to do everything in the next few hours to return the futures levitation ramp on schedule.
Which then takes us back to Cyprus, where things are not fixed yet, where the parliament is not expected to vote for a revised Bailout proposal yet, and where we got a cornucopia of brilliant one liners, such as these from the new Eurogroup head, who is filling in the shoes of his predecessor Juncker in style, and proving quite well that "things are serious":
- Dijsselbloem Says Additional Loan by Russia Wouldn’t Help Cyprus: “If the Russians were to say we could lend more, that wouldn’t help on the sustainability of the debt situation,” Dijsselbloem says. “Building up the debts in Cyprus doesn’t help them to work toward a new future,” Dijsselbloem says at EU Parliament
- Dijsselbloem Says Not Sure Cyprus Package Has Completely Failed, Says doesn’t see many alternatives for Cyprus
- Dijsselbloem Says Most Cyprus Deposits Are Investors, Not Savers: “The vast amount of deposits in Cyprus are not really savers, are investors,” Eurogroup head Jeroen Dijsselbloem says at the European Parliament.
- Dijsselbloem Says ECB Not ‘Using Threats’ With Cyprus Deadline: “I don’t think the ECB is using threats,” Eurogroup head Jeroen Dijsselbloem says. “What they are doing is doing as much as they can within their mandate,” Dijsselbloem says at European Parliament
Then we got a reparte from Russia which said it doesn't want a separate Cyprus deal with the EU, even as the ECB earlier said there would be ELA liquidity for Cyprus provided until March 25, which as already noted is a bank holiday in Cyprus. It is unclear what happens afterwards.
Then we got headlines out of Cyprus itself:
- Cyprus’s parliament speaker Yiannakis Omirous says initial decisions on how to tackle the country’s crisis taken today, in comments to reporters broadcast live on state-run CYBC.
- Spoke after meeting with President Nicos Anastasiades, political party leaders
- European attitudes to Cyprus “unacceptable,” Omirou says
- All solutions will go through euro area, Omirou says
Finally, putting the cherry on top, Germany's deputy parliamentary leader of Merkel’s CDU party, Michael Fuchs had a raft of his own pearls, as follow:
- Even 12 percent tax on Cyprus deposits “is not too much,” Merkel ally Fuchs says in Bloomberg TV interview.
- Germany ready to help “as much as we can” but can’t ask German taxpayers “to pay everything” for Cyprus
Michael Fuchs is deputy parliamentary leader of Merkel’s CDU party - “We want them in the euro -- no question,” Fuchs says
- Don’t believe there will be contagion
- Don’t want any country to be a tax haven
- If Cyprus bankrupt, business model is gone
To summarize - absolute, and total chaos, with ad hoc decision attempts out of everyone, even as Fitch itself says that Cyprus stalemate shows the dangers of ad hoc crisis respones in Europe. Which if funny, because in Europe everything is an ad hoc response.
For all the rest in the overnight action, here is DB's Jim Ried
I suppose when the Fed is continuing to buy $85bn a month of securities it puts the argument over where to find the €5.8bn in Cyprus in some perspective, however dramatic the situation remains. Indeed just over 2 days worth of Fed activity would get us to the amount the Cypriots are trying to conjure. After last night’s FOMC and press conference the most interesting remark was from the Chairman himself who said of a potential slowing in asset purchases that “we need to see sustained improvement (in the labour market)….so we’re just going to have to keep providing support for the economy and see how things evolve.” This suggests that payrolls need to maintain their recent improvements for a few months before they would consider changing the rate of purchases. Over the last couple of years payrolls have dipped into mid-year after a strong start so this is what Bernanke is referring to and he is therefore likely to want to see us get through the equivalent period with still elevated jobs numbers before he sanctioned a change.
The comments capped a better day for risk assets with the S&P 500 (+0.67%) closing near the session highs, following a stronger day for Eurostoxx (+1.38%). As we look ahead to today, it’s a fairly important day in terms of data headlined by the Euro area’s flash PMIs. Following the disappointment in the core last month, expectations are for only small improvements in this month’s readings. Starting with the manufacturing PMIs, consensus is for only a marginal uptick in France (44.2 vs 43.9 previous), Germany (50.5 vs 50.3 previous) and the Euroarea (48.2 vs 47.9 previous). Similarly, the consensus is looking for a 0.3pt improvement across each of the service PMIs in France (44.0 expected), Germany (55) and the Euroarea (48.2). Although we don’t get the Italian flash PMIs today it'll be interesting to try to imply a guestimate from the overall EU flash as the survey period will include the Italian election. Hard to believe that the election was almost 4 weeks ago now and we're still no nearer to a Government and that markets don't seem to care much.
Ahead of today’s euro PMIs, China has kicked off proceedings in a robust manner overnight with a flash manufacturing PMI reading of 51.7 (vs expectations of 50.8) which is up 1.3pts from the previous month’s print. The surprisingly strong PMI comes after a disappointing month for a number of Chinese-related assets. Iron ore, the Shanghai Composite and copper prices are down 14%, 4% and 8% respectively since mid-February. While there are probably seasonal factors at play following February’s Lunar New Year Holidays we should highlight that the index has now printed above 50.0 for five straight months, with month-on-month increases seen in four out of five of those months.
The stronger Chinese data has buoyed Asian equity markets with most bourses seen around 0.25% to 0.5% higher overnight. In what is becoming a familiar story, the Nikkei (+1.3%) is leading gains helped by chatter that the BoJ’s Kuroda will detail a shift in monetary policy at his first press conference as governor which is scheduled for 6pm Tokyo time today (9am London). Also in Japan, the trade data for February recorded the largest deficit (JPY1.0866trn vs JPY1102trn expected) since the Lehman period – in part driven by the J Curve effect.
The yen is trading marginally weaker against the USD at 95.9 while 10yr JGB yields hit their lowest level in almost a decade.
Returning to the situation in Cyprus, Bloomberg is reporting that President Anastasiades is set to draft a new funding plan following a cabinet meeting yesterday evening. The plan is said to include a revised version of the deposit levy according to the article and follows the stalling of talks between Cypriot Finance Minister Sarris and his counterpart in Moscow yesterday. The Ekathimerini wrote that the possibility of Moscow demanding involvement in the extraction of Cypriot natural gas or a naval or air force base on the island remains an option. Other alternatives appear to be closing though, with Russian lenders VTB and Gazprombank denying they were set to take over Cyprus Popular Bank or were unwilling to buy the bank for a symbolic sum while taking over its capitalization needs (Ekathimerini). Meanwhile the ECB is likely to delay a decision on whether to continue to supply Cypriot banks with liquidity as it awaits clarity on the government’s bailout plans, according to Bloomberg who cite EU officials.
Turning to the day ahead, aside from the all important Euro PMIs there is also an active data docket in the US with February existing home sales, the Philly Fed survey, the flash Markit PMI and weekly jobless claims. In the UK, retail sales for February are scheduled. The Eurogroup’s Dijsselbloem addresses the European Parliament’s Economic and Monetary Affairs panel (8am London) which may make for interesting viewing given the recent events in Cyprus. Spain and France will be holding bond auctions, and party leaders from Italy’s Five Star Movement will be meeting with President Napolitano as part of the latter’s consultations with major parties in the attempt to form a government.