France

After reading this, everyone should have a fairly good grasp of what happened not only today, but ever since the great (and quite endless) European financial crisis took center stage, and what to look forward to next...

The somewhat amusing part of this entire transaction is that the debt of Greece has been INCREASED. Greece and the EU handed private holders $138Bn in write-offs but with the addition of the new loan, $171Bn, the gross debt for Greece increased by $33Bn and this is if all of the legal challenges favor Greece. The total debt of Greece (sovereign, municipal, corporate and bank) has just increased from $1.20 Trillion to $1.233 Trillion and all accomplished by this brilliant plan that did nothing except to tag investors and ramp up the debt load for the country. Take this and add in the austerity measures and perhaps demands for more coming later today as the EU has its summit and an economy that is quickly sinking into the sea and unemployment that is surging and then you can visualize that the absurd has become the impossible and quickly conclude that more Greek loans will have to be forthcoming; or not with some form of Greek exit. The much bandied about notion that all of this will reduce the Greek debt to GDP is little more than a joke. For the past two years there has not been one, one, accurate projection for Greece concocted by the IMF/EU/ECB and I see no end to this now. Some quick math on my part indicates, in 2020, a debt to GDP ratio exceeding 170% and that is being kind and using optimistic assumptions. Just this morning the new numbers released for Greece showed a 7.50% deficit increase as opposed to the projected -5.50% number. This is one more case of quite inaccurate projections and a worsening economy for the country.

While the catalyst for much of the recent rally in risk assets seems to have been on the back of Europe clambering back from the edge of the abyss (and admittedly hope for better global growth and US decoupling), JPMorgan's Michael Cembalest notes that Europe remains very much an Achilles Heel going forward. With former ECB member Stark's recent comments on the already 'shocking' quality of the ECB's balance sheet, it is the outflows (or net balance of payments) from the periphery that means the ECB will simply have to keep printing. ECB funding of Spanish and Italian banks is still a relatively small part of their liabilities and should we see even a crack in the resilience of these knife-sitting nations, the retail depositors, bondholders, and non-local wholesale/retail money is unlikely to stay put (especially if there is the continued lack of growth that seems inevitable). The latest Spanish data is dreadful, as Cembalest notes, but the economic situation in France remains weak and while JPM's analysis looks for a gradual closure of the periphery's current account deficit by 2015, the ECB's need to finance the gap in the interim raises a critical question. Since the ECB's printing has boosted the US stock market primarily, will the Fed now take the lead and return the favor (QE3 or more) to help its European partners grow their (net trade) way out of this hole?

Topped off with Wall-Street-esque hype ... how refreshing, and so unlike the congressionally mucked-up USPS.

Since Draghi's second savior LTRO, European markets have been flip-flopping gradually lower. These four charts do not seem to suggest a market that is confident about tail-risk containment, sovereign firewalls, or an orderly restructuring by Greece. Sovereign spreads are broadly higher (Spain, France, and Portugal the most), CDS spreads are underperforming (as protection is sought and CDS seen having value as a hedge), non-financial and financial credit is notably weaker, LTRO Stigma remains notably wide, stocks are broadly lower, and the EURUSD is back at 'fair' with its swap spreads (removing its over-pessimism). There has been no change in the price trends for UK-law versus Greek-law GGBs (i.e. noone believes this is over) and even if it were, a renewed focus on growth is hardly a market positive given lending trends and macro prints in Europe recently.

This entire deal is just stupid. And all it’s done is alert Spain and Italy to the fact that handing over fiscal sovereignty and implementing austerity measures in exchange for bailouts is a waste of time. Indeed, Spain just woke up and smelled the coffee. And it's told the EU to "shove it."

• Investors help Athens over bailout hurdle (FT)
• Greece Moves Closer to Swap (WSJ)
• U.S. Warns Apple, Publishers (WSJ)
• China offers other Brics renminbi loans (FT)
• Court Challenges EU on Bank Downsizings (WSJ)
• QE blamed for surge in pensions shortfall (FT)
• Tang: Open to adjusting dollar trading band (WSJ)
• U.S. Report to Warn on Cyberattack Threat From China (WSJ)

All you need to read.

Perhaps not so shockingly, AP is reporting tonight that satellite images of Iranian military facilities show trucks and other earth moving vehicles. Diplomats, accredited to the IAEA, suggest this indicates attempted cleanup of radioactive traces possibly left by tests of a nuclear-weapon trigger. As sanctions grow more burdensome and Israel's pre-emptive rhetoric rises, the discovery of this sanitization effort only raises the stakes as the images are said to be very recent and updated constantly and suggest evidence of tests of a small experimental neutron device. This wouldn't be the first time a site has been 'sanitized' prior to IAEA inspector visits but as The Boston Globe reports IAEA expert teams have tried twice - and failed - in recent weeks to get Iranian permission to visit this area and now (following the apparent clean-up) they have finally been granted access. As the US, Britain, France, Germany, Russia, and China postpone their meeting, in an effort to find more moderate language to criticize Iran, it seems to us that actions may just start having more impact than words very soon.

Unleash the lawyers, um, ... soccer players.

A dysfunctional system takes its toll.

German leaders, particularly Merkel and Schäuble see the writing on the political wall: that both Greece and France are likely going to find themselves with new leadership that is pro-socialism, anti-austerity measures, and most certainly anti-taking orders from Germany. Thus, Germany must be aware (as the EU, IMF, and ECB are to some degree) that it is ultimately fighting a losing battle by participating in the bailouts. Indeed, Schäuble even went so far as to recently call Greece a “bottomless pit” where money is wasted (having just participated in Greek bailouts that exceed the entirety of Greece’s GDP, I have to admit he does have a point here). So while a “deal” may have officially been struck for Greece, there are deep underlying tensions that could bring proceedings to a crashing halt at any point.

Not many websites, analysts or authors have both the balls/temerity & the analytical honesty to take Goldman on. Well, I say.... Let's dance! This isn't a collection of soundbites from the MSM. This is truly meaty, hard hitting analysis for the big boys and girls. If you're easily offended or need the 6 second preview I suggest you move on.

European financials are under significant pressure today and that is dragging down the rest of the broad markets. The selling appears to be driven by three main factors: 1) the LTRO Stigma has surged back to record wides (after a brief lull into LTRO2); 2) rather amazingly investors are starting to get concerned that the Greek PSI deal may not happen; and 3) weak macro data. Obviously both are no surprise to readers and the canaries have been fluttering for a few weeks on this. Equity markets continue to hold onto hope as they remain broad outperformers but in a different tone than the last credit-led sell-off, European equities are dropping much more in sync today. Sovereign spreads and yields are leaking higher with Spain and Italy underperforming (followed closely by France) as perhaps all the self-serving Italian and Spanish carry-trade-funding banks have run out of ammo (or will to extend) as the Greek basis package inches ever closer to Par (implying absolute inevitability of an imminent credit event). Notably Sov CDS are underperforming (as we pointed out last week they are potentially a less manipulated and cleaner indication of risk appetite than bonds for now). It would appear that all the belief that insolvency tail risk and contagion had been deferred or ring-fenced by yet another liquidity flush may have simply forced European banks into an Oliver-Twist-style environment - "May we have some more?" as we now start top hear the mutually assured destruction chatter surrounding the implications of a failed PSI deal - where have these people been for the last 3 months?

Asian equities too a hit, posting their biggest two-day loss this year. The MSCI Asia Pacific Index dropped 1.2%. The losses were situated in the Hang Seng, which fell 2.2% and China’s Shanghai Composite, which declined 1.4%. Meanwhile, Europe is off 1.6% in the aggregate after the second take on Q4 GDP confirmed the 0.3% drop from the initial estimate. And, after yesterday’s sell-off, equity futures are pointing to a weaker open at home across the major indices driven in part by concerns that the Greek PSI will not get the required 75% participation as reported here yesterday. In the US, government bonds are in rally mode with the 10-year Treasury note yield down 4bps, to 1.97%; the long bond is rallying 5bps, to 3.10%. Across the pond, government bonds are performing as one would expect. Benchmark German bunds are rallying 4bps, to 1.78% while France, Italy, and Spain are selling off anywhere from 5 to 9bps. In the FX market, the US dollar is enjoying a flight to safety bid against major currencies. The DXY index is up 0.5%. Not surprisingly, with risk being taken off the table, commodities are taking a hit. WTI crude oil is down 60 cents, to $106.10 per barrel. Industrial metals are taking a hit too; copper is off 1.6% to its lowest level since mid February. In Europe, the LTRO continues to not work at all as the ECB deposit facility rose to a new all time record of €827 billion as cash parked with the ECB is not being used for any other purpose, and the net money from LTRO 1 and 2 is now less than the cash added to the ECB from Europe's banks.