While the main event in today's European bank stress test was leaked moments ago, when Monte Paschi board member Turicchi said that the bank has finalized a bank consortium for a critical capital hike, suggesting that contrary to last minute jitters the bank has found the needed number of willing banks to provide €5 billion in fresh capital it needs resulting in the bank's 3rd bailout in the past 2 years - this one courtesy of the private sector - there may still be some surprises.
"These developments point to a marked increase in political risks in systemically-significant countries. At the start of the year, we flagged many of these as well as introducing our thesis that rising Geopolitical Risks, accompanied by rising "Vox Populi" risks such as Brexit and changing US politics, were at risk of converging in new and powerful ways. Even so, we did not anticipate quite how many would transpire, let alone within such a compressed timeframe."
If posed with the question who has the better credit rating, the United States or Russia, most people would presumably pick the United States. However, that is not the case for Dagong Global Credit Rating Co, one of the three biggest credit rating companies in China. Here's why...
The UK EU referendum is suddenly totally dominant in financial markets. The increased focus comes as the leave campaign has gathered steam as 4 polls yesterday afternoon/evening put the 'leave' campaign ahead. As a result of the continued global scramble for safety, German 10Y bunds finally dropped below 0% for the first time ever, while global risk assets are red around the globe.
"In the 1920s the Reichsbank thought it could have 2,000 printing presses running day and night to finance government spending without creating inflation. Around the same time the Federal Reserve allowed more than a third of US deposits to be destroyed via bank failures, in the belief that banking crises where self-correcting. The Great Depression followed.... Today the behaviour of the European Central Bank suggests that it too has gone awry."
Free trade is a great concept, as are free markets and freedom. The problem is none of these things exist in practice because they don’t provide sufficient advantages to the ruling class. The Fed and HFT systems now dominate global markets, western nations systematically overthrow any (freely elected) foreign government that doesn’t bow down to them and free trade agreements are put in place to ensure investors maximize profits no matter what the costs to society.
Sweden beats USA and Germany as the least likely to default on its bonds but at the other end of the global sovereign risk spectrum lie two socialist utopias - Venezuela (CDS just shy of 6000bps) and Greece (CDS around 1800bps) are the nations most likely to default.
"Whatever it takes" is not enough, it would appear as the fragility and interconnectedness forced upon the European banking/sovereign finance ponzi has rapidly come home to roost for Draghi and his followers. Peripheral bond risk has flipped from "hold your nose" buys to panic sells with Portugal risk exploding 200bps in the last week. As the European banking system's credit risk rises 2012-crisis-like, it seems belief in a bigger bazooka is fading fast.
The ECB's "whatever it takes" ponzi strategy of keeping the dream alive in Europe's financial system has finally been caught as rapid collapse in the banking system is contagiously spreading to peripheral sovereigns once again. Portugal risk spreads are up 120bps in the last 3 weeks and Spain and Italy are soaring over 35 and 50bps respectively as the almost self-dealing nature of banks buying "risk-free" EU bonds and repoing for cash via The ECB comes home to roost...
Led by a broad-based collapse in financial stocks, European markets extended and accelerated their plunge today. Thanks to the increased systemic linkages enforced by The ECB, peripheral sovereign risk is spiking as their national banking systems crash. Every European nation is now in at least correction since the end of QE3.
Led by a 4.3% collapse in Germany's DAX index, European Stocks plunged 2.5% today which is the worst start to a year ever. European credit markets spiked higher in risk. 10Y bund yields tumbled over 6bps and peripheral sovereign risk spreads jumped 10-15bps. Not a good start for Draghi and his pals...