headlines

News and headlines from the day

Less than an hour ago Zero Hedge was happy to point out the glaringly obvious.

Bernanke speech will have nothing in it

— zerohedge (@zerohedge) June 7, 2012

Shortly thereafter, Bernanke confirmed it. Now it is Wall Street's turn to join in.

At the rate the market has soared in the past 3 days, one would think Bernanke has already formally announced QE. Instead we have had a rumor, a hint, and a headline. All of this was sufficient to push the DJIA up 500 points. Problem is there has been nothing official from the Fed. Which is why everyone will be looking for the Chairman to leak something at the 10am hearing before the Joint Economic Committee. Otherwise, if nothing comes now, and nothing comes on June 20, we may be looking at another deja vu event from 2011: namely the August 2011 market crash.

The pending three-day rally that has seen European and US markets soar smacks of a short-covering squeeze, notes UBS' Art Cashin, as some of the biggest percentage gains came in the most heavily shorted stocks. While this is hardly surprising in this increasingly schizophrenic economy market, it is the long-term consistency and prophetic consternation of Margaret Thatcher's view of the Euro as "perhaps the greatest folly of the modern era" that sits uncomfortably with the Merkel comment-driven rally of this morning (for now).

News & headlines from the day

The headlines are rolling in. From Bloomberg:

• ECB SEES 2012 INFLATION AT 2.3% TO 2.5% VS PREV 2.1% TO 2.7%. - so... counterdisinflation

That's the kicker: ECB sees inflation. Deus Ex Off - forget more easing at this point. Everything else is just filler.

Headlines & stories from the day

Two months ago, Carmel Asset Management came out with what we dubbed "Spain: The Ultimate Doomsday Presentation." Since that day Spanish yields have exploded, the domestic (and global) stock market has collapsed, and as of hours ago, Spain for the first time requested an official bail out from its European partners. But Spain was easy - only Nobel prize winning economists and TV anchors could not foresee the final outcome for the country. Today, we redirect our attention to real elephant in the room: Germany. Recall that it was right here on Zero Hedge where we warned, just under a year ago, that "the cost of the euro not plunging today as a result of the ECB not proceeding with outright monetization, is that Germany is now the ultimate backstopper of all of Europe's risk... Germany has directly onboarded the risk associated with terminal failure of this latest and riskiest "bailout" plan and in doing so may have jeopardized anywhere between 32% and 56% of its entire annual economic output. One wonders if the risk of runaway inflation is worth offsetting the risk of a plunge into the worst depression in the nation's history?" Simply said: Germany's opportunity cost to preserving the status quo right now, is at a cost of hundreds of billions in the future, yet even that pales to the cost of letting it all fall apart. But this was a year ago, and out of headlines means out of mind. Today, we are happy to remind readers of just this dilemma, once again courtesy of Carmel. If their predictive ability is gauged by the response in the Spanish market (and economy), Germany should be worried. Very worried.

Germany remains vehemently opposed to any euro-wide deposit guarantee scheme as the head of the association of savings banks believes it: "would lead to a spreading of risks to the detriment of German financial institutions" and that this would "increase the burden for national protection schemes, which is not in the interest of German banking clients". Not exactly encouraging and along with the fact that Goldman notes that Germany's 'growth plan' (which includes increasing EIB capital and redirecting existing funds to the periphery) with which it will attempt to bolster its opposition to soaking up more peripheral risk, contains 'nothing really new in it'. For this reason Goldman is far less sanguine heading into the ECB meetings as they hope for the best and prepare for the worst. They expect Draghi's forward-looking statements on being ready to act, conditional on events in the periphery, will be the most important headlines but expect him to remain stoic in his position on governments contributing to the solution. Goldman's view remains that, at least for the time being, the ECB has to play a leading role in stabilising the system (though SMP remains marginalized given its potential to sit outside of the ECB mandate) given that it can operate more quickly and more effectively, given the many political constraints governments face. A genuine long-term solution, however, falls once again in the domain of governments.

While the world patiently awaits, not even sure why because it is now absolutely guaranteed that it will be a huge disappointment, the G7 headlines which now appears to be merely an update session, and not one where any decisions will be taken, here is a sampling of this morning's schizophrenia out of Europe:

• FINNISH FOREIGN MINISTER URGES ORDERLY GREEK DEFAULT: ZEIT
• FINNISH FOREIGN MINISTER SAYS GREECE NEEDS 2ND DEBT DEAL: ZEIT

Yet...

• FINLAND'S TUOMIOJA SAYS NOBODY WANTS TO OUST GREECE FROM EURO

But... he just said... Sigh. And the US trading day has not even started.

Headlines & stories from the day

The much anticipated press conference between Merkel and Barroso, hence Barkel, in which nothing of any substance will be announced, has begun. Rolling headlines as we get them:

• MERKEL SAYS WE NEED MORE EUROPE, NOT LESS IN EURO-ZONE (sounds familiar)
• MERKEL SAYS WILL DISCUSS EUROPEAN SUPERVISIONS OF BANKS AT EU SUMMIT, BANKING SUPERVISION IS A MID-TERM GOAL
• BARROSO SAYS WILL PUSH FOR BANKING UNION AT THE COMING SUMMIT
• MERKEL SAYS EU NEEDS ANSWERS SOON ON POLITICAL UNION
• MERKEL SAYS DISCUSSING EU BANKING SUPERVISION WITH BARROSO
• BARROSO SAYS EU SHOULD DISCUSS ELEMENTS OF 'BANKING UNION' -> we agree to hold another conference at a future time

And... that's it folks. Proceed to the egress.

The absence of the UK from today’s trade is particularly evident, with volumes remaining particularly light across all asset classes. Nonetheless, European equities are largely seen drifting higher with the exception of the DAX index, which is yet to move over into positive territory. News flow remains light with the highlight of the day so far being comments from the Troika, confirming that Portugal remains on track with its bailout program, and have confirmed that the country will receive the next EUR 4.1bln tranche in July. FX moves remain in a tight range, with EUR/USD looking relatively unchanged, with the USD index slightly weaker as the US comes to market. Looking ahead in the session, participants can look forward to US ISM New York and Factory Orders data as the next risk events of the session.

Two weeks of utter confusion by most market participants out there, when the complete deja vu scenario is so very clear. To help out those banging their heads over what is happening, here, once again, is the full playbook as it was laid out here for eveyone to read and prepare, because it explained to the dot precisely what will happen, and has been happening since May 19. And yes, that 1000 bps on XO is still about 25% away... Do the math.