Earlier today we reported that as Bloomberg correctly leaked, the ECB would keep its ELA frozen for Greek banks at its ceiling level disclosed two weeks ago. However we did not know what the ECB would do with Greek ELA haircuts, assuming that the ECB would not dare risk contagion and the collapse of the Greek banking system by triggering a collapse in Greek banks if and when it boosts ELA haircuts. Turns out we were wrong, and as the ECB just announced "the Governing Council decided today to adjust the haircuts on collateral accepted by the Bank of Greece for ELA."
Wondering who was buying the market with both hands and feet this morning? Questioning the rationality of sucvh voracious dip-buyers? We have the answer to 'how' the market soared to Friday's highs...
Should markets fret, and ECB action becomes necessary then we think the markets will price ECB action well before highly stressed levels. If we for instance take it view of the monetary policy stance impact seriously then market moves that take real yields to levels that persisted before the ECB started easing policy (negative rates started in Jun 2014) may be a trigger point.
Spain has over $1.0 trillion in debt outstanding… and Italy has €2.6 trillion. These bonds are backstopping tens of trillions of Euros’ worth of derivatives trades. A haircut on them would trigger systemic failure in Europe.
"When I hear the Germans say that they maintain a very moral stance about debt and strongly believe that debts must be repaid, then I think: what a huge joke! Germany is the country that has never repaid its debts. It has no standing to lecture other nations. ... Germany is really the single best example of a country that, throughout its history, has never repaid its external debt. Neither after the First nor the Second World War. However, it has frequently made other nations pay up... "
With the only thing that matters in the hours ahead, at least until China reopens and the Pandamonium repeats, is the sheer chaos out of Greece which now literally changes the narrative by the minute, here is a convenient timeline of everything that has happened so far this morning starting with Varoufakis' unexpected resignation and going from there.
Tumbling Futures Rebound After Varoufakis Resignation; Most China Stocks Drop Despite Massive InterventionSubmitted by Tyler Durden on 07/06/2015 06:52 -0400
More than even the unfolding "chaos theory" pandemonium in Greece, market watchers were even more focused on whether or not China and the PBOC will succeed in rescuing its market from what is now a crash that threatens social stability in the world's most populous nation. And, at the open it did. The problem is that as the trading session progressed, the initial 8% surge in stocks faded as every bout of buying was roundly sold into until every other index but the benchmark Shanghai Composite turned sharply red.
The Greek default is a forcible contraction of credit, and bound to be negative for the prices of ordinary assets. But something extraordinary happened to silver this week.
Today, Greeks sent a resounding message to Brussels, Frankfurt, and Berlin that they are not willing to acquiesce to further humiliation at the hands of creditors. Now, a stunned sell-side — which had, over the past three months, very carefully tweaked their base cases to reflect the growing risk of Grexit — is scrambling to explain to nervous clients what happens next.
If marriage insurance sales take off, it's only a matter of time before Wall Street repackages it and sells it to investors via subprime marriage-backed securities. A boom in marriage speculation would ensue. Did you see your neighbor with his mistress last night? Buy some MBS credit default swaps on him and tell his wife what you saw.
- N1 – Soft deal: The most unlikely scenario is that the euro-area partners offer a much softer programme to Greece.
- N2 – Default-and-stay: Moderately less unlikely is a scenario where Greece defaults but stays in the euro thanks to a direct recapitalisation of Greek banks by the euro-area partners, with the Greek government using only domestic resources for the country’s fiscal needs.
- N3 – New deal: The third scenario is one in which the rising economic and political cost of a closed banking system results in the Syriza government being replaced by a new government of national unity and a new deal with creditors being reached.
- N4 – Grexit: In our view, Grexit and Scenario N3 are the most likely – with about equal probabilities.
"Greece would survive, have new powerful friends, have bargaining chips that neither Europe nor America could ignore; China would have projected the use of the Yuan right in to Europe, and Russia would have more than a toe-hold for military power right inside NATO. If I was Tsipras or Varoufakis I would be on the phone right now."