Fitch

This is so pathetic, it is beyond words:

• US SEC EXPECETED TO VOTE ON POSSIBLE CHARGES AGAINST RATING FIRM EGAN JONES ON THURSDAY - RTRS
  
• POSSIBLE CHARGES STEM FROM ALLEGED WILFUL MISTATEMENTS ON EGAN JONES' REGULATORY APPLICATION WITH SEC - RTRS

If nothing else, it explains the recent WSJ hit piece against Egan, just so it can make the public record in the SEC documentation. In other news, this will surely teach any other rating agency to downgrade the US not once (ahead of everyone else), but twice. In the meantime, the SEC still has NO IDEA what liquidity is, and continues to refuse to take ANY action against High Frequency Trading, to press criminal charges against ANY banker, or for that matter, to do anything that may jeopardize its staffers future careers as 7th assistant general council at assorted bailed out Wall Street firms. Now we wait to hear news that Fitch and Moody's will receive a cash bonus from the SEC for not downgrading the US properly filing their regulatory applications. And now back to midget porn.

Sometimes I ask myself why I chose to do this. I'm sitting here thinking about all the things I have to do and if I start writing, will I actually write anything that's going to make an inkling of difference. Let the politicians, Central Bank Governors and rating agencies fall on their own swords. The world will sort itself out without any feeble attempt you come up with under the circumstances to change it, undertheradar. You're getting yourself worked up for nothing, and that's going to cost you mistakes in the rest of your messed up life.

Get those rotten tomatos ready

Heading into the US open, European stock markets are experiencing a mixed session with particular underperformance noted once again in the peripheral IBEX and FTSE MIB indices. The Portuguese banking sector specifically is taking heavy hits following overnight news from Banco Espirito di Santo that they are to issue a large quantity of new shares, prompting fears that further banks may have to recapitalize. The financials sector is also being weighed upon by a downbeat research note published by a major Japanese bank on the Spanish banking sector. Elsewhere, the Italian BTP auction was released in a fragmented fashion showing softer bid/covers and the highest yield since mid-January in the only on-the-run line sold today. Similarly to yesterday’s auction, the sale was not quite as poor as some as feared. Italy sold to the top of the range and as such, the Italian/German 10-yr yield spread is now tighter by 13BPS, currently at 361BPS. From the UK, the DMO sold 20-year gilts with a lower bid/cover ratio and a large yield tail, prompting gilt futures to fall by around 10 ticks after the release. Later in the session, participants will be looking out for US PPI data and the weekly jobless numbers.

European equities are taking losses as North America comes to market, with particular underperformance noted in the periphery bourses. Risk-aversion pushed both Spanish and Italian yields higher, with the spread between the Spanish 10-year and the Bund crossing above 400BPS for the first time since Late November 2011. The yields have now come off their highs but still remain elevated. It should be noted that markets are generally light today heading into the Easter weekend as investors take risk off the markets, so large surges in volumes have been observed. In the FX markets, EUR/CHF briefly broke below the SNB’s staunchly defended 1.2000 level on some exchanges, but uncertainty remains over the exact low due to different exchanges registering different prints. Needless to say, all exchanges witnessed a 30pip spike upwards in the cross with significant demand seen pushing the cross away from the floor. EUR/CHF now trades around the 1.2020 level.

• Low cost era over for China's workshops to the world (Reuters)
• The HFT scourge never ends: SEC Probes Ties to High-Speed Traders (WSJ)
• Rehn says Portugal may need "bridge" (Reuters)
• China's GDP likely to have slowed in the first quarter (China Daily)
• Chinese Premier Blasts Banks (WSJ)

The last hour has spewed forth more disingenuous clap-trap from European finance ministers. From 'sufficiency of the firewall' to the 'absurdity of Spain needing a bailout', it beggars belief that these humans can look at themselves in the mirror every morning (as they feel the 'need' to lie' - or are simply ignorant of the reality). At some point in the near future there will be about €40 billion of money sitting in the ESM and a bunch of promises from countries failing to live up to existing debt obligations, and that is the big firewall? The correlation between who is providing the guarantees and who will need them cannot be ignored. This new €500 billion number doesn’t exist, it’s not just meaningless, it’s non-existent if Italy or Spain needs money. People can take away whatever they want, but unlike LTRO which had real injections of liquidity, this is just like the July plans from last year and the November “grand” plans. It sounds great, especially when too many people are willing to blindly follow what the politicians want them to, but it doesn’t work in practice.

Germany's recent 'agreement' to expand Europe's fire department (as Goldman euphemestically describes the EFSF/ESM firewall) seems to confirm the prevailing policy view that bigger 'firewalls' would encourage investors to buy European sovereign debt - since the funding backstop will prevent credit shocks spreading contagiously. However, as Francesco Garzarelli notes today, given the Euro-area's closed nature (more than 85% of EU sovereign debt is held by its residents) and the increased 'interconnectedness' of sovereigns and financials (most debt is now held by the MFIs), the risk of 'financial fires' spreading remains high. Due to size limitations (EFSF/ESM totals would not be suggicient to cover the larger markets of Italy and Spain let alone any others), Seniority constraints (as with Greece, the EFSF/ESM will hugely subordinate existing bondholders should action be required, exacerbating rather than mitigating the crisis), and Governance limitations (the existing infrastructure cannot act pre-emptively and so timing - and admission of crisis - could become a limiting factor), it is unlikely that a more sustained realignment of rate differentials (with their macro underpinnings) can occur (especially at the longer-end of the curve). The re-appearance of the Redemption Fund idea (akin to Euro-bonds but without the paperwork) is likely the next step in countering reality.

Going into the US open, European equity markets are trading slightly lower with some cautious trade observed so far. In individual equity news, France’s Total have shown some choppy trade following reports from their Elgin gas field in the North Sea, shares were seen down as much as 3% but the company have played down the gas leak and have regained slightly in recent trade; however they remain down 1.4%. In terms of data releases, the final reading of Q4 GDP from the UK has recorded a downward revision to -0.3%. Following the disappointing release, GBP/USD spiked lower 20pips and remains in negative territory.  In the energy complex, WTI is seen on a downward trend following last night’s build in oil reserves shown by the API data. Earlier in the session French press reported that France had made contact with the UK and the US regarding the release of emergency oil stocks, following this, WTI spiked lower around USD 0.30 but quickly regained.  Looking ahead in the session, international market focus moves to the US, with durable goods orders and the weekly DOE oil inventory due later today.

All you need to read and some more.

Back in late 2006 and early 2007 a few (soon to be very rich) people were warning anyone who cared to listen, about what cracks in the subprime facade meant for the housing sector and the credit bubble in general. They were largely ignored as none other than the Fed chairman promised that all is fine (see here). A few months later New Century collapsed and the rest is history: tens of trillions later we are still picking up the pieces and housing continues to collapse. Yet one bubble which the Federal Government managed to blow in the meantime to staggering proportions in virtually no time, for no other reason than to give the impression of consumer releveraging, was the student debt bubble, which at last check just surpassed $1 trillion, and is growing at $40-50 billion each month. However, just like subprime, the first cracks have now appeared. In a report set to convince borrowers that Student Loan ABS are still safe - of course they are - they are backed by all taxpayers after all in the form of the Family Federal Education Program - Fitch discloses something rather troubling, namely that of the $1 trillion + in student debt outstanding, "as many as 27% of all student loan borrowers are more than 30 days past due." In other words at least $270 billion in student loans are no longer current (extrapolating the delinquency rate into the total loans outstanding). That this is happening with interest rates at record lows is quite stunning and a loud wake up call that it is not rates that determine affordability and sustainability: it is general economic conditions, deplorable as they may be, which have made the popping of the student loan bubble inevitable. It also means that if the rise in interest rate continues, then the student loan bubble will pop that much faster, and bring another $1 trillion in unintended consequences on the shoulders of the US taxpayer who once again will be left footing the bill.

All you need to read and some more.

• More HFT Posturing: SEC Probes Rapid Trading (WSJ)
• Fed’s Bullard Says Monetary Policy May Be at Turning Point (Bloomberg)
• Hilsenrath: Fed Hosts Global Gathering on Easy Money (WSJ)
• Dublin ‘hopeful’ ECB will approve bond deal (FT)
• EU Proposes a Beefed-Up Permanent Bailout Fund (WSJ)
• Portugal Town Halls Face Default Amid $12 Billion Debt (Bloomberg)
• Hidden Fund Fees Means U.K. Investors Pay Double US Rates (Bloomberg)
• Europe Weighs Trade Probes Amid Beijing Threats (WSJ)
• Bank of Japan Stimulus Row Fueled by Kono’s Nomination (Bloomberg)

All you need to read.

European cash equity markets are making heavy losses as we head into the midpoint of the European session. Markets got off to a bad start as participants reacted to overnight Chinese HSBC manufacturing PMI recording a steeper contraction than the previous month. The manufacturing outlook has gotten even worse as the session has progressed, with France, Germany and the Eurozone as a collective recording contractions in their respective manufacturing PMI numbers for March. As such, commodity linked currencies are trading lower with AUD/USD down around 85 pips. WTI and Brent crude futures are moving in tandem with other markets as they also record losses going into the US open. In other news, there were reports that the ECB were looking to pull out their covered bond asset purchase program as less than a quarter of the fund has been used so far. A Bundesbank spokesman commented that it will not pressure the ECB into withdrawing the covered bond purchase program as it is the central bank’s decision to make. Looking ahead in the session, the market awaits the weekly US jobs data due at 1230GMT.