The political pressure on Germany is rising in Europe. The country faces a choice: Continue business as usual or change the strategy? Only the latter option may give it real influence on shaping the future course of economic and political affairs in Europe. Playing defense is the comfortable choice, but it may be the wrong strategy. What needs to be done? Below is a proposal for saving the Eurozone in a way that would safeguard Germany’s interests, too
In a somewhat surprising turn of events, this morning's futures reaction to last night's shocking start of a completely unexpected Yemen proxy war, which has seen an alliance of Gulf State launch an air, and soon land, war against Yemen's Houthi rebels, is what one would expect: down, and down big. This is surprising, because on previous occasions one would expect the NY Fed, or its pet hedge fund, Citadel, or the BOJ or ECB (via the CME's "Central Bank Incentive Program") to aggressively buy ES to prevent a slide, something has changed, and for the BTFDers, that something may be very fatal with the e-Mini rapidly approaching a 1-handle yet again. The offset to tumbling stocks, as previously observed, is oil, with WTI soaring over 6% in a delayed algo response to the Qatar headlines.
It is a centrally-planned "market" and everyone is merely a bystander. Last night, following a dramatic China PMI miss, which as previously reported tumbled to the worst print since early 2014 and is flashing a "hard-landing" warning, the Shanghai Composite first dipped then spiked because all a "hard-landing" means is even more liquidity by the PBOC (which as we suggested a month ago will be the last entrant into the QE party before everyone falls apart). Then, this morning, a surprise beat by the German (and Eurozone) PMI was likewise interpreted by the algos as a catalyst to buy, and at this moment both European stock and US equity futures are their session highs. So, to summarize, for anyone confused: both good and bad data is a green light to buy stocks. In fact, all one needs is a flashing red headline to launch the momentum igniting algos into a buying spasm.
As previously observed (skeptically), a main reason for the surge in the DAX, and thus the S&P, on Friday was premature hope that the Greek talks earlier were a long-overdue precursor to a Greek resolution, and as we further noted yesterday, subsequent bickering and lack of any clarity as we go into today's critical "final ultimatum" meeting between Merkel and Tsipras, is also why the Dax was lower by 1.1% at last check, even if the EURUSD continues to trade like an illiquid, B-grade currency pair whose only HFT purpose is to slam all stops within 100 pips of whatever the current price may be.
"Because the Bank of Japan gobbles up dramatic amounts of debt, the cost of financing government spending stays low. It’s been said that a country that issues debt in its own currency cannot go broke. Theoretically that may be correct: the central bank can always monetize the debt, i.e. buy up any new debt being issued. But in practice, there has to be a valve."
In the aftermath of the ECB's QE announcement one topic has received far less attention than it should: the unexpected collapse of risk-sharing across the Eurosystem as a precursor to QE. This is what prompted "gold-expert" Willem Buiter of Citigroup to pen an analysis titled "The Euro Area: Monetary Union or System of Currency Boards", in which he answers two simple yet suddenly very critical for the Eurozone questions: which "currency boards", aka national central banks, are suddenly most at risk of going insolvent, and should the worst case scenario take place, and one or more NCBs go insolvent what happens then?
Presidents, Prime Ministers, Congressmen, Generals, Spooks, Soldiers and Police ADMIT to False Flag TerrorSubmitted by George Washington on 03/18/2015 13:33 -0400
Another Conspiracy "Theory" Admitted as Fact
Despite the constant blather of how cheap European stocks are (they are not) and how Draghi's QE will create something positive (priced in?), the last 2 days have seen Italian, Spanish, and Portuguese bond risk explode higher. The 20%-plus surge in bond spreads is the biggest since the beginning of the EU crisis in 2011 as Grexit fears (and redenonimation risks) continue to spread.
Following yesterday's inexplicable ramp in stocks, which perhaps was driven by the collapse in oil (which sent energy companies higher because a 30x energy forward PE is cheap), and by the latest battery of disappointing economic data which made it less likely the Fed will proceed with a tightening move, overnight futures have given up a portion of the gains, and were trading down 0.3% at last check. And yet, if yesterday's weakness was driven by USD weakness, today's jump in the EURUSD above 1.06 (on absolutely disastrous German ZEW investor index print) is now somehow responsible for risk offness? And, adding confusion to insult, the 10 Y is down to 2.05% and in danger of re-entering a 1% handle. Sadly, nothing makes sense any more and today's conclave of central planners in the Marriner Eccles building ahead of tomorrow's 2pm FOMC "impatient" announcement isn't going to make it any better.
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It started off as the perfect storm for futures: after Sunday night's latest plunge in WTI, which saw it drop to the lowest price since Lehman, the double whammy that has now forced Deutsche Bank to become the first major institution to forecast no growth for S&P500 EPS in 2015, namely the strong dollar, reared its ugly head and the EURUSD seemed dangerouly close to breaching the all important 1.04-1.05 support level we first noted last week. However, overnight parties tasked with preserving "financial stability" appear to have once again stepped in, and not only has the EURUSD rebounded off 1.05, but crude is now just barely down from the Friday close as all firepower is put to the same use, that sent the Shanghai Composite soaring by 2.3% overnight, and which sent the Dax over 12,000 for the first time ever.
I am not sure how long Mario Draghi can carry on this QE Charade, but it is quite obvious that there is nothing more to be gained from the program.
The Fed has created a very very dangerous situation.
If Vladimir Putin is alive and remotely capable of laughter (the jury is out on that one...) then he’s probably doing so right now. For the last several months, despite numerous warnings of the consequences, the US and UK governments have been pushing to block Russia from the SWIFT payments system. And so what is utterly hilarious - On Monday afternoon, not only did SWIFT not kick Russia out... but they announced that they were actually giving a Board Seat to Russia.