Posts Tagged ‘Banca Monte dei Paschi di Siena’
The EU Summit Agrees on the Well-Intentioned, but Ultimately Meaningless and Unenforceable 'Fiscal Compact'
The Czechs and Brits seem to be the only ones who can clearly see where the HMS EU Titanic is now heading. Or let us rather put it this way: they are perhaps not the only ones who can see where it is heading (toward the proverbial iceberg), but they have turned out to be the only ones who – for now anyway – refuse to take part in this perilous journey.
We are slightly surprised that not more of the former Eastern European command economies have jumped ship. After all, the path the EU is now on – toward increased centralization and rule by faceless bureaucrats with little democratic accountability – is fatally reminiscent of the organization they once were involuntary members of, the COMECON of yore (Совет экономической взаимопомощи, pronounced: 'soviet ekonomicheskoy vsaymopomoshchi' – the 'Council for Mutual Economic Assistance').
Fitch Strikes Again
Following on the heels of the recent euro area downgrades by S&P, Fitch has now also issued several new downgrades. While this has not been unexpected, it further complicates the efforts to bring the crisis under control. Of course one must always keep in mind that these downgrades are only belated confirmations of what the markets have long ago recognized and priced in already. The only new problems raised by such downgrades come from indexation and the rules governing the fiduciary responsibilities of certain institutional investors. Investors who allocate their bond investments by the weightings that such bonds have in bond indexes are forced to sell bonds that are removed from indexes due to rating changes – this is one of the effects currently plaguing Portugal's bond market.
This in turn then forces clearing firms such as LCH Clearnet to alter the margin respectively haircut requirements of the bonds concerned in repo transactions, if their spread over the benchmark (a mixture of several AAA rated euro area government bonds) increases beyond a certain minimum threshold.
Credit Market Watch, January 26
Below is our customary collection of charts updating the usual suspects: CDS spreads, bond yields, euro basis swaps and a few other charts. Charts and price scales are color coded (readers should keep the different scales in mind when assessing 4-in-1 charts). Prices are as of Wednesday's close.
While most moves in these markets have been rather unremarkable lately, one must keep a close eye on what is happening in view of the chock-full 'event calendar' in the euro area over coming weeks.
Most euro area sovereign CDS and bond yields have seen a little bounce yesterday, but the most notable moves are still occurring in CDS and yields on Portuguese government debt. As mentioned yesterday, Portugal is now clearly in the market's crosshairs. This is partly a result of the Greek debt fiasco, but mostly it is due to the somewhat belated realization that even in the wake of recent economic reforms, Portugal will simply not be able to cope with its debt as envisaged in the original bailout package.
Portugal's prime minister has pleaded for more time: if only the markets would give him time, or the EU somehow arranged to give him enough time, all would be well. Alas, time is in short supply these days. The markets no longer believe it will make a difference. In fact, the belief is probably that over time, things are bound to still get worse, given the recent economic downturn.
As laudable as for instance Portugal's recent labor market reforms are, they have been put in place a year or two too late.
Credit Markets Chart Update, January 25
Below is our customary collection of charts updating the usual suspects: CDS spreads, bond yields, euro basis swaps and several other charts. Charts and price scales are color coded (readers should keep the different scales in mind when assessing 4-in-1 charts). CDS prices are as of Tuesday's close, except yields and basis swaps which are as of today.
Credit conditions in euro-land continue to ease across the board, with the notable exception of Portugal.
Also, one of the Middle Eastern CDS spreads that have broken out recently continues to march higher, namely CDS on Bahrain. Bahrain is under Sunni rule, but has a Shi'ite majority population. This could create complications in the context with the recent confrontation between the West and Iran.
Goodbye, Upbeat Tone?
After the S&P downgrade of nine euro area sovereigns late last week and the fact that Greece's debt negotiations have stalled, Reuters reports today on the sudden absence the more optimistic tone that followed recent successful debt auctions and falling yields for Italy and Spain.
Armageddon Averted? Not So Fast.
Mario Draghi was eager yesterday to point out that the measures taken by the ECB have 'avoided an imminent credit crunch' in the euro area and pointed to the decline in various government bond yields as a measure of success.
Italy sold € 12 billion of bills yesterday, at the upper end of the target range and at a far better yield than on occasion of the last sale, seemingly underscoring Draghi's assertions.
Euro Area Credit Market Charts
Below is our customary collection updates of the usual suspects: CDS spreads, bond yields, euro basis swaps and several other charts. Both charts and price scales are color coded (readers should keep the different scales in mind when assessing 4-in-1 charts). CDS prices are as of Friday's close, bond yields and basis swaps are as of today's close (Bloomberg updates of CDS are always a bit late).
Hungary Back At the Bailout Trough As Investors Go On Strike
Today Hungary's government came under renewed pressure, as yields on Hungary's government debt keep soaring and a treasury bill auction failed.
The government sold 35 billion forint ($140 million) of one-year bills, 10 billion forint less than targeted, data from the Debt Management Agency, known as AKK, on Bloomberg show. The average yield rose to 9.96 percent, the highest since April 2009, from 7.91 percent at the last sale of the same-maturity debt on Dec. 22.
The cost of insuring Hungary’s debt through credit-default swaps reached an all-time high and the forint touched a record low versus the euro after aid negotiations stalled because of new laws that threaten to undermine the independence of the central bank. Hungary needs a deal as soon as possible and is ready to discuss the conditions, Tamas Fellegi, the minister assigned to lead the talks, told reporters today.
“Fellegi’s comments are aimed at providing reassurance, but I think the market will adopt a seeing-is-believing approach,” Timothy Ash, a London-based economist at Royal Bank of Scotland Group Plc, said in an e-mailed comment. “Market trust in this administration is now at rock bottom levels.”
Euro Area Credit Market Charts Update and A Mixed Bag of News From Euroland
Below is our customary collection updates of the usual suspects: CDS spreads, bond yields, euro basis swaps and several other charts. Both charts and price scales are color coded (readers should keep the different scales in mind when assessing 4-in-1 charts). Prices are as of Tuesday's close. Among the big movers in CDS spreads we have of course Hungary, which has become a new focus of market worries. Otherwise no large moves have occurred (Spain is an exception to that as well, see below), but euro basis swaps have recovered smartly now that end of year related liquidity pressures have eased.
Euro Area Credit Market Charts – Update
Below is our customary collection of CDS prices, bond yields, euro basis swaps and several other charts. Both charts and price scales are color coded (readers should keep the different scales in mind when assessing 4-in-1 charts). Prices are as of Tuesday's close, except for bond yields which reflect today's close in Europe. Spain's and Italy's yields have come down a tad today.
Most read in the last 20 days:
- The Stock Market in Trouble - How Bad Can it Get?
A Look at the Broader Market's Internals We have previously discussed the stock market's deteriorating internals, and in light of recent market weakness want to take a brief look at the broader market in the form if the NYSE Index (NYA). First it has to be noted that a majority of the stocks in the NYA are already in bearish trends. The chart below shows the NYA and the percentage of stocks above their 200 day and 50 day moving averages, which is 39.16% and 33.77% respectively. When...
- Gold Stocks at an Interesting Juncture
A Fascinating Parallel We have recently discussed the sentiment and positioning backdrop in gold on two separate occasion, as it has once again reached rarely encountered extremes (see “Gold Panic” and “Gold and the Grave Dancers” for details). Image via bullionstreet.com Not much has changed on that front, except for the fact that small speculators have increased their net short position in COMEX gold futures to the highest level in nearly three decades last...
- Gold Stocks: A Playable Rally May Be Beginning as Junk Bonds Crater
Gold Stocks Jump and Retrace 50% Last week we discussed the potential for a rally in the gold sector (see: “Gold Stocks at an Interesting Juncture” for details). Gold stocks jumped early in the week and then retraced almost precisely 50% of the initial move higher, in the process closing a gap that was left behind on Wednesday. Image credit: dreamstime.com Interestingly, for the first time in many months, there were three up days in a row prior to the...
- A new Multi-Year High in Buying by Gold Sector Insiders
Latest Data from INK Show A Huge Surge in Insider Buying As our friends at INK Research in Canada have pointed out to us, insiders at gold companies have made use of the recent sell-off in the sector to load up on shares to an extent not seen in many years. Image source: bidness etc The INK insider buy/sell indicator for gold stocks has peaked just one day after China's initial devaluation announcement at nearly 1,200%: INK's gold insider sentiment...
- Is Crude Oil Close to a Low?
Panicky Headlines Everybody knows that there is a never-ending glut in crude oil, right? Who knew about it a year ago? Not everybody, that much is certain. The problem with what everybody knows is of course that it is often not worth knowing. Photo credit: Alamy Today a friend pointed two articles out to us that have been published yesterday and today. Their headlines say it all. The Wall Street Journal writes “No End in Sight for Oil Glut” - and proceeds to...
- The Stock Market's Panic Potential
The Odds Favor a “Warning Shot” Scenario - but there is a “But” As regular readers have probably noticed, we have upped the frequency of our “caution is advised” posts on the stock market in recent weeks in light of the market's increasingly deteriorating internals. Although one never knows when exactly such warning signs may begin to matter, it is always a good bet that they eventually will. Last week the market delivered a little wake-up call to the hitherto rather...
- The Donald and China, or The Fallacy of Protectionism
Not Every Populist Topic is Worth Exploiting For reasons that will forever remain a mystery to us, mercantilism and protectionism actually hold enormous popular appeal. The best explanation we can come up with for this phenomenon is that the support for such policies is based on a mixture of economic ignorance and relentless propaganda by vested interests over the past, say, four centuries. Still, it is almost comical that people are so vociferously clamoring for policies that can actually...
- The Economy is in Liquidation Mode
Capital Consumption If you’re an American over a certain age, you remember roller skating rinks (I have no idea if it caught on in other countries). This industry boomed in the 1970’s disco era. However, by the mid 1980’s, the fad was fading. Imagine running a rink company at the end of the craze. You know it is not going to survive for long. How do you operate your business? The birthplace of roller disco turned out to be edible, sort of Photo via...
- The Stock Market After the Mini Crash
A Post Mortem – the Influence of Black Box Systems Here is a brief update on the recent market action and what we think one should watch out for now. First of all, we already noted in our last market update that something about the recent “mini crash” was quite unusual. For one thing, it started to get serious in an options expiration week, which happens only rarely. One rather scary precedent is actually the 1987 crash: on that occasion the market declined sharply during expiration...
- Jackson Hole – Meeting of the Physics Envy Brigade
Planners Meet to Discuss the Impossible The Jackson Hole pow-wow takes place this weekend. A more revolting get-together of actual and armchair central planners (i.e., the advisors to the planners, many of whom see themselves as planners-in-waiting) could hardly be imagined. One has to wonder how much more damage they will be allowed to inflict before someone finally says “enough!”. The parlous state of the global economy and the series of booms and busts we have experienced over the...