Posts Tagged ‘BBVA’
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).
Most read in the last 20 days:
- Gold and Gold Stocks – A Meaningful Reversal?
A Negated Breakdown There have been remarkable gyrations in the gold sector lately. The typical rebound out of a November/December low (typical in recent years after the end of the tax loss selling period) was initially cut short in January in the course of the global stock market decline. This was a bit surprising, because it was widely held that the recovery in the gold price was a result of said stock market decline. Photo via genius.com We suspect that in it was...
- Inflation-Spewing Dragon
Dovish Cooing from the Desolation of Draghi As Reuters informs us, on the heels of Mr. Draghi's somewhat “disappointing” attempt to assassinate the euro on occasion of the previous ECB meeting, the chief European printing press supervisor and certified monetary crank has decided to assure everyone of his ultra-dovish stance again on Thursday, by announcing that even more monetary insanity must be expected soon: “Fading growth and inflation prospects will force the European...
- The Bank of Japan – Ringing in the Endgame?
Let's Do More of What Doesn't Work It is the Keynesian mantra: the fact that the policies recommended by Keynesians and monetarists, i.e., deficit spending and money printing, routinely fail to bring about the desired results is not seen as proof that they simply don't work. It is regarded as evidence that there hasn't been enough spending and printing yet. BoJ governor Haruhiko “Fly” Kuroda: is that a windshield I'm seeing? Photo credit: Yuya Shino / Reuters At the...
- An Ice Cube for Gulliver
Panic! 9,000 Billion Tons of Ice Lost in Greenland! Have you ever wondered why they called that place up north “Greenland” instead of, say, “Whiteland”? The reason is that at the time humans first moved there, much of the place was in fact green....as it was a lot warmer than it is today, when allegedly, we are shortly all going to be roasted due to global warming (those living in coastal ares are supposed to drown before they have a chance to burn for their carbon footprint...
- The FOMC Decision: The Boxed in Fed
An Imaginary Bogeyman What's a Keynesian monetary quack to do when the economy and markets fail to remain “on message” within a few weeks of grandiose declarations that this time, printing truckloads of money has somehow “worked”, in defiance of centuries of experience, and in blatant violation of sound theory? In the weeks since the largely meaningless December rate hike, numerous armchair central planners, many of whom seem to be pining for even more monetary insanity than the...
- To Hell in a Handcart
$5 Trillion up in Smoke POITOU, France – Pessimism is a sin against God, said money manager Charles Gave. It suggests ingratitude. And a lack of faith. After all, this is God’s world. What, not good enough for you? That’s why we are always optimistic at the Diary. Things don’t always go the way we would like, but they always go the way they should. Yes, the world may be headed to Hell in a handcart… but it’s for its own damned good! Mild surprise down in hell...
- Hollande's Socialist Wonderland
Everything's an Emergency If memory serves, France remains in a state of emergency on account of the terror attack in Paris in last November. As terrible as terror attacks are, they are a statistically insignificant cause of death and injury in developed nations. It is also worth noting that the countries that seem most prone to suffering terror attacks are the ones that are most active in intervening militarily in foreign countries. This is probably no coincidence. Just...
- Unsound Credit and Risk Assets – How Serious is the Situation?
Loan Losses and Rumors We want to briefly comment on recent news about a rise in loan loss provisions at US banks and rumors that have lately made waves in this context. The iceberg – an excellent simile for what we know and what we don't know... or rather, what we don't know just yet. Image credit: Ralph A. Clevenger First though, here is a look at the Philadelphia Bank Index (BKX) as well as its ratio to the S&P 500: Investors seem increasingly...
- Skyscraper Mania Goes Global
New Skyscrapers Wherever one Looks Readers may recall our recent discussion of the construction of the Jeddah Tower (see “Soaring to Bankruptcy” for details). This skyscraper is a typical symptom of an artificial boom that has moved past its due date, so to speak. The idea behind the skyscraper index is that in light of the immensity of projects that involve the construction of the tallest building in the world (or one of the tallest), they are only realized once the notion that boom...
- The End Is Nigh for the Fed’s “Bubble Epoch”
Market Mythology LONDON – Twice in the last 15 years, markets have tried to correct the mistakes and excesses of the Bubble Epoch. Each time, the Fed came back with even more mistakes and excesses. Trillions in new credit… lower lending rates… easier terms… ZIRP… QE… and the Twist! The gaggle of price-fixers the job of which is to regularly falsify one of the most important price signals in the economy. The idea that the economy can be “improved” by the...