Posts Tagged ‘Fitch’




Greek Government's Plan Rejected

It has turned out that the latest Greek plans in connection with the second bailout have essentially been rejected by the eurogroup. This hasn't kept the Greek government from claiming the exact opposite:


“Greek political leaders said they had clinched a deal on economic reforms needed to secure a second EU bailout, but euro zone finance ministers demanded more steps and a parliamentary seal of approval before providing the aid.

The EU and the International Monetary Fund are exasperated by a string of broken promises by Athens and weeks of disagreement over the terms of a 130 billion euro ($172 billion) bailout, with time running out to avoid a default. Finance ministers of the 17-nation euro zone meeting in Brussels warned there would be no immediate approval for the rescue package and said Athens must prove itself first.

Jean-Claude Juncker, who chairs the Eurogroup, set three conditions, saying the Greek parliament must ratify the package when it meets on Sunday and a further 325 million euros of spending reductions needed to be identified by next Wednesday, after which euro zone finance ministers would meet again.

"Thirdly, we would need to obtain strong political assurances from the leaders of the coalition parties on the implementation of the programme," Juncker told a news conference after six hours of talks in Brussels. "Those elements needs to be in place before we can take decisions."

"In short, no disbursement before implementation."


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Portucrumble, Act Two

On October 31 last year, we wrote an article entitled 'That Strange Currency'. At the time we opined that Portugal was set to become the 'next Greece'. This was after warning for several weeks that Portugal was the weakest link in the euro area crisis chain and likely to become the next major market focus. The denouement in Italy's bond market then intervened, but it appears that it is now indeed Portugal's turn in the barrel. We wrote:


„Meanwhile, the country we have for some time identified as the one markets are likely to focus on next has begun attract some media attention of late, as its economic fundamentals continue to deteriorate. As we noted previously, we don't see a whole lot of difference between Portugal and Greece – both nations suffer from a crushing debt burden and a dysfunctional banking system. As it turns out, the deposit base of Portugal's banking system has begun to shrink at an accelerated rate lately, in a manner reminiscent of Greece and indicating that a genuine money supply deflation is now underway in the country.“

Portugal's economy meanwhile is now expected to contract by a deeper than expected 2.8% next year. This has led to the announcement of further austerity measures, which in turn provoked the country's unions to threaten a general strike (a dynamic that is certainly reminiscent of Greece as well).“

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These days, a currency can get Fitched. It happened to the euro yesterday, which admittedly is largely an unarmed opponent these days.



The euro seemingly can't catch a break – unless it's a break lower. On Wednesday some remarks by David Riley, Fitch's head of sovereign ratings, sent it careening lower – click chart for better resolution.


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Euro Area Bond Yields Rise Ahead of Auctions – While Germany Gets Paid For Borrowing Money

Euro area bond markets were under pressure again today, as a number of auctions loom next week. In addition, Austrian yields are still rising as an after-effect of the Hungarian crisis, although said crisis is in the process of abating after the parabolic moves in yields this week (more on this further below).

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Banks Borrow Nearly €500 billion

Yesterday there were speculations all day long as to how big the new long term refinancing operation (LTRO) of the ECB would become. As the day wore on, the estimates tended to grow ever larger. We thought that the upper and of the seemingly more daring estimates would likely be hit and that is exactly what has happened. Regarding our thought process in connection with the ECB's policy, we have told our readers from the very day the new easing measures were announced that they should not be underestimated. We have frequently returned to the subject in recent days as the situation has evolved, noting that there was apparently an even bigger inflationary push in the works than hitherto thought. Note here that today's LTRO is only the first of two such operations and that in addition, banks will be able to pledge various other normally difficult to market credit claims with their national central banks in the euro system. As one friend of ours remarked in conversations in recent days (paraphrasing), 'this will significantly support the banks and sovereigns in those countries where the primary vector of contagion is from the banks to the sovereign' –  such as is for instance the case in Spain.  Readers may recall that we have since last year always stressed that in Spain, the banking system and the cost of cleaning it up in the middle of a depression presents an enormous problem for the government.

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Euro Area Credit Market Charts

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 Thursday's close.  

In the wake of market disappointment over ECB president Mario Draghi's continued refusal to countenance monetization of euro area government bonds, yields and CDS prices once again shot up sharply in trading on Thursday, taking back a little more of the recent improvement.

Whether this rebound will lead to fresh highs in yields and CDS remains to be seen and will largely depend on how the markets receive the results of the ongoing euro-group summit.

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US Banking System In Trouble

Before we begin with today's brief update, we want to wish a Happy Thanksgiving to our US readers.  On this occasion, we also wish to extend our sympathy to the countless turkeys that will lose their lives today. Sorry birdies, but that is what you are for. Read the rest of this entry »




Papandreou Calls For Referendum On Bailout

Embattled Greek prime minister Papandreou has found a way to stick it to the eurocrats in a most elegant manner: instead of continuing to serve as everyone's favorite whipping boy, he has decided it is time to let the Greek people themselves speak out on the future of their country. In a surprise announcement yesterday, he told parliament that Greece is to hold its first referendum since 1974 and that the population would be asked whether it wants to accept the conditions of the bailout plan or not. Read the rest of this entry »



It's Still Hailing Downgrades

Tuesday saw Europe hit by another slew of downgrades. Moody's followed Fitch and S&P and downgraded Spain – by two notches. As reported by DailyFX:

„In its rationale for the downgrade and negative outlook, Moody’s cited the absence of a solution for the European debt crisis and the worsening economic outlook for Spain. The agency lowered its forecast of 2012 GDP growth from 1.8 percent to 1 percent on continued softness in the labor market and “the difficult funding situation for the banking sector.” While acknowledging Madrid’s efforts to reform the labor market and introduce a balanced-budget constitutional amendment, Moody’s expressed “serious concerns” about regional government deficits and voiced doubt about the general government sector’s ability to meet “ambitious” fiscal targets.“


(emphasis added)

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No Quick Fix Is In Sight

As we have pointed out yesterday , after the recent G-20 meeting a number of truly fantastic proclamations made the rounds. Imaginations were evidently running wild.

'G-20 Welcomes Progress on EU Debt Plan' the Wall Street Journal shouted out for example. What progress? What 'debt plan'? As we have noted – and this has since been echoed by other observers – there actually is no plan. There is not even a plan to make a plan, but something that is still one step further removed and terrifyingly vague. There are certainly plenty of ideas, but every one of them is in danger of being shot down by one or more of the 17 players comprising the euro area.

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It's Still Raining Downgrades

Last week was chock-full of fresh downgrades of major European banks and incidentally also brought more grief for a major European country and prominent member of the PIIGS stable – Spain – which received the second downgrade within a week.

This didn't keep stock markets from going higher. After all, we now have vague 'hopes' that 'something' will be done. As we noted last week, it's a bit like an IPO prospectus from the South Seas bubble. Something is going to happen, and nobody knows what it is…but it will be to everybody's 'great advantage'. As far as we can tell, there's definitely a plan to make a plan to make a plan. Said plan (the first one in the row) is still in its gestating stages and once it has ripened into the last one in the row unlikely to tackle the core problem, but who cares about such details when there's a rally on?

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More Color on the ECB's 'QE Lite'

A few more words regarding the ECB's latest moves in terms of providing new emergency liquidity facilities are in order. These long term funding facilities are not 'QE' in the sense that they are not permanent. However, they are in essence similar to the arrangements that have been put in place on account of the 2008 crisis, and given the evidence from that time, they should definitely bring about a sizable expansion of the ECB's balance sheet and lead to a notable surge in euro-area money supply. The covered bond purchases appear to be a QE type operation, but the amount of € 40 billion will probably be small compared to the liquidity that is going to be pumped into the banking system via the emergency facilities (note that these are not limited in terms of their size).  Theoretically these liquidity additions have a fixed shelf life – they should eventually be taken back. Undoubtedly this is the plan. Once the crisis has passed, so it is reckoned, the securities the ECB temporarily monetizes will be sold back to the banks.

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