Markets have been selling off for the past 30 minutes. Renewed fear of the Italian disease is spreading in Europe. Italian spread spiking higher, banks shares selling off aggressively, while the yield curve is inverting. Just as we wrote earlier this weekend, “Italy’s problems are not solved by Silvio resigning”. The Euro is trading close to 1,35, while the MIB index has fallen 6,2% compared to yesterday’s highs…With volumes rather light, expect volatility to stay high, as no “serious” investor can manage to hedge effectively. Important charts below.
This week’s anniversary of the tragic sinking of Big Fitz got me thinking about the Euro – another behemoth currently navigating some extremely choppy waters but managing to keep herself above water. Holding her own, if you will.
The odds have been stacked heavily against the common currency for some time now and yet, despite a clearly unsustainable level of debt, several countries who should never have been allowed through the doors of the Eurozone, rapidly slowing growth and a group of basket-case politicians who have redefined the meaning of ineptitude, if you had shorted the Euro on January 7th of this year, you would now be staring at a loss of roughly 6% on your investment (chart, below).
To have sat and read the headlines these past 10 months and yet to be losing money on a short Euro position would have doubtless sent even the most stoic of investors in search of a stiff drink or some heavy counselling – but that’s the way these things go sometimes. Things stay afloat against all the odds – until, suddenly, they don’t.
One can’t help but think, however, that this week may well have brought us to the wall at the end of the road down which Europe has been kicking the can for quite some time now.
Futures all selling off aggressively. Just like we wrote earlier this morning “Investors loading up on ES futures, due to Berlusconi resigning, will face a harsh reality when they realize Berlusconi is not the problem. The fact the Italian spreads and rates have shot up further should make investors very nervous.”.
Well, what has happened since we wrote the above a few hours ago. Futures are off some 20 handles, while the Italian 10 year rate is currently trading at 7,36%. Remember, Ireland was bailed out at 7%. Italy is UNBAILABLE. All pundit, long the market because of Berlusconi, are now regretting those “panic” buys we saw yesterday. Contagion in Europe is unfolding, and Italy is under attack. Next up should be Spain and France. Below are intraday futures levels, and for the “position ” traders, our longer term view is accessible here.
Another Berlusconi news session. Volume is rather poor, and the only risk takers around seem to be the HFT News Algos. It is almost a sad thing to see how illiquid markets have become from time to time. Indices move up and down one percent on news of Bunga Bunga resigning or not. As per usual, the “secret” buyer that still loads up on futures every morning is around, and supports the market. After the last days move up, we are slowly approaching that magic 200 day moving average. Let’s see if Mr Biggs becomes uber bullish again? Important chart levels below.
Equity markets are facing reality in this morning session. With the Italian 10 year rate at 6.66%, the clock is ticking. As we have pointed out over the weeks, Ireland got bailed out at 7%. Italian rates should be reaching that level very shortly. The only factor keeping the rates at sub 7% is the notorious buying by the ECB. With the Greek mess “out of fashion”, Italy and (don’t forget) Spain should be the countries to focus on. Below some quick chart updates.
Further charts below.
The leaders of Greece’s two largest political parties last night decided to form a government of national unity to start implementing a €130bn bail-out plan, then take the country to elections. George Papandreou, premier, reached the deal with Antonis Samaras, leader of the opposition conservatives, during a 90-minute meeting with Carolos Papoulias, Greece’s president.http://www.ft.com/intl/cms/s/0/7c455fc4-087f-11e1-bc4d-00144feabdc0.html#axzz1czT64R5M
The Group of 20 is seeking to meet again, possibly before Christmas, with the aim of resurrecting a deal to provide an international firewall around Greece, G20 sources have told the Financial Times, saying negotiators at the Cannes summit had been close to an agreement. A source, who was party to the negotiations, told the FT that the three-part package of measures summit host France tried to broker fell apart because the German Bundesbank vetoed one element. http://www.ft.com/intl/cms/s/0/a2e083e0-089b-11e1-9fe8-00144feabdc0.html#axzz1czT64R5M
Three of Greece’s biggest banks have issued €6.4bn ($8.8bn) of government-guaranteed bonds likely to be used as security to obtain financing from central banks, a move that points to worsening market conditions amid talk of a disorderly Greek default. Alpha Bank, EFG and Piraeus on Friday issued the floating-rate notes, which analysts say will probably be used as part of a new €30bn liquidity facility created for cash-strapped Greek banks earlier this year. Under the scheme, Greek banks can issue bonds guaranteed by the government, which can then be used as collateral to receive funding from central banks. http://www.ft.com/intl/cms/s/0/a008a664-0898-11e1-9fe8-00144feabdc0.html#axzz1czT64R5M
Another set of charts below. After the extreme short squeeze we saw some days ago, markets have reversed, but still “hanging” in there. Major indices are trading within the negative trends, but still making both bulls and bears nervous. The last chart shows the Italian MIB indexe, the “leader” going forward.
Dax and MIB charts below.
Markets are again trading in a totally crazy fashion. From the huge sell off we saw a couple of days ago, to extreme squeezes to the upside, all orchestrated by Greek news. With the DAX first falling some 6.5% and then making it all back on news regarding referendums, in a matter of days, there sure must be somebody tempted to catch those moves. Wonder how many months of extra respiration Greece would obtain by a truly leveraged bet “timing” those news? Well, desperate people do desperate things.
Australia’s agricultural commodities market resumed trading on Wednesday morning, a day after ASX, the exchange operator, shut it down in the wake of the collapse of MF Global, the FT reports. The exchange had said it took the decision on Tuesday to close the grain and wool markets “until further notice” given the large amount of outstanding contracts held by the US broker,http://ftalphaville.ft.com/thecut/2011/11/02/720671/australia-grain-and-wool-futures-resume-trading/
Regulators should have powers to limit banks’ ability to pay bonuses and dividends if they run into severe financial difficulties, according to the chief executive of HSBC. The FT reports Stuart Gulliver told a panel of parliamentary members that it would be “absolutely reasonable” for the Bank of England’s new financial policy committee to control such payments in extreme circumstances,http://ftalphaville.ft.com/thecut/2011/11/02/720611/hsbc-chief-backs-tighter-regulation/
John Paulson’s investors have signalled confidence in his ability to recover from severe losses in his flagship hedge funds, with the great majority choosing to keep their money with a manager who personally oversees $30bn in investments, http://ftalphaville.ft.com/thecut/2011/11/02/720581/most-investors-sticking-by-paulson/
Federal regulators have discovered that hundreds of millions of dollars in customer money has gone missing from MF Global in recent days, prompting an investigation into the brokerage firm, NYT DealBook says, http://ftalphaville.ft.com/thecut/2011/11/01/717731/regulators-investigating-mf-global/
Greece’s prime minister unexpectedly announced a referendum to approve a second EU bail-out deal for his austerity-hit country, less than a week after it was agreed with international creditors at a EU summit, http://ftalphaville.ft.com/thecut/2011/11/01/717581/greece-calls-referendum-on-eu-bail-out-2/
China’s official purchasing managers’ index for October fell to its lowest since February 2009, Bloomberg reports. The PMI fell to 50.4 in October from 51.2 in September, the first fall in three months.http://ftalphaville.ft.com/thecut/2011/11/01/717611/asian-pmis-come-in-low/