News That Matters
Ft.com
European leaders put off any decisions on shoring up the region’s banks at a late-night summit on Wednesday despite rising concerns that instability in Greece was undermining confidence in the eurozone’s financial sector. Instead, the heads of the EU’s main institutions were given the task of drawing up proposals for closer fiscal co-ordination in time for another summit next month, including plans that could include a path towards a Europe-wide deposit guarantee scheme and, in the longer term, commonly-backed eurozone bonds. http://www.ft.com/intl/cms/s/0/81d5eab0-a539-11e1-b421-00144feabdc0.html
Millions of Egyptians went to the polls to choose a president in a historic election intended to end army rule and usher in a new democratic era more than a year after the uprising which overthrew Hosni Mubarak. Lines formed in front of voting stations and a brisk flow of voters cast their ballots, though turnout in the first of two days of the election appeared lower than in the first post-Mubarak parliamentary poll held late last year. http://www.ft.com/intl/cms/s/0/7ed1b966-a43a-11e1-a701-00144feabdc0.html
The shale gas boom in the US has led to a big drop in its carbon emissions, as power generators switch from coal to cheap gas. According to the International Energy Agency, US energy-related emissions of carbon dioxide, the main greenhouse gas, fell by 450m tonnes over the past five years – the largest drop among all countries surveyed. http://www.ft.com/intl/cms/s/0/3aa19200-a4eb-11e1-b421-00144feabdc0.html
All news below.
Eurozone crisis explained
The Eurozone crisis continues, despite some countries celebrating holidays. The Greek situation is reaching absurdity, and the blame game is about to start. The ECB has been throwing good capital after bad capital. On the other side of the Med, we are getting reports that people are withdrawing massive amounts of cash from Bankia. The stock is getting creamed, down some 10% today. What is going on in Europe?
The Eurozone crisis video for dummies below, a breakdown of the European debt situation, starting with Greece and consuming the entire continent.
Med charts
These four charts says it all pretty perfectly.
Europe ain’t what it used to be.
Click for larger chart.
Courtesy Scott Barber.
News That Matters
Ft.com
Fears that the eurozone’s firewall will prove insufficient to shield Spain and other embattled countries against the effects of a possible disorderly Greek exit from the currency union hit European financial markets on Monday. Spanish and Italian 10-year borrowing costs shot up to their highest levels this year and European stock markets suffered their biggest one-day drop in three weeks. German 10-year bond yields fell to a record low, widening the premium Madrid pays to borrow compared to Berlin to a new euro-era high. http://www.ft.com/intl/cms/s/0/517e01a6-9ddf-11e1-9a9e-00144feabdc0.html#axzz1uofkmjQk
Citic Securities, China’s largest broker, has agreed to buy algorithmic trading technology from Progress Software, a Nasdaq-listed company, in the latest sign that rapid automated trading is spreading from western markets to Asia. A race has been under way in the US and Europe among banks and brokers using algorithms to attract business from institutional investors. Such algorithms are either built internally or bought from technology companies. http://www.ft.com/cms/s/0/d7e9b3a8-9da2-11e1-838c-00144feabdc0.html#axzz1uofkmjQk
Wsj.com
Asian stock markets, the euro and commodities fell Tuesday on renewed fears that Greece could leave the euro zone after coalition talks Monday failed to produce a government. Both Japan’s Nikkei and Korea’s Kospi slipped 1.4%, while Australia’s S&P ASX 200 dropped 1%. In Hong Kong, the Hang Seng Index was down 0.4%, while the China Shanghai SE Composite fell 0.5%. The euro was down 0.7% late in New York to $1.2824 as fears of a Greek exit from the euro zone became the main concern of investors. The single currency continued to fall in Asia, down 0.1% to $1.2822.http://online.wsj.com/article/SB10001424052702304192704577404932277664936.html?mod=WSJEurope_hpp_LEFTTopStories
More news below.
News That Matters
Ft.com
JPMorgan Chase is investigating whether London-based traders hid the extent of losses on credit derivatives positions, according to people familiar with an internal probe following last week’s revelation of $2bn losses. The investigation comes as Jamie Dimon, chief executive, took to US television to say he was “dead wrong” to have dismissed questions over the risk-taking of his chief investment office. The futures of the trading unit – a subset of the CIO that incurred the losses – and people who work there are under question, with departures possible in the next 24 hours, people familiar with the matter said.http://www.ft.com/intl/cms/s/0/adc55f24-9d06-11e1-9327-00144feabdc0.html?ftcamp=published_links%2Frss%2Fhome_uk%2Ffeed%2F%2Fproduct#axzz1uofkmjQk
Eurozone central bankers have talked publicly for the first time of managing a possible Greek exit from Europe’s monetary union as stalemate in Athens talks on a coalition government raises the prospect that Greece will renege on the terms of its international bailout. The comments by members of the European Central Bank’s governing council indicate that the risk of eurozone fragmentation is being taken increasingly seriously by the region’s policymakers. http://www.ft.com/intl/cms/s/0/680d8532-9d11-11e1-9327-00144feabdc0.html#axzz1uofkmjQk
Angela Merkel’s centre-right Christian Democratic Union suffered a bruising defeat on Sunday night in the election of a new parliament in North Rhine-Westphalia, Germany’s most populous state, when the centre-left opposition of Social Democrats and Greens won a clear majority. The vote for the CDU slumped to just 26 per cent, according to the first exit polls, by far its worst result in the state in the post-war period, and a serious setback for the German chancellor. http://www.ft.com/intl/cms/s/0/8edb6b32-9d18-11e1-9327-00144feabdc0.html#axzz1uofkmjQk
All you need to read and some more below.
News That Matters
All you need to read and some more below.
The European Union is Destroying European Unity
Guest post by Azizonomics.
So we know that the pro-bailout parties in Greece have failed to form a coalition, and that this will either mean an anti-bailout, anti-austerity government, or new elections, and that this will probably mean that the Greek default is about to become extremely messy (because let’s face it the chances of the Greek people electing a pro-austerity, pro-bailout government is about as likely as Hillary Clinton quitting her job at the State Department and seeking a job shaking her booty at Spearmint Rhino).
It was said that the E.U.’s existence was justified in the name of preventing the return of nationalism and fascism to European politics.
Well, as a result of the austerity terms imposed upon Greece by their European cousins in Brussels and Frankfurt, Greeks just put a fully-blown fascist party into Parliament.
From the Telegraph:
The ultra nationalist far right party Golden Dawn supporters celebrated on Sunday after exit polls showed them winning between 5 to 7 per cent of the vote, enough for them to gain representation in parliament for the first time in Greek history. Golden Dawn Leader, Nikolaos Michaloliakos shouted “The Europe of the nations returns, Greece is only the beginning” as he walked towards party headquaters and pledged to deal with illegal immigrants first.
Spreads exploding
It is all about Spain and Italy at the moment.
Charts below presented without comments.
Why shorting Spanish and Italian Bonds is the Right Trade
Guest post by Peter Tchir of TF Market Advisors.
I continue to believe that longer dated Spanish and Italian bonds are poised for a significant sell-off. At this stage everyone knows the problems the two countries are facing. Spain’s economy seems to be doing worse than Italy, but Italy has a heavier debt burden.
Over the past few weeks, more and more investors are coming to the conclusion that either debt restructuring or a currency conversion or both are real possibilities. The short lived success of LTRO is very concerning. It demonstrates that liquidity has its limits when solvency is the real risk.
So my first premise is that the risk of restructuring or currency conversion is real. It is not imminent as politicians and central bankers continue to do what they can to avoid that outcome, but virtually everyone now believes that this is a potential, if not inevitable outcome. That has changed in the past few weeks and has not been fully digested.
The other key premise is that the ECB is unlikely to intervene in a meaningful way anytime soon. That seems to have been confirmed yesterday by Mr. Draghi himself. From conversations I had, the unintended consequence of the ECB’s tough stance during the Greek debt negotiations has meant that countries no longer welcome ECB intervention with open arms. If restructuring is on the table, having a party that is unwilling to take a loss yet holds all the cards when it comes to future financing of the banks, it is an awful situation. Greek post-PSI bonds trade poorly at least in part because of the ECB’s stance on its position. The ECB’s secondary market purchases of Greek debt turned out to be disastrous for Greece in their attempt to restructure and create a workable debt load. This has not been lost on Spain and Italy. The desire to retain flexibility in any future negotiations is incompatible with inviting the ECB to buy more bonds. That is one reason that the EFSF and ESM are supposed to assume that role. Though in typical EU fashion, rather getting those entities ready to assume secondary market purchases when the markets were calm, they dragged their feet and aren’t quite ready. The EFSF will eventually be ready to buy bonds. They will be the preferred buyer because they can be made to take a loss. That may become an issue as countries providing the guarantees that let EFSF function may decide it isn’t in their best interests to be the patsy at the negotiating tables.
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