Friday 13th surprise: Greek negotiations in trouble (no surprise there) and the rumor of S&P downgrading half of Europe after the close. Expect a lot more on these issues tomorrow on my Weekender post. Edit: updated the regular links.
Quote of the Day: So much for those "fantastic" Spanish and Italian auctions: with one simple announcement, S&P is about to generate substantial losses for all those brave few European banks who took out some of their hard embezzled and repoed cash from the ECB, and bought Italian and Spanish bonds. – ‘Tyler Durden’ / Zero Hedge
To the links:
FX option vols – Saxo
Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
EURO CRISIS
She told a visiting Hungarian delegation that Budapest has to show “tangible steps” before the Fund can “determine when and whether to start negotiations for a Stand-By Arrangement”. And that was her public statement. Privately, she would have been even clearer – no U-turn, no money.
Is Europe A "Lehman-Like Symptom Of Faulty Globalized Finance"? Bank Of America Thinks So – ZH
BoA: A fundamental issue is the international allocation of liquidity. Liquidity crises are typically generated by solvency concerns. In a global context, however, this raises questions of international cost sharing…But what works well when the (IMF’s) client is a smaller EM economy sputters when the troublemaker is a large advanced country.
BoA: A fundamental issue is the international allocation of liquidity. Liquidity crises are typically generated by solvency concerns. In a global context, however, this raises questions of international cost sharing…But what works well when the (IMF’s) client is a smaller EM economy sputters when the troublemaker is a large advanced country.
GREECE
If you didn’t believe us that the ECB will do everything it can to achieve seniority for its Greek bonds in the country’s debt restructuring, hopefully Thursday’s ECB press conference convinced you.
And Now "Coercive" Greek Default Seems Inevitable -Deal Failure Would Be "Catastrophic" Greece Warns – ZH
Greece Bank Creditor Group Says Talks ‘Paused for Reflection’; Euro Sinks to New Low for the Move – Mish’s
ECB
It’s An Upside Down World…Or So Much For “Decoupling” – TF Market Advisors
Stocks failed to respond to a “successful” Italian bond auction. The market isn’t giving them much credit for placing bonds that mostly mature in the timeframe covered by LTRO.
Any remaining interest rate prop for Euro may disappear soon – Saxo
One hears growing talk that the ECB may relax its criteria for the collateral it will accept from banks, in a bid to ensure they don't run out of eligible collateral at the next 3-year LTRO on Feb-29.
ECB Says Credit Crunch Averted; Yet ECB Overnight Deposits Again Hit Record High; Skyrocketing ECB Balance Sheet – Mish’s
European banks are dumping sovereign debt at record levels on the ECB. Germany and France are on the hook. 10-year Italian bonds are down substantially, but the rate is still 6.5% with the ECB the buyer of only resort. Good luck with that policy as Europe heads into a massive recession.
The curious case of ECB deposits – alphaville / FT
Bank of America Merrill Lynch analysts have taken objection to everyone interpreting high use of the ECB’s overnight deposit facility as an indicator of ‘bank hoarding’. It is just not so, they say.
DOWNGRADE FRI-13
S&P downgrades coming – The Big Picture
With the likelihood of an S&P credit downgrade of France, Spain, Italy, Belgium and Portugal, it’s important to understand that #1, they are just following what the markets have priced in and #2, Fitch and Moody’s in some circumstances have already moved ahead of S&P.
What Downgrades Are “Priced” In? – TF Market Advisors
I think this is a bigger deal than people are making it out to be. If France gets 1 notch then EFSF is no longer AAA. ESM won’t be AAA (in spite of the headlines, the paid in capital was low and they were still largely relying on capital call rights to back issuance).
S&P has to provide 12 hour notice to the countries if they are going to change their ratings… But if they downgrade them, and they notified Italy, did they just sell bonds to the public while hiding material information?
Implications if S&P downgrades EU countries – Saxo
EFSF dead, major impact felt by the weakest countries
Here’s Why Downgrades of European Nations are Still Important – MarketBeat / WSJ
JPM, Citi, Capital Economics and Barcalys quick comments.
VIEWS
Weekly Credit Update – Danske (pdf)
Stocks: Possibility Of A Correction Approaching - Part II – The Short Side of The Long
All I am looking for is a pullback correction and not a major sell off. These are some of the reasons I am bullish on mainly Commodities but slightly on Equities as well, while being bearish on Government bonds and US Dollar in 2012:
The Bigger Picture: S&P 500 Rolling 10-Year Annual Returns – The Quant Monitor
Which Merrill sentiment indicator to believe? – Humble Student of The Markets
Q1 Views from Saxo Bank
Market Comment: Perfect storm brewing? – Saxo
Asia Outlook: Fasten your seatbelts, we are about to land – Saxo
FX Outlook: The song remains (mostly) the same – Saxo
Equity Outlook: Accept the uncertain future – Saxo
Macro Outlook: Navigating the rough seas of the perfect storm – Saxo
Commodity Outlook: Markets braced for headwinds – Saxo
FX Options: More upside potential for volatilities – Saxo
Monetary Policy: Major central banks – Saxo
OTHER
Revolving Door: From Top Futures Regulator to Top Futures Lobbyist – Rolling Stone
Clients spotted in the CDS market – alphaville / FT
HSBC: “Over time we’ve seen a secular increase in the use of CDS and a decrease in the use of bonds as a trading tool,” he said. “Last year we saw bonds being placed at new issue more as a buy-and-hold investment as fund managers found their ability to trade out of bond positions in secondary markets much more limited.”