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Thursday, May 31

31st May - US Close: Diaspora

Here are the US close regulars and article links. In Europe, there are no plans, backstops, support or trust. Everyone knows the other guy's numbers are not to be trusted. Everyone is trying to offload costs to someone and no-one is picking up the responsibility or the losses. Shareholder of a bankrupt bank? "I am systemic!" Spain's politicians almost half as corrupted as the ones in Greece? It was the Le-man!. They are not going to get anything done.

For my own recent commentary, see how Spain looks easier, how to play announcement games, and when Spain requests the bailout. If you happen to speak Finnish, check my other today's article on Spain.

Markets – Between The Hedges
The Closer – alphaville / FT
Market Commentary – A View from My Screens
Commodity Commentary – Commodity Trader
Tyler’s European Summary – ZH
  Equities underperform as credit roundtrips ending miserable May for Europe
Tyler’s US Summary – ZH
  Market fails to zucker in gullible traders with end of day stop hunt

Debt crisis: live – The Telegraph
The Euro Crisis Blog – WSJ
Tracking Europe’s Debt Crisis – NYT
FX Options Analytics – Saxo Bank
European 10yr Yields and Spreads – MTS indices

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Amid the deepening crisis, European commission is in denialThe Guardian
Despite clear evidence that its austerity policies are driving struggling members into ever deeper economic agony, the EC presented its annual economic report on May 30 seeking to defend a strategy that is bankrupt.

Concrete Example of Potential Compromise in EMUMarc to Market
I have characterized my understanding of the euro zone investment climate as three no's:  No ECB backstop for sovereigns.  No joint bond.  No euro zone break-up.  That implies a prolonged period of slow growth.  It risks chronic political instability.

Even the gods can’t get their heads around this crisisThe Times / presseurop
Europe's economic woes have forced us to try to understand the secret Olympian world of global finance. But now that we pay more attention to bond yields and stability mechanisms, isn't it clear that the experts up on their lofty peaks don't know what's going on either?

Push Comes to ShoveTim Duy’s Fed Watch
Europe doesn't have a 5 to 10 year horizon.  I am thinking they have something closer to a 5 to 10 week horizon to get their act together.  Something big is going to happen in Europe this summer, and I think the odds of a tail-end outcome are increasing, at both ends of the tail.  Either Europe pulls together sooner than the German timeline, or finally blows apart.

ECB’s Draghi Calls for Centralized Banking ControlTIME
Currently, most powers to regulate banks have been left with national authorities, who have been seen as protective of their domestic financial services industries.

The TARGET2 Balances of National Central Banks (NCBs)Alea
The residual risk that may emerge despite risk management features is, as a rule, shared among the euro area NCBs according to their share in the ECB’s capital.

The Monster Has AwakenedMark Grant / ZH
The game has changed. It will no longer be push and shove and muddle through but convictions and ideology that are in stark opposition so that surprises and inflamed statements will become the order of the day and not the exception. If it is to be either Germany for the Germans or Germany for the citizens of Athens, make no mistake in your thinking

The case for a European banking unionBruegel
The previously integrated financial market that underpins the common currency and contributes to ensuring homogeneous transmission of monetary policy impulses has started to fragment along national borders… correlation between banking and sovereign solvency crises… banking union would help on both fronts and therefore contribute to making the monetary union more resilient.

European dysfunction chart of the day, Greece vs Germany editionFelix Salmon / Reuters
All of which says to me that Grexit is inevitable, sooner or later. These two countries have pretty much nothing in common, bar their current currency. And now the tensions caused by that common currency are surfacing in particularly ugly ways.

U.S. Steps Up Pressure on Europe to Resolve Euro CrisisBB (mp3)

Spanish CDS Over 600bps Sends S&P Under 1300ZH

Spain faces 'total emergency' as fear grips marketsThe Telegraph
Spain is facing the gravest danger since the end of the Franco dictatorship as the country is frozen out of global capital markets and slides towards an epic showdown with Europe.

To hispabono or not to hispabonoalphaville / FT
A possible way for sovereigns to avoid strict limits on the eurozone bonds they can issue might be to force issuance lower down the political structure to the regions, actually…

Spain March Foreign Investment Shrinks Amid Capital OutflowBB
net 66.2 billion euros ($81.8 billion) leaving the country in March, with outflows of foreign portfolio investment increasing tenfold as the economy contracted.

Capital Flight Intensifies to Record Levels in Spain; Outflows Make Spanish Banks Increasingly Reliant on ELA FundingMish’s
Capital flight has intensified to record levels in Spain but interestingly leveled off in Greece. Capital flight from Greece is expected to resume when next reported given statements by the Greek president. The original source of this information appears to be Credit Suisse AG.

Redenomination Risk: Is the Genie Out of the Bottle?Marc to Market
The problem with suggesting that Greece can leave EMU is that creates a new risk that only complicates effort to address the crisis. This the risk of redenomination…How then can there be meaningful EU wide deposit insurance?

Italy chastises Germany for handling of euro crisiseuobserver

5 Reasons China Might Already Be in a RecessionThe Atlantic
Beneath the headlines of 8 percent growth, China's economy is grinding to a halt. It's time to worry.

The Myth Of Chinese GrowthChartporn
China’s growth is not due to exports – it is because of investments.

China is facing “the strongest outflow pressures for some time”alphaville / FT
Conclusion: China won’t be rescuing anyone (apart from itself perhaps) anytime soon.

Goldman Slashes Treasury Yield ForecastsZH
Plus their reasonings – good read. Shorter version on WSJ

Wall Street Food ChainBill Gross / PIMCO
Soaring debt/GDP ratios in previously sacrosanct AAA countries have made low cost funding increasingly a function of central banks as opposed to private market investors. Both the lower quality and lower yields of such previously sacrosanct debt represent a potential breaking point in our now 40-year-old global monetary system.

The Global Industrial Sector: Have Profit Margins Peaked?PIMCO
Factors driving profit margin expansion in the industrial sector include globalization, EM capital expenditures, a focus on profitability and global labour arbitrage. Potential headwinds include a slowdown in global growth drivers, rising labour rates and global deleveraging.

Banks Choose to Be Less Than Transparent on EuropeDealBook / NYT
United States banks received a regulatory memo earlier this year asking them to make clearer their public disclosures about their exposure to Europe’s troubled countries. Not all the banks bothered to comply fully, however. And this could backfire on them if financial conditions in Europe deteriorate further.

Risk-Off Correlations - When Opposites attractMacronomics
Looking at the recent sell-off in broad asset classes with the spill-off from the ongoing European crisis, we thought it would be interesting to look into asset correlation movements during "Risk-Off" periods such as today.

The SNB is Preventing Needed AdjustmentMarc to Market
franc cap is contributing to both foreign and domestic distortions and all the speculation of the size of the SNB's intervention, distracts from the fact that its economy appears strong enough to cope with a stronger franc and its cap is slowing if not preventing the larger adjustment process.

Europe's "Teleportation To Safety" In One ChartZH
2Y Swiss interest rates have dropped to -26bps
EMEA Weekly, Week 23Danske Bank (pdf)

Draghi urges EZ politicians to actKiron Sarkar / The Big Picture
Market overview

HSBC’s Wells Says Central Banks Being PoliticizedBB (mp3)

Levitt Says Bankers' Role at Fed Should Be CurtailedBB (mp3)

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