http://www.telegraph.co.uk/finance/financialcrisis/9450986/Debt-crisis-SandP-downgrades-15-Italian-banks.html
"With Italy facing a potentially deeper and more prolonged recession than we had originally anticipated, we think Italian banks' vulnerability to credit risk in the economy is rising," S&P said in a statement.
"In this context, the combined effect of mounting problem assets and reduced coverage of loan loss reserves makes banks more vulnerable to the impact of higher credit losses particularly in the event of deterioration in the collateral values of assets," it said.
Among the rating agency's moves, S&P cut Banca Monte dei Paschi di Siena to BBB-minus from BBB, just one notch above junk.
Banca Carige fared less well, losing its BBB-minus investment grade rating in a cut to BB-plus.
S&P also cut Dexia Crediop, the Italian public financing arm of bailed-out Franco-Belgian bank Dexia, to B-plus from BB-minus.
and if Ireland has been the poster child success for austerity - why are half of their businesses failing ......
WHAT’S THE EU’S ENDGAME?
August 3, 2012
The headline in yesterday’s Irish Independent was eye-catching. It said that half of all Irish businesses are on the verge of collapse, according to stress tests carried out by business and credit risk company Vision-net.
Companies in the hospitality, construction, IT, motor, and wholesale and retail sectors are least likely to survive, Vision-net said. Added to this is the news that five companies went bust every day this month.
This news came on the day that the central bank pronounced that lending to the private sector continues to slide. On an annual basis, lending fell by 3.7 per cent, with mortgage lending down by 2.2 per cent and lending for consumption and other purposes down by 7.9 per cent in June.
Credit for companies also declined, down by 2.9 per cent on an annual basis. Loans to companies fell by €399 million during June, following a decrease of €338 million in May.
We also have new data showing a complete collapse in retail sales last month, more evidence that houses prices continue to fall, news that long-term unemployment has reached 200,000 and four out of every ten people on the dole have been out of a job for over a year.
The picture painted by the most recent data, is one of a domestic economy that is grinding to a standstill. Far from recovering, this evidence screams that the domestic economy is getting weaker. People and companies aren’t borrowing, we are not spending and there are debt and cash flow problems emerging everywhere in the local market while long-term unemployment, the most significant indicator for absent demand, continues to rise.
The picture painted by the most recent data, is one of a domestic economy that is grinding to a standstill. Far from recovering, this evidence screams that the domestic economy is getting weaker. People and companies aren’t borrowing, we are not spending and there are debt and cash flow problems emerging everywhere in the local market while long-term unemployment, the most significant indicator for absent demand, continues to rise.
Doubtless exports are doing well, but this is coming from the multi-national sector, which is part of the global supply chain and hardly indicative of unique competitive gains in Ireland. The big change in Irish competitiveness has come from the fall in the Euro against our major trading partners. As Ireland does 62% of all its trade outside the Eurozone, we benefit more than most from Euro weakness.
But still the weakness in the local market predominates and the better perfomance in exports is not dragging the local economy upwards. In fact it is decoupling from the local economy. The hope would be that the greater production would be leading to increased demand from the multinationals for products that Irish companies can sell them. But it looks like they are sourcing their inputs abroad, implying that the positive effects their hyper-production might be limited to wages of those directly employed in the sector, which is not that high at just over 100,000.
If this trend continues, Ireland will become an economy where there is a highly profitable multinational sector, a large public sector and a smaller and smaller private domestic economy. The private sector will be turned into the debt servicing agency – a type of extractive industry where rent will be extracted to pay for the public sector but where profitability will be tampered by high local costs and an exchange rate, which although now weakened, is still far to strong for our domestic conditions.
If you think the weakened Euro reflects conditions here, just look at the data released by the EU on unemployment yesterday which shows the lowest unemployment rates were recorded in Austria (4.5%), the Netherlands (5.1%), Germany and Luxembourg (both 5.4%), while Ireland’s rate was almost three times that of the core; Ireland’s rate was 14.8%. The Euro is still far too strong for us.But maybe that’s the point.
In the course of the next few years, it is likely that the mandarins and the political elite in Ireland and elsewhere will use the current crisis in the Euro to push for greater integration. Political integration means the end of the nation state – make no bones about it. That’s what it means. With the end of the nation state comes the end of the nations state’s ability to engineer its own policies. The first thing that would go in Ireland is our corporation tax. With this gone, the Americans would be out the door like a flash and what does Ireland do then?
For a few years, the local business sector will be squeezed by high costs, maintained by the costs of a large public sector, the legacy of high debts and an exchange rate that offers no support to local exporters. What happens then?
Maybe we settle into the role of an inoffensive group of 5 million odd people on the western fringes of Europe, kept in a sort of concubine existence by some wealthy neighbours, living on Euro handouts which is in turn are used to buy imports made in the productive core of Europe.
Maybe that’s the essence of the coming European deal. Countries like Spain, Ireland, Portugal, Greece, most of Italy, maybe even the new entrants like sunny Croatia and some other Balkan states, see their domestic economic marrow hollowed out in this crisis and credit crunch, but see their public sectors expand, so there are enough sated appetites to keep everything ticking over.
In such an environment, the fiscal compact is delivered without affecting public sector numbers but by wage freezes, higher taxes and off-shoring of the bits of manufacturing that the core doesn’t want to do.
The ECB – as is becoming clearer – will buy up all the debts, opening its balance sheet and operating more like the Federal Reserve. This goes against every monetary value that the Federal Republic of Germany was built on. Why will the more dogmatic Germans, Dutch and Finns accept the deal unless it is part of a grand bargain?
Rather than the periphery acting as a threat to the core via lower costs, it will be allowed to emasculate itself via higher costs and ongoing credit rationing, reinforcing the industrial dominance of the core.
Maybe this is just a bit of sun getting to your columnist, but sometimes events that appear random and unfathomable – like why a country such as Ireland would actively allow its private sector grind to a halt – happen for a reason. Maybe that reason is that these events fit into a larger plan, someone else’s larger plan.
Otherwise why do Germany and its creditor friends countenance what is happening right now in Europe? Why would they let their central bank be looted to pay for the debts of the peripheral countries and why would they let all that they hold dear about not printing money go out the window?
Otherwise why do Germany and its creditor friends countenance what is happening right now in Europe? Why would they let their central bank be looted to pay for the debts of the peripheral countries and why would they let all that they hold dear about not printing money go out the window?
and.....
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|
The headline in yesterday’s Irish Independent was eye-catching. It said that half of all Irish businesses are on the verge of collapse, according to stress tests carried out by business and credit risk company Vision-net.
Companies in the hospitality, construction, IT, motor, and wholesale and retail sectors are least likely to survive, Vision-net said. Added to this is the news that five companies went bust every day this month.
This news came on the day that the central bank pronounced that lending to the private sector continues to slide. On an annual basis, lending fell by 3.7 per cent, with mortgage lending down by 2.2 per cent and lending for consumption and other purposes down by 7.9 per cent in June.
Credit for companies also declined, down by 2.9 per cent on an annual basis. Loans to companies fell by €399 million during June, following a decrease of €338 million in May.
We also have new data showing a complete collapse in retail sales last month, more evidence that houses prices continue to fall, news that long-term unemployment has reached 200,000 and four out of every ten people on the dole have been out of a job for over a year.
The picture painted by the most recent data, is one of a domestic economy that is grinding to a standstill. Far from recovering, this evidence screams that the domestic economy is getting weaker. People and companies aren’t borrowing, we are not spending and there are debt and cash flow problems emerging everywhere in the local market while long-term unemployment, the most significant indicator for absent demand, continues to rise.
The picture painted by the most recent data, is one of a domestic economy that is grinding to a standstill. Far from recovering, this evidence screams that the domestic economy is getting weaker. People and companies aren’t borrowing, we are not spending and there are debt and cash flow problems emerging everywhere in the local market while long-term unemployment, the most significant indicator for absent demand, continues to rise.
Doubtless exports are doing well, but this is coming from the multi-national sector, which is part of the global supply chain and hardly indicative of unique competitive gains in Ireland. The big change in Irish competitiveness has come from the fall in the Euro against our major trading partners. As Ireland does 62% of all its trade outside the Eurozone, we benefit more than most from Euro weakness.
But still the weakness in the local market predominates and the better perfomance in exports is not dragging the local economy upwards. In fact it is decoupling from the local economy. The hope would be that the greater production would be leading to increased demand from the multinationals for products that Irish companies can sell them. But it looks like they are sourcing their inputs abroad, implying that the positive effects their hyper-production might be limited to wages of those directly employed in the sector, which is not that high at just over 100,000.
If this trend continues, Ireland will become an economy where there is a highly profitable multinational sector, a large public sector and a smaller and smaller private domestic economy. The private sector will be turned into the debt servicing agency – a type of extractive industry where rent will be extracted to pay for the public sector but where profitability will be tampered by high local costs and an exchange rate, which although now weakened, is still far to strong for our domestic conditions.
If you think the weakened Euro reflects conditions here, just look at the data released by the EU on unemployment yesterday which shows the lowest unemployment rates were recorded in Austria (4.5%), the Netherlands (5.1%), Germany and Luxembourg (both 5.4%), while Ireland’s rate was almost three times that of the core; Ireland’s rate was 14.8%. The Euro is still far too strong for us.But maybe that’s the point.
In the course of the next few years, it is likely that the mandarins and the political elite in Ireland and elsewhere will use the current crisis in the Euro to push for greater integration. Political integration means the end of the nation state – make no bones about it. That’s what it means. With the end of the nation state comes the end of the nations state’s ability to engineer its own policies. The first thing that would go in Ireland is our corporation tax. With this gone, the Americans would be out the door like a flash and what does Ireland do then?
For a few years, the local business sector will be squeezed by high costs, maintained by the costs of a large public sector, the legacy of high debts and an exchange rate that offers no support to local exporters. What happens then?
Maybe we settle into the role of an inoffensive group of 5 million odd people on the western fringes of Europe, kept in a sort of concubine existence by some wealthy neighbours, living on Euro handouts which is in turn are used to buy imports made in the productive core of Europe.
Maybe that’s the essence of the coming European deal. Countries like Spain, Ireland, Portugal, Greece, most of Italy, maybe even the new entrants like sunny Croatia and some other Balkan states, see their domestic economic marrow hollowed out in this crisis and credit crunch, but see their public sectors expand, so there are enough sated appetites to keep everything ticking over.
In such an environment, the fiscal compact is delivered without affecting public sector numbers but by wage freezes, higher taxes and off-shoring of the bits of manufacturing that the core doesn’t want to do.
The ECB – as is becoming clearer – will buy up all the debts, opening its balance sheet and operating more like the Federal Reserve. This goes against every monetary value that the Federal Republic of Germany was built on. Why will the more dogmatic Germans, Dutch and Finns accept the deal unless it is part of a grand bargain?
Rather than the periphery acting as a threat to the core via lower costs, it will be allowed to emasculate itself via higher costs and ongoing credit rationing, reinforcing the industrial dominance of the core.
Maybe this is just a bit of sun getting to your columnist, but sometimes events that appear random and unfathomable – like why a country such as Ireland would actively allow its private sector grind to a halt – happen for a reason. Maybe that reason is that these events fit into a larger plan, someone else’s larger plan.
Otherwise why do Germany and its creditor friends countenance what is happening right now in Europe? Why would they let their central bank be looted to pay for the debts of the peripheral countries and why would they let all that they hold dear about not printing money go out the window?
Otherwise why do Germany and its creditor friends countenance what is happening right now in Europe? Why would they let their central bank be looted to pay for the debts of the peripheral countries and why would they let all that they hold dear about not printing money go out the window?
and....
http://www.zerohedge.com/news/sp-downgrades-15-italian-financial-institutions-says-country-faces-deeper-recession-previously-
S&P Downgrades 15 Italian Financial Institutions, Says Country Faces Deeper Recession Than Previously Thought
It is late in the afternoon on a Friday, which means one thing: it is time to dump all left over bad news under the rug. Sure enough, here comes S&P. From Bloomberg:
- S&P CUTS RATINGS ON 15 ITALIAN FINL INSTITUTIONS
- S&P TAKES RATING ACTIONS ON 32 ITALIAN FINL INSTITUTIONS
- BANCA MONTE DEI PASCHI DI SIENA SPA CUT TO BBB-/NEGATIVE/A-3
- BANCA POPOLARE DI MILANO SCRL CUT TO BB+/NEGATIVE/B BY S&P
- S&P SEES ITALIAN BANKS' VULNERABILITY TO CREDIT RISK RISING
- S&P SAYS ITALY FACES POTENTIAL DEEPER RECESSION THAN IT THOUGHT
Full release:
Standard & Poor's Ratings Services today said it has taken rating actions on 32 Italian financial institutions.
These include affirming our counterparty credit ratings on 15 entities, lowering our ratings on 15, removing the ratings on four from CreditWatch negative, and revising the outlook on one.
The rating actions reflect our view of increased credit risk for the Italian economy and its banks. They follow our revision of our economic risk score for Italy, one of the main components of our Banking Industry Country Risk Assessment (BICRA), to '5' from '4'. We have maintained our BICRA for Italy at group '4' and our industry risk score at '4' (see "BICRA On Italy Maintained
At Group '4', Economic Risk Score Revised To '5' On Increased Credit Risk For Italian Banks," published Aug. 3, 2012, on RatingsDirect on the Global Credit Portal).
At Group '4', Economic Risk Score Revised To '5' On Increased Credit Risk For Italian Banks," published Aug. 3, 2012, on RatingsDirect on the Global Credit Portal).
With Italy facing a potentially deeper and more prolonged recession than we had originally anticipated, we think Italian banks' vulnerability to credit risk in the economy is rising. In this context, the combined effect of mounting problem assets and reduced coverage of loan loss reserves makes banks more vulnerable to the impact of higher credit losses particularly in the event of deterioration in the collateral values of assets.
In our opinion, a more severe recession will likely push up the stock of Italian banks' problem assets in 2012 and 2013 to levels higher than we previously expected and high relative to the stocks in other banking systems in Europe. At the same time, the banks' coverage of problem assets through provisioning, which was already low by international standards because of the banks' extensive use of tangible collateral in their assessment of provisioning needs, has fallen further over the past few years.
See the list below for the rating actions on the financial institutions and their relevant subsidiaries.
We will publish individual research updates on the banks identified below, including a list of ratings on affiliated entities, as well as the ratings by debt type--senior, subordinated, junior subordinated, and preferred stock.
RATINGS LIST
The ratings listed below are issuer credit ratings unless otherwise stated.
Ratings Affirmed
Banca Fideuram BBB+/Negative/A-2
Banca Mediocredito del Friuli-Venezia Giulia SpA BBB/Negative/A-3
Banco Popolare Societa Cooperativa SCRL Credito Bergamasco BBB-/Negative/A-3
Banca Aletti & C. SpA
Credito Emiliano SpA BBB/Negative/A-2
Intesa Sanpaolo SpA BBB+/Negative/A-2
Banca IMI SpA
Istituto Centrale delle Banche Popolari Italiane SpA
CartaSi SpA BBB-/Negative/A-3
Istituto per il Credito Sportivo BBB+/Negative/A-2
Mediobanca SpA BBB+/Negative/A-2
MedioCredito Centrale SpA BBB-/Negative/A-3
UniCredit SpA BBB+/Negative/A-2
UniCredit Leasing SpA
Downgraded To From
Banca Carige SpA BB+/Negative/B BBB-/Negative/A-3
Banca di Credito Cooperativo di Conversano S.c.r.l BB+/Negative/B BBB-/Negative/A-3
Banca Popolare dell'Alto Adige BBB-/Negative/A-3 BBB/Negative/A-2
Banca Popolare dell'Emilia Romagna S.C. BB+/Negative/B BBB/Negative/A-2
Banca Popolare di Vicenza ScpA BB+/Negative/B BBB-/Negative/A-3
Dexia Crediop SpA B+/Negative/B BB-/Negative/B
Eurofidi Scpa BB+/Negative/B BBB-/Negative/A-3
Iccrea Holding SpA
Iccrea Banca SpA
Iccrea BancaImpresa SpA BBB-/Negative/A-3 BBB/Negative/A-2
Iccrea Banca SpA
Iccrea BancaImpresa SpA BBB-/Negative/A-3 BBB/Negative/A-2
Unione di Banche Italiane Scpa BBB/Negative/A-2 BBB+/Negative/A-2
Downgraded; CreditWatch Action
Agos-Ducato SpA BBB-/Negative/A-3 BBB/Watch Neg/A-2
Banca Monte dei Paschi di Siena SpA BBB-/Negative/A-3 BBB/Watch Neg/A-2
Banca Popolare di Milano SCRL
Banca Akros SpA BB+/Negative/B BBB-/Watch Neg/A-3
Banca Akros SpA BB+/Negative/B BBB-/Watch Neg/A-3
Outlook Action
FGA Capital SpA BBB-/Negative/A-3 BBB-/Stable/A-3
CreditWatch Action; Ratings Withdrawn
Withdrawn To From
Cassa di Risparmio della Provincia di Teramo SpA N.R. B/Negative/B B/Watch Neg/B
Cassa di Risparmio della Provincia di Teramo SpA N.R. B/Negative/B B/Watch Neg/B
NB. This list does not include all ratings affected.
http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_9310_03/08/2012_455306
Stournaras to meet troika on Sunday to conclude round of talks
  |
Finance Minister Yannis Stournaras is due to meet on Sunday afternoon with the troika officials to brief them on the progress in finalizing the savings.
The final version of the measures, however, will be agreed in early September, when the troika will also finish compiling the review of the Greek program.
Among the subjects that Stournaras will discuss with the representatives of the European Commission, European Central Bank and International Monetary Fund are where else Greece will find more than 200 million in savings so it can avoid cuts to “special” salaries in the civil service and how it will make up a shortfall in revenues that would be caused by allowing Greeks to pay their income tax in instalments.
Sources told Kathimerini that the government has yet to agree with the troika on its plan for income tax to be paid in nine or 10 instalments.
The Greek side had wanted this option to apply to anyone earning under 100,000 euros, while the troika has suggested the ceiling be set at 60,000. If the installment scheme applies, the government hopes to collect 70 percent of this year's income tax by February.
It is not clear if Samaras's wish for low pensions not to be cut will be fulfilled. The government had been aiming to cap pensions at a maximum of 2,400-2,600 euros but there are doubts about whether this would stand up in court.
Given that the savings from such a measure would be fairly minimal, the government may look to trim pensions below 1,000 euros. There will definitely be cuts to all pensions above 1,400 euros.
Despite tense talks on Wednesday, Prime Minister Antonis Samaras managed to secure the support of his coalition partners - PASOK leader Evangelos Venizelos and Democratic Left chief Fotis Kouvelis - who had demanded earlier that the measures be staggered over four years instead of two.
| The premier’s logic - that Athens secures a favorable review from the troika to safeguard further rescue loans and its position in the eurozone - prevailed. But Samaras is said to be keen to ensure the new cuts do not bring further pain to low-income Greeks. Samaras is to meet German Chancellor Angela Merkel in Berlin and French President Francois Hollande on August 24 and 25. |
and Pasok shows signs of further splintering...
Dissent tears at the ranks of PASOK
Dissent was said to be bubbling in the ranks of socialist PASOK on Thursday after six MPs -- including former Prime Minister George Papandreou and ex-Public Order Minister Michalis Chrysochoidis -- voted against a bill paving the way for the government to close down dozens of universities, and party leader Evangelos Venizelos clashed with Chrysochoidis.
The heated exchange with Chrysochoidis came after the ex-minister criticized Venizelos for his reluctance to agree to the implementation of 11. 5 billion euros in budget savings for 2013 and 2014, a stance that some had feared could threaten the cohesion of the fragile coalition government.
The former public order minister reportedly accused the PASOK leader of “playing public relations games with the 11.6 billion euros in measures that he himself had signed,” referring to Venizelos’s approval of the terms of the country’s second bailout deal in February when he was finance minister.
Venizelos reportedly responded angrily to Chrysochoidis, telling him to “get lost.”
The heated exchange caused widespread concern in the party, whose support has plummeted over the past two years chiefly due to the previous PASOK government’s austerity drive, with some suggesting that Chrysochoidis should have relinquished his post as spokesman for the party’s parliamentary group and others maintaining that Venizelos should have sacked him for his criticism of the party leader’s policy stance and for voting down the university bill, which was also rejected by former Health Minister Andreas Loverdos.
Sources close to Venizelos spoke of an “organized attempt to undermine and weaken” the party leader.
and Kouvelis keeps lying to himself as I believe his credibility is less than zero these days....
http://www.athensnews.gr/portal/1/57481
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http://ftalphaville.ft.com/blog/2012/08/03/1106561/the-corporate-deposit-flight-from-spain/
The corporate deposit flight from Spain
BBVA and Santander reported deposit declines of about 1 per cent in the second quarter. While that represents a notable trend, it’s not yet one that should be called alarming.
Unless, points out Citi on Friday, you turn to the corporate and investment banking component in the deposit trend.
As analysts Ronit Ghose and Ignacio Moreno point out:
The 2Q12 results reported in the past few days have highlighted a notable trend in deposit flows for the large international banks headquartered in Europe. The shock received by the Spanish financial system during 2Q12 (two-year government bond yields increased 174bps during the quarter, 10-year bono yields were up 98bps) was reflected in deposit outflows and rising loan/deposit ratios, especially for wholesale banking. While headline group deposits at both BBVA and Santander declined only 1% qoq, corporate and investment banking deposits declined 13% qoq at BBVA and 11% at Santander.Large corporate and institutional clients, who are more sensitive to heightened market risk and deteriorating counterparty credit risk, withdrew funds from the large Spanish banks. During 1H12, BBVA saw a decline in CIB deposits of 10% versus end-2011, Santander 9%. By contrast, HSBC’s CIB deposits were +3% hoh.
Here’s the comparison in chart form:
As Citi notes, such CIB (corporate and investment banking) outflows have now complicated deleveraging plans for Spanish banks, with loan-to-deposit ratios rising noticeably as a result.
That’s to say, continued loan growth is currently not being underpinned by deposit growth.
http://www.zerohedge.com/news/jpm-says-short-spanish-10-years-until-775
JPM Says To Short Spain 10 Years Until 7.75%, Forcing A Spanish Bailout Request
The short-end of the Spanish curve is collapsing rapidly, and at last check was tighter by nearly 70 bps even with the 10 Year essentially unchanged, for one simple reason: more hope and prayer. This time we have completely unconfirmed and unverified talk that either the ECB will hold another conference, or that Spain will finally request a full blown bailout. Neither is likely to happen, certainly not on a Friday. In other words, the rapid steepening of the curve on more "talking" will not last. What will however, is increasingly negative sentiment toward the longer end of peripheral country bond curves. To wit, here comes JPM recommending a new short position in Spanish 10 Years. Below is the full text of JPM's Gianluca Sanford saying to short the Spanish 10 Year until it touched 7.75%. Why 7.75%? Because that is the level at which Rajoy will have no choice but to demand a bailout. The irony is that the market, by frontrunning politicians, continues to make the required political decision impossible - welcome to the new normal. Paradoxically, only after the market has fully abandoned hope, can the desired outcome happen. But it will take the broken market a few more weeks to figure this out.
From JPM
Mario Draghi disappointed markets at the ECB press conference on Thursday. After his bold comments in London last week led many investors, including ourselves, to expect the imminent re-start of the SMP purchase program, Draghi failed to announce any new immediate measures. Rather, he announced that:
- Any SMP bond purchases require that the country in question formally requests EFSF/ESM bond-buying support.
- This request needs to have the appropriate conditionality negotiated, and go through the normal approval processes (Eurogroup finance ministers / parliamentary approvals where required).
- Only in the context of a formal EFSF/ESM bond-buying program will the ECB consider SMP purchases for a given country. Steps (1) and (2) are necessary but not sufficient conditions to re-start SMP.
Separately, Draghi stated that a) steps will be taken to address investors’ concerns about official-sector seniority, although we are doubtful that this can be done in a credible manner, and b) future SMP purchases would focus on the “shorter part of the yield curve”. In general, details were short and Draghi mainly promised that the “modalities” would be “concretized” over the next few weeks. Other options remain on the table (such as loosening of collateral restrictions, lowering of collateral haircuts, LTROs etc.) but there is significant uncertainty over timing and effectiveness of these other measures.
Clearly, Draghi’s statements were negative for markets, as they indicate that no SMP support will be forthcoming in the near-term. First, the ECB imposed clear conditions on ECB support (and again, note that seeking EFSF/ESM support is necessary but not sufficient). Second, although we think that Spain could theoretically formalize and negotiate a bond-buying request over a relatively short time period (e.g. 1-2 weeks), we do not think Spain is willing to do so anytime in the next few weeks. For instance, Spain’s next bond auction is on 6 September, suggesting little short-term funding pressure; Spain next auctions T-bills on 21 August. Third, note that if Italy were to seek bond purchases from the EFSF/ESM, or Spain were to seek a much larger intervention than the €30-40bn we have previously discussed, it would take much longer to negotiate with political leaders (on the timeframe of months).
Thus, in the absence of the prospect of near-term SMP intervention, we recommend re-entering shorts in 10Y Spain. We target a 10Y yield level of 7.75%, vs. current levels of 7.12%. Spain reached 7.75% on an intra-day basis in late July, and was trading near this level prior to Draghi’s comments last week (Exhibit 1).
We also recommend closing our 2s/4s Spanish curve flatteners. Draghi’s statement that any future SMP purchases will focus on the short end of the yield curve, will likely focus yield pressure on the long end of peripheral yield curves. Thus we recommend exiting this trade at a loss.
and....
http://www.telegraph.co.uk/finance/debt-crisis-live/9448380/Debt-crisis-live.html
13.21 Finally! Mr Rajoy is asked if he will seek aid from the eurozone's temporary bail-out fund - the European Financial Stability Facility (EFSF). He replies that he "hasn't taken any decision".
13.18 Thanks to reader crabbyhappy for this translation:
Watching Rajoy live just now. Really interesting. Spain owes 900 million euros (the state). The autonomous communities owe money (these are external debts). Rajoy keeps giving the equivalent figure in pesetas.
He says there are 5 lines or objectives to remove Spain from this crisis. 2 objectives his government can control. 3 objectives are in the hands of the EU. He has written to Van Rompuy and Barroso demanding greater fiscal integration.
His main aim is that the country spends less than it makes. So more austerity seems to be the answer. With a message that a bailout as the EU seem to be pushing for could cost up to 900 million euro!
13.07 Mr Rajoy stresses that June's EU summit agreements must be implemented.
He says he wrote to European Council president Herman van Rompuy and European Commission president Jose Manuel Barroso to ask for deeper EU integration. He wants a banking union approved at the December summit.
Mr Rajoy says the government will plough on with reforms. He adds:
The government knows what it is doing and where it is going.
12.57 Mr Rajoy is listing the austerity measures his government has implemented so far.
12.54 Oh dear, it seems Mariano's subconscious thoughts are surfacing after all...
12.49 He says Spain's borrowing costs have been rising at a spectacular pace. The country will lose credibility if it does not cut its deficit, he adds.
12.46 Can anyone who speaks Spanish confirm this?
12.42 Mr Rajoy says that the country must tackle its deficit in order to overcome its economic problems. He says the country needs to solve its liquidity problems so it can fund itself at reasonable levels.
12.40 Mariano Rajoy has started speaking in Madrid. You can watch the press conference live here (in Spanish).
12.02 The euro has climbed by almost a cent against the dollar today, to $1.2287, and half a cent against sterling, at €1.2687.
11.54 Mariano Rajoy will hold his regular press briefing at 12.30pm UK time.
11.46 Earlier this morning, Erkki Liikanen, Finland's central bank governor said that the ECB was "ready to act" and would consider taking independent action in the secondary market.
He told Finnish TV that any bond buying would differ from the "limited" scope of the Securities Markets Programme (SMP). He said:
When preparations are over, we are ready to act [...] ECB’s decision-making process is such that it can always act. The ECB is always ready to act.
11.32 Spanish 10-year borrowing costs have fallen back below the 7pc mark, at 6.97pc.
11.18 Rumours that Spain could ask for official support from the EFSF (see 10.53) have been quashed by the EU this morning, SpokesmanAntoine Colombani told reporters:
There has been no request by any member state, as I’ve said before as well, to resort to the instruments.
10.53 Can I stress that this is only a rumour, but it's gaining traction among market watchers:
PM Mariano Rajoy was due to address parliament this morning, but still no sign of him...In a joint press conference with Mr Monti yesterday, he declined to answer several questions about whether the country would ask for assistance from the eurozone's bail-out funds.
10.46 Mario Monti's government has won final approval for a package of growth-boosting measures to counter the effects of several rounds of belt-tightening in Italy.
The package includes home improvement incentives, and funding boosts for infrastructure and research projects.
10.39 An interesting note by Steve Major, global head of fixed income research at HSBC, examines how low Spain's short term borrowing costs could go if it swallows its pride and takes the begging bowl to Brussels:
What really matters is that Draghi has moved the debate along so that convertibility risk, highlighted a week ago, will allow the ECB to make unlimited bond market intervention. Theoretically, the ECB could drive the short-end of the yield curve to extremely low levels if a country requested the intervention and was prepared to meet the conditions. Indeed there would be a strong incentive for a country like Spain, for example, to comply with these conditions if its short term funding rates were driven down 300bp to sub-2pc levels. Draghi may have disappointed some of the wilder expectations but in HSBC FI Research’s view it will now be extremely dangerous to take short positions at the front end of the Spanish curve.
10.11 Eurozone retail sales edged up in June, although a decline in non-food items dragged down growth.
Monthly sales across the 17 nation bloc rose by 0.1pc in June, following a 0.8pc rise in July. Across the EU, sales fell by 0.3pc, according to Eurostat data. It said:
09.39 The UK services sector isn't faring too well either, and those "one-off" factors continue to hurt Britain's recovery.
The Markit/CIPS Services PMI fell to 51.0 in July, from 51.3 in June. This was below economists expectations of 51.6, and the lowest reading since December 2010.
Markit said that "temporary factors – poor weather in the first half of July and, in some instances, disruption in the lead up to the Olympics – combined with a tough economic climate depressed growth during July".
Britain's services sector accounts for 75pc of the UK economy.
09.12 Separate data also highlighted big differences between countries.
Italy saw new business decline at the fastest rate since March 2009, and Markit said that "for the first time since the launch of the survey in January 1998 firms generally expected output to be lower in a year’s time than current levels".
In France, services activity stagnated, while in Spain, the rate of job losses accelerated. Germany and Ireland were the only countries to post an expansion in services, although Markit said that overall output in Europe's biggest economy fell to a three year low.
Markit's Composite PMI is a good indicator of overall GDP growth across the eurozone (Source: Markit)
09.06 The eurozone's dominant services sector continued to shrink last month, although the contraction was not as deep as expected.
Markit's eurozone Services Business Activity Index, which measures the performance of the services sector, rose to 47.9 in July, from 47.1 in June.
This was better than the 47.6 forecast by economists surveyed by Bloomberg, though still well below the 50 level that divides growth from contraction.
Its eurozone Composite Purchasing Managers’ Index, which measures overall activity in the manufacturing and services sectors, edged up to 46.5, from 46.4 in June.
08.41 Spanish long-term borrowing costs remain stubbornly above 7pc, at 7.28pc, though short term borrowing costs continue to decline on Mr Draghi's comments that ECB bond purchases would focus on the shorter end of the yield curve.
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