Tuesday, February 26, 2013

Italian Election gridlocks causes panic in Asian and European markets - Italy imposes short selling ban so kiss liquidity goodbye there..... News and views from Germany , Spain , France as the worm turns in Italy post - election....


http://www.guardian.co.uk/business/2013/feb/27/eurozone-crisis-italy-elections-bond-auction


Closing Summary

Italian politics remains deadlocked tonight after efforts to form an alliance between the centre-left bloc, the Democratic Party, and Beppe Grillo's Five Star Movement collapsed.
However, calm has returned to the financial markets after yesterday's heavy losses.
From Rome, Lizzy Davies sums up the situation:
Grillo unleashed a characteristic tirade of insults on Pier Luigi Bersani, leader of the Democratic party (PD), who on Tuesday extended an olive branch to the M5S in a bid to create a reformist government. The ex-comic ruled out giving a crucial confidence vote in parliament to a centre-left government and reiterated that the M5S's new legion of deputies and senators would vote on laws on a case-by-case basis.
"The M5S will give no confidence vote to the PD (or to anyone else)," Grillo wrote on his blog. "It will vote in the chamber for laws which chime with its programme, whoever proposes them."
Grillo's move appears to thwart Bersani's hopes of forming a working majority in the Senate with Five Star - there is speculation that Italy could face a year of instability.
Here are the other key developments:












http://www.zerohedge.com/news/2013-02-26/merkel-advisor-feld-euro-crisis-will-return-shortly-and-vengeance

( Take that one to the Bank... )


Merkel Advisor Feld: "Euro Crisis Will Return Shortly And With A Vengeance"

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For all the groundless, starry-eyed optimism permeating Europe's bureaucratic corridors of the fading oligarchy these days (because this time is not like every other time that, too, was different), there has always existed one sure, never-fail antidote: Germany, which without fail has managed to ground Europe any time its delusion of grandure hit escape velocity. Sure enough, while all the statist soothsayers who threatened with armageddon if the outcome of the Italian elections happened to be precisely the one that transpired, were stuck in backpedal mode, and scrambling to calm nerves that all shall be well after all, one person who refuses to play by the script is Lars Feld, member of panel of economic advisers to German Chancellor Angela Merkel, who in an interview with the Frankfurter Allgemeine Zeitung tomorrow says the euro crisis is to return shortly and "with a vengeance" as capital loss will lead to higher risk premiums for Italy’s interest rates.


From Handelsblatt, previewing the FAZ Wednesday edition:
The Italian economy would not find their way out of the recession, according to the pessimistic assessment by Lars Feld: "The sustainability of Italian public finances is in jeopardy.The euro crisis will therefore return shortly with a vengeance."

Apparently, the Italians were not ready to move on the path of reform that has been taken by Mr. Mario Monti, Field said.

"You can not expect that Italy's European partners or the ECB will stabilize the Italian economy, when its people are not ready for reform."
And making sure Feld is not alone, he was joined by Anton Boerner, head of Germany’s BGA exporters’ association, who in turn said Italy must reform tax, labor, judicial system or risk "irreparable damage" of euro. Finally, Boerner says if Italy not willing to reform, "we have to think about how to deal with a modified eurozone."

What exactly a "modified" eurozone means we don't know. We will, however, surely find out soon enough.



http://elpais.com/elpais/2013/02/26/inenglish/1361893005_482687.html


Former PP treasurer to sue party for unfair dismissal

New twist to ongoing controversy contradicts assurances that Bárcenas left post in 2010


Former PP treasurer Luis Bárcenas arrives at the High Court in Madrid on Monday. / CRISTÓBAL MANUEL (EL PAÍS)
Luis Bárcenas, the ex-finance manager and treasurer of the Popular Party (PP) who is under investigation for tax evasion and money laundering, has filed a lawsuit against his former party for firing him without just cause, judicial sources told EL PAÍS on Tuesday.
This new twist to the ongoing controversy over the PP’s finances – a scandal that has rocked Prime Minister Mariano Rajoy’s government – comes on the heels of repeated assurances by the conservative group’s leaders that Bárcenas officially stopped working for the party in 2010.
The lawsuit was filed on Monday, the same day that Bárcenas appeared before the High Court to explain the 38 million euros in earnings he once held in Swiss bank accounts. It was also lodged against the PP hours after María Dolores de Cospedal, the party’s secretary general, gave a confusing explanation to reporters that Bárcenas had stopped working in 2010 but came to an agreement with the party to continue drawing his severance pay on a monthly basis, complete with social security payments and tax deductions.
Contradicting De Cospedal’s version, Bárcenas alleges that he was working as a PP advisor from March 2010 up until January 31 of this year, when he found out that the party had stopped paying his social security contributions without his consent. The date of his termination is significant because it was the same day that EL PAÍS published account ledgers purportedly prepared by him that show that top party figures, including Rajoy, received bonuses from a slush fund along with their regular pay for almost 20 years.

Rajoy gave the impression that the former treasurer had cut his links with the party years ago
According to Bárcenas’ lawsuit, between 2010 and 2013 he was paid 21,300 euros a month by the party, which included extra pay bonuses.
Last week, without mentioning Bárcenas by name, Rajoy tried to give the impression that the former treasurer had cut his links with the party years ago.
Bárcenas signed the lawsuit on February 19, soon after he found out that De Cospedal had filed a defamation lawsuit against him and EL PAÍS over the balance sheets, which appear to show that she also received bonuses from the purported slush fund.
For 31 years, Bárcenas handled the PP’s accounts – first as finance manager and then treasurer. In 2010, he stepped down permanently from his post after he was named as a target in the Gürtel kickbacks-for-contracts scandal.
In his lawsuit, Bárcenas outlined his work history with the PP. He said he began working on March 2, 1982 and rose through the ranks to become national finance manager. In June 2008, during a PP convention, Rajoy named him treasurer to replace Álvaro Lapuerta, who had retired.










http://www.zerohedge.com/news/2013-02-26/french-industry-minister-wants-lower-euro-and-currency-war-entry-asap-demands-ecb-st


French Industry Minister Wants Lower Euro And Currency War Entry ASAP: Demands ECB Start Monetizing Debt

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The French industry minister, Arnaud Montebourg, appears to have taken a break from writing rambling, factless letters to US CEOs who have in the past week openlysnubbed and ridiculed his demands to provide jobs to the French labor unions, and instead has focused his brilliant socialist mind on something far more appropriate of its unique polymathness: currency wars, and specifically demands that the ECB finally "get involved." Why? Because if it has not been made clear in the past month, France now blames its lack of expert competitiveness not on the same issues previously highlighted by Maurice Taylor such as disintegrating work ethic and a complete lack of competitive productivity, but on the soaring EURUSD - the same soaring EURUSD (well, not soaring so much in the past few weeks) which is also crushing German exports, but because it is crushing France even more, both Merkel and Weidmann are delighted to put up with it. As a result, Montebourg will have no more of it.

As Dow Jones reports "Mr. Montebourg said that within the current European treaties the ECB can be more pragmatic and less dogmatic. It should act more like other major central banks, which Mr. Montebourg said had monetized debt...There are efforts to be made to bring order to public finances, but thinking that the entire effort should come from taxes and spending cuts is excessive. We should share part of the effort with the monetization of debt." And so a French industry minister, who has already been humiliated once on the international arena in the current month, is about to get his second stern talkdown, this time over what happens when you try to "teach" Merkel and the Bundesbank a lesson. Expect more inbound letters into Arnaud's inbox, which we expect will be even more amusing than those penned by Taylor.

From the WSJ:
France's industry minister Tuesday called for a lower euro and said the European Central Bank's role should be reinterpreted, wading back into a currency debate that had been calmed by an agreement between the world's top finance ministers earlier in the month to refrain from competitive devaluations of their currencies.

"I am for a less-strong euro,"Arnaud Montebourg said at a meeting with journalists in Paris, adding that it is "good news" the euro has recently declined against other currencies.


The single currency has fallen around 4.6% against the U.S. dollar since the beginning of February.

"I am very happy, [the decline] should continue," Mr. Montebourg added.

Earlier this year, French officials complained about the euro being too strong and making the country's exports less competitive. In a speech to the EU parliament in early February, French President Francois Hollande said the euro shouldn't be left to fluctuate according to the mood of the markets and warned that a strong euro wipes out efforts to make economies more competitive.

However, later in February, finance ministers and central bankers from the Group of 20 industrial and emerging countries agreed they would refrain from competitive devaluation and would not target exchange rates for competitive purposes. That commitment has reduced the number of comments from European politicians on the euro and the ECB.

Still, the industry minister also said Tuesday the role of the European Central Bank should be reinterpreted. The Frankfurt based institution's primary mandate is to fight inflation, but Mr. Montebourg said that within the current European treaties the ECB can be more pragmatic and less dogmatic. It should act more like other major central banks, which Mr. Montebourg said had monetized debt.

"There are efforts to be made to bring order to public finances, but thinking that the entire effort should come from taxes and spending cuts is excessive. We should share part of the effort with the monetization of debt, which is natural because it is directly linked to the errors of the banking industry which the central bank did not sufficiently monitor in the past," Mr. Montebourg said.

Perhaps most importantly, the cracks within the European facade are now appearing, as more and more demand that Draghi throw in the towel and proceed to enact the OMT debt monetization, instead of just talking about it: something we predicted would happen some time ago, and as we said, all that was needed was a crisis to allow the ECB to go ahead and monetize debt outright now that it is rapidly falling behind the globla race to debase, and as the market no longer gives it credit for unlimited "off-balance sheet" liabilities.

Sure enough Italy was just that "crisis" that will not be allowed to go to waste.

and....

http://www.guardian.co.uk/business/2013/feb/26/eurozone-crisis-italian-election-deadlock-markets

( A fine mess indeed.... )


What's next for Italy?

Open Europe, the think tank, outlines the potential scenarios for Italy:
  • A national unity government, if Bersani, Berlusconi and Monti join forces – could be possible but may not be enough to avoid snap elections (maybe as early as next year, and after the electoral law is changed);
  • Grillo U-turns and agrees to form a coalition with Bersani’s centre-left alliance;
  • A re-run election (presumably within 3-4 months) (with a caretaker government taking temporary control)
But without a change to Italy's convoluted system of proportional representation, a new election might not help!
Under scenarios 1 and 3, there will be a lot of pressure to change the electoral law before new elections to avoid a similar stalemate. For that, however, there needs to be a majority in both houses, meaning that we’re looking at a potential Catch-22.
Berlusconi, of course, has already said he wouldn't want fresh elections - and other parties also appear opposed.
Here's the likely timescale:
15 March: First seating of the Italian parliament (both chambers).
By 20 March: The speakers of both chambers should have been elected.
After 20 March: Italian President Giorgio Napolitano starts official consultations on the formation of the new government.
However, there's another problem - Napolitano no longer has the power to dissolve parliament, because he is in the last six months of his mandate (his term finished in May).
So if a new vote is needed, there could be months of paralysis while MPs elects a new president, so that parliament could be dissolved.






http://www.zerohedge.com/news/2013-02-26/joke-efficient-italian-market


On The Joke That Is The "Efficient" Italian Market

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Yesterday we joked that we:


Need a short selling ban in Italy. All the evil speculators' fault



Today, we were reminded, that in a socio-fascist, insolvent world, the thin line between the Onion and reality no longer exists:


    Today, we were reminded, that in a socio-fascist, insolvent world, the thin line between the Onion and reality no longer exists:
    • ITALY'S CONSOB CONSIDERS SHORT-SELL BANS FOR HEAVILY SOLD STKS
    • ITALY REGULATORS CONSIDER MEASURES TO TIGHTEN VOLATILITY LIMITS
    • ITALY REGULATOR DISCUSSING VOLATILITY MEASURES WITH EXCHANGE
    And:
    • CONSOB BANS SHORT SALES ON INTESA
    Next, as always happens, will be a ban on selling, then finally, a confiscation of all discretionary accounts by the government. Because the government knows what's best for you, and are here to help you with your "sell" execution.












    http://www.zerohedge.com/news/2013-02-26/renewed-contagion-concern-after-italian-election-stocks-fall-fx-volatility-and-gold-



    Tyler Durden's picture

    Renewed Contagion Concern After Italian Election - Stocks Fall, FX Volatility And Gold Rises


    Italy’s politics were turned upside down yesterday after the election resulted in the dissident, 5-Star Movement of comic Beppe Grillo creating the strongest party in the country, but left no group with a clear majority in parliament. This political uncertainty weighed on the euro as Italy is the Eurozone’s 3rd largest economy. Bullion’s gains were limited as investors await the Federal Reserve chief Ben Bernanke’s semi-annual testimony to U.S. Congress before the Senate Banking Committee today, and tomorrow he visits the U.S. Housing Financial Services Committee. A dovish statement from Bernanke will support gold.  European stocks declined as Italy’s inconclusive parliamentary election renewed concern that the region’s sovereign-debt crisis will deepen. This follows falls on Wall Street yesterday and Asian falling overnight. Huge complacency and even denial about the debt crisis and suggestions that it had been resolved have contributed to investors selling physical gold in recent days.  

    More at the link....


    http://www.zerohedge.com/news/2013-02-26/overnight-sentiment-unhappy-europe-broken-again-italian-yields-soar


    Overnight Sentiment Unhappy As Europe Is Broken Again: Italian Yields Soar



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    While the market will do everything in its power to forget yesterday's Hung Parliament outcome ever happened, and merrily look forward to today's Bernanke testimony (first of two) before the Senate, Europe is not quite so forgiving. Because moments after today's Italian Bill auction in which the now government-less country sold €8.75 billion in 6 month bills at a yield of 1.237% nearly double the 0.731% yield for the same issue previously, things went bump in the night, leading Italian 2Y yields to surge +38bps to 2.086%, vs 2.063% earlier, while the benchmark Italian 10Y yields soared +28bps to 4.766%, vs 4.739% earlier, and just shy of JPM's 5% target. Spain is not immune from the Italian developments, and while it will take the market some time to realize that the next political scandal may be dropping this time in Spain (as reported yesterday), the Spanish 10 Year is already up 7% to 5.23%. Suddenly talk of parity between Italy and Spain may be on the table all over again. And while unlike yesterday there is US macro data, in the form of US consumer confidence, new homes sales and house price data, all the market will care about is soothing Wall Street sellside spin that Italy is not really as bad as everyone said it would be if precisely what happened, happened. With the EURUSD on the verge of breaking down the 1.3000 support, it is very unclear if they will succeed.


    And just in case they fail, the French Industry Minister Montebourg, made infamous from his Titan CEO series of letters, already has a solution - the same solution to everything - as he says the ECB should monetize debt. His goal - to lower the EURUSD.

    France's industry minister Tuesday called for a lower euro and said the European Central Bank's role should be reinterpreted, wading back into a currency debate that had been calmed by an agreement between the world's top finance ministers earlier in the month to refrain from competitive devaluations of their currencies.

    "I am for a less-strong euro," Arnaud Montebourg said at a meeting with journalists in Paris, adding that it is "good news" the euro has recently declined against other currencies.

    The single currency has fallen around 4.6% against the U.S. dollar since the beginning of February.


    "I am very happy, [the decline] should continue," Mr. Montebourg added.

    Still, the industry minister also said Tuesday the role of the European Central Bank should be reinterpreted. The Frankfurt based institution's primary mandate is to fight inflation, but Mr. Montebourg said that within the current European treaties the ECB can be more pragmatic and less dogmatic. It should act more like other major central banks, which Mr. Montebourg said had monetized debt.

    Luckily the world has no currency wars to worry about, or at least the Italian elections pushed them off the front-burner.



    What else? from Bloomberg:

    • Treasuries gain for a second day, with 10Y yields breaking below 50-DMA, 5Y and 7Y yields declining to just above 100-DMAs following inconclusive Italian elections.
    • Bernanke delivers semiannual testimony on monetary policy to Senate Banking Committee; his efforts to rescue economy could result in more than a half trillion dollars of paper losses on the central bank’s books if interest rates rise abruptly from recent levels
    • EUR/USD at 1.3097 after yesterday’s 1.1% decline to as low as 1.3048; Italian stocks slide 4.5%, bond yields surge as Italian party chiefs began jockeying to forge a coalition of rivals, head off a second vote; Bersani and Berlusconi may be seeking to avoid a ballet that would favor populist  Beppe Grillo
    • Japan’s government bond yield curve is pricing in the success of Haruhiko Kuroda in adopting more aggressive easing as the next Bank of Japan governor and his ultimate failure to hit a 2% inflation target
      • There isn’t a measure of money in the U.S. that is forecasting worse times ahead as lawmakers voice alarm that the automatic spending cuts  scheduled to begin March 1 may damage the economy
      • BofE Deputy Governor Paul Tucker said he’s open to adding to asset purchases, suggesting Governor Mervyn King’s defeated push for more stimulus is gaining traction with his colleagues
      • Week’s auctions continue today $35b 5Y, yield 0.768%, WI trading yields 0.788%. Yesterday’s 2Y drew 0.257%, just below 0.26% WI level
      • Nikkei falls 2.3%; European stocks slide,  U.S. equity-index futures gain. German, U.K. bonds rise. Energy, precious metals lower


    Quick market recap:
    • Spanish 10-yr yield up 7bps to 5.23%
    • Italian 10-yr yield up 29bps to 4.78%
    • U.K. 10-yr yield down 7bps to 2.01%
    • German 10-yr yield down 8bps to 1.47%
    • Bund future up 0.86% to 144.75
    • BTP future down 2.98% to 109.17
    • EUR/USD up 0.16% to $1.3084
    • Dollar Index up 0.11% to 81.76
    • Sterling spot down 0.17% to 1.5137
    • 1-yr euro cross currency basis swap down 1bps to -24bps
    • Stoxx 600 down 1.2% to 284.94
    And the comprehensive overnight summary from JPM's Jim Reid
    As of now the centre-left coalition led by Bersani is set to take control of Italy’s lower house, taking advantage of the majority premium where 54% of seats are allocated to the winning coalition regardless of the victory margin. The Bersani coalition took 29.6% of the vote, enjoying the slimmest margins of victory against the Berlusconi coalition (29.2%). The Five Star Movement came in third with a fairly stunning 25.6% of the votes. The Monti coalition trailed a distant 4th with 10.6% (Bloomberg, citing Interior Ministry data)

    Meanwhile in the Senate, it is becoming a near certainty that no grouping will gain a majority. As it stands, with close to 100% of the vote counted, Bersani’s coalition (31.6%) leads Berlusconi (30.7%), the Five Star Movement (23.8%) and Monti’s coalition (9.14%).
    Indeed one of the stand-out features of the poll is that Mr Monti polled at only around 10% nationally. It’s fair to say that his policies/views would have been supported by virtually all the main EU players, including the ECB. Yet only one in ten Italians are prepared to back him. Since the ECB stepped up a gear last year, politics was always going to be the key issue for whether they could truly rescue Europe. The voters have certainly made it clear that they are not prepared to accept the combination of austerity and negative growth that the EU's policies have encouraged. Either Europe needs to change its bias or the voters will cause major issues going forward.
    Late on Monday politicians were already calling for another poll to break the deadlock, while others expressed the fear that the Five Star Movement would only gain in strength if another election was called which might prompt Bersani to try to form a Government somehow. Angelino Alfano, the People of Liberty secretary, said that the lower house result was within the “margin of error” and demanded a review of the results (FT). According to newswires, should new elections be necessary it is possible that the Italian President could appoint a caretaker PM to change the electoral law to increase the likelihood of a definitive result in a new election, but it is worth noting that the parties were unable to agree modifications in the electoral law last year. Overall it now looks like we will get our “risk-off” February we've been expecting due to the Italian elections but our view of a “risk back on” March now looks threatened by the prospects of a stalemate and weeks of uncertainty in Italy.

    Across the Channel, there was some respite for sterling after the UK's downgrade with it gaining 2.5% against the euro from the intraday lows yesterday helped by the risk aversion late in the European session. The pound closed with a gain of 0.97% and is adding a further 0.3% in Asian trading.

    10yr Gilts also rallied by 8.5bp from the day’s highs to close at 2.08% yesterday, a lower level than where they last trading before the Moody’s downgrade on Friday.

    The risk-off trade prompted an aggressive day of buying in US Treasuries. The 10-year UST yield fell 14bps from the intraday highs to close near its lows of 1.864%. This is perhaps also a reflection of market positioning given the much debated topic of the Great Rotation trade lately. The VIX index erased all of its 2013 move with a sharp spike overnight (+35%) while in credit the CDX IG widened 4bps and we are back to roughly where we were at the start of the month.
    Asian markets are following the US lead lower overnight with the Nikkei (-2.3%) taking the lead on a JPY rebound (the yen rallied 1.7% yesterday). The Japanese government is expected to present to the Diet its candidates for the BoJ governor and two deputy governors on Thursday or Friday of this week according to the Nikkei.com. Elsewhere the Hang Seng and KOSPI are -0.89% and -0.47% lower respectively. There are some overnight reports of near-term Chinese macro tightening which is not helping sentiment overnight (China Securities Journal). However Chinese equities are managing to buck the regional trend by erasing earlier losses to trade relatively flat on the day. The weaker overall tone has also brought about more balanced flows in Asian credit although the key indices are still 2-3bp wider on the day.

    Bernanke’s semi-annual testimony to the Congress will be a key event today. The Chairman will testify ahead of the Senate Banking Committee today (3pm London) before doing the same before the House Financial Services Committee tomorrow. Our US economists are not expecting the Chairman to express a meaningful change in viewpoint at this juncture due to lingering uncertainty about the economic outlook but given the increasing focus  around the ‘tapering’ of QE, his words will be closely followed. On that note it’s perhaps worth highlighting a WSJ article by Jon Hilsenrath yesterday who concluded that the fact that Fed officials are talking about tapering and exit doesn’t mean that they are about to turn off the spigot. Many officials still want to keep the Fed’s pedal pressed on the floor – an analogy used by Fed’s Yellen recently. Note that our Peter Hooper thinks that assuming the recent firmness of payroll growth continues he expects the Fed to downshift and eventually end its asset purchases during 2H of this year.

    Outside of the Italian elections and Bernanke's testimony, we also have US consumer confidence, new homes sales and house price data to look forward to today. The US treasury will also auction $35bn in 5yr notes. But in reality, this will all be a sideshow to the developments unfolding in Italy and Washington.