Monday, May 6, 2013

Europe Financial and Political News wrap for May 6 , 2013 - Greece , Spain , Europe's Shadow Economy , The Sovereign Bond Market ( with Japan closed , yields move wider on the day ) ....... Third Anniversary of Flash Crash Numero Uno !

Europe wrap - items of note for the day.....

http://www.telegraph.co.uk/finance/financialcrisis/10039329/German-euro-founder-calls-for-catastrophic-currency-to-be-broken-up.html


Ambrose Evans-Pritchard
By , International Business Editor
9:30PM BST 05 May 2013
Comments1008 Comments
"The economic situation is worsening from month to month, and unemployment has reached a level that puts democratic structures ever more in doubt," he said.
"The Germans have not yet realised that southern Europe, including France, will be forced by their current misery to fight back against German hegemony sooner or later," he said, blaming much of the crisis on Germany's wage squeeze to gain export share.
Mr Lafontaine said on the parliamentary website of Germany's Left Party that Chancellor Angela Merkel will "awake from her self-righteous slumber" once the countries in trouble unite to force a change in crisis policy at Germany's expense.
His prediction appeared confirmed as French finance minister Pierre Moscovici yesterday proclaimed the end of austerity and a triumph of French policy, risking further damage to the tattered relations between Paris and Berlin.
"Austerity is finished. This is a decisive turn in the history of the EU project since the euro," he told French TV. "We're seeing the end of austerity dogma. It's a victory of the French point of view."


http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_06/05/2013_497483


IMF's mixed report on Greece feeds into political row about economic recovery


The government was accused on Monday of trying to cover up the dire state of Greece’s economy through positive spin as an International Monetary Fund report praised the country for progress in terms of public finances and competitiveness but stressed the need for more structural reforms.
Writing at the end of a review of the Greek fiscal adjustment program, IMF staff said that Greece’s consolidation had been “exceptional by any international comparison” and that the country had achieved “a significant dent in its competitiveness gap.”
However, they also highlighted the slow pace of change in terms of tax collection and the public administration. “Very little progress has been made in tackling Greece’s notorious tax evasion,” the IMF said in a statement on Monday. “The rich and self-employed are simply not paying their fair share.”
The officials added that labor market reforms had “only to a very limited degree been reflected in lower prices” due to barriers to competition. They also said that “the over-staffed public sector has been spared [job losses], because of a taboo against dismissals.”
The Washington-based organization called on the coalition to deliver “deeper political commitment to tax administration reform” and to carry out some “mandatory redundancies” in the civil service rather than relying on “voluntary attrition.”
The IMF said there was “no more room for tax increases or major cuts in discretionary spending.” It also voiced its opposition to “attempts to artificially engineer growth” through development banks, tax-free zones and subsidies targeted at specific sectors. This appears to be contrary to the government’s hopes of reducing value-added tax in the food service sector.
The report identifies Greece public debt as being too high and underlines that its eurozone partners will need to live up to their commitment to provide “additional relief if needed.” So far, the eurozone has not identified what this might be and all talk of an official sector debt restructuring has been rebuffed.
The IMF’s statement was issued a couple of days after Finance Minister Yannis Stournaras told a German newspaper that Greece had overcome the worst of the crisis.
Speaking to the Frankfurter Allgemeine Zeitung, Stournaras said Greece still had “a long road ahead” but that the unity between the three coalition parties was helping the government’s work.
Stournaras also played down the possibility of social unrest as a result of continuing austerity and recession. “There is no way we are close to a social explosion,” he told the paper, adding that the only protests are in the public sector as other Greeks can “see light at the end of the tunnel.”
Stournaras’s interview coincided with Greece receiving from its eurozone partners the 2.8 billion euros cleared after Athens adopted a new round of structural reforms, including 15,000 dismissals in the civil service, last month.
However, his comments were met with derision from main opposition SYRIZA, which accused the government of attempting to gloss over the impact of the crisis.
“These public relations interviews cannot cover up the economic and social reality that the Greek people are living... they cannot make black white,” the leftist party said in a statement on Monday. “The possibility of a recovery is not something that fits within the framework of the [EU-IMF] memorandum.”
An opinion poll published by To Vima weekly on Sunday suggested that Greeks are still skeptical about the country’s prospects. According to the Kapa Research poll, 26.6 percent of Greeks expect to see a recovery in 2020 or earlier, 31.2 percent believe it will come after 2020, while 34 percent do not think it will happen at all. The poll, conducted on a sample of 1,404 respondents, also indicated that 43.7 percent of Greeks are not hopeful and are not making plans for the future.
In its spring estimates for European Union economies published on Friday, the European Commission said it expects Greece’s gross domestic product to fall by 4.2 percent this year, rather than the original forecast of 4.4 percent.




http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_06/05/2013_497490

Gov’t must tap markets immediately

 Athens should heed example of companies to cover possible additional needs in banks’ recapitalization
By Dimitris Kontogiannis
Greece may need extra funding beyond the adjustment program’s projections in the next 10 months, despite a better-than-projected fiscal performance in the first quarter of 2013, largely due to likely bigger bank recapitalization needs. To avoid the bail-in of bank depositors, which would likely lead to the fall of the coalition government, the country will have to intensify efforts to raise as much money as possible from the markets. There are some encouraging signs, suggesting this is possible.
About three weeks ago, we argued Greece will have to take advantage of some favorable developments on the fiscal front and external accounts to tap the international capital markets in the second half of the year for the first time since 2010 and start building its yield curve. The latter, which is also known as the term structure of interest rates, depicts the relationship between market interest rates and the remaining time to maturity of debt securities. Auctioning 12-month treasury bills to mostly international investors would be a good first step in that direction.
Around the same time, Moody’s Investors Service put out a report saying the outlook for Greece’s banking system remained negative on still-high Greek sovereign exposures and most importantly on the continuous erosion of banks’ asset quality on the back of the deep and prolonged economic recession.
In the report, Moody’s central scenario assumed continued economic contraction and estimated Greek banks will need an additional capital boost of 8 billion euros, emanating from their loan book losses alone. This was after the sector’s recent 40-billion-euro recapitalization by the state-owned Hellenic Financial Stability Fund (HFSF), it noted.
The reference, which unsurprisingly did not get much publicity locally, coincides broadly with private estimates by some bankers and analysts, putting the figure between 5 and 15 billion euros. Normally, this should cause little alarm since the program has set aside some 50 billion euros for winding down and recapitalizing banks while banks can spare some capital via asset-liability techniques. However, some 10 billion euros from the 50-billion-euro pool appears to have been used to buy back Greek debt last December so there appears to be an issue. It is reminded the controversial buyback turned out to be a success, resulting in the reduction of the public debt by about 20 billion euros.
With the economy contracting more than projected in the last couple of years and unemployment surging to 17 percent, nonperforming loans (NPLs) have turned out to be bigger than projected by Blackrock’s diagnostic tests on banks’ loan books over the 2011-14 period. Bankers and analysts agree new diagnostic tests, incorporating recent data and assumptions about the economy, will point to larger capital needs. It is noted local credit institutions are implementing share capital increases to meet the capital adequacy requirements.
Government officials and others suspect the representatives of the creditors will ask for new stress tests when they return to the country next June. Some do not rule out that the state may need additional funding due to a hiccup in the economic adjustment program. But official creditors have made it clear there will be no new loans for Greece, so there are three options left if the country needs significant additional funding.
It can impose new austerity measures to enlarge the primary surplus or/and tap the international capital markets or/and bail in depositors. Imposing new austerity measures will be very difficult at a time the anti-austerity camp appears to be gaining ground in the EU and Greece has been administered an overdose. The bail-in option is not politically acceptable since it will likely lead to the collapse of the coalition government. Therefore, the more benign option is for Greece to raise the extra money from the capital markets. Of course, the country could also get an advance from the EU structural funds for the 2014-20 time span, but this requires the approval of its partners and may be accompanied with new conditions.
So the country may have to tap the international markets faster than some government officials envisaged just a few weeks ago. Local media outlets have reported the government had been aiming for 2014. In addition to help from fiscal data where revenues exceeded primary expenditures by almost 1 billion euros on a cash basis at the general government level in the first quarter, the government can take heart from listed companies tapping the bond market lately.
Hellenic Petroleum, in which the state has a significant minority stake, raised 500 million euros a few days ago by selling a four-year bond at an interest rate of 8 percent. The issue was oversubscribed six times, a sign of strong investor appetite at these high interest rates. Other listed companies are reportedly planning bond issues in the weeks ahead.
Of course, it may not be politically acceptable and economically sound for the state to borrow a good amount via a bond issue for a tenor of five to seven years and pay an interest rate of 8 or 9 percent. However, it may be feasible to do the same at a rate of around 7 percent and there are reasons to believe a window of opportunity may open at some point in the next four to five months.
Greece will likely need extra funding in the next 10 months to cope with bigger bank recapitalization requirements and a possible hiccup in the EU-IMF approved adjustment program. Since the country’s official creditors have ruled out the extension of new loans, the imposition of new austerity measures is a red flag and the government does not want to hear about a bail-in of depositors, Greece should follow the lead of listed companies and prepare the ground for raising some good amounts from the markets in the months ahead.






http://globaleconomicanalysis.blogspot.com/2013/05/senior-eurozone-official-as-spain-goes.html

( Of course the Euroland  Technocratic  Dictators actually desire and require additional chaos to steal more powers and controls over the Eurozone... )


Monday, May 06, 2013 2:37 PM


Senior Eurozone Official: "As Spain Goes, So Goes Slovenia"


The spotlight is once again on Slovenia. Olli Rehn, the European commission’s economic chief is unhappy with economic progress in Slovenia and is threatening to put the country into an "excessive imbalances procedure" by the end of the month.

The problem is, Spain is in a similar "excessive imbalance" state prompting an unnamed eurozone official to state "As Spain Goes, So Goes Slovenia".

Please consider Brussels trains its sights on Slovenia.
 The European Commission is being pushed to take a tougher line with Slovenia amid mounting concerns that infighting is hampering the country’s ability to overhaul its banking sector and avoid becoming the next rescue target in the eurozone crisis.

According to two senior eurozone officials, concerns have focused on “non-cooperation” between Slovenia’s finance ministry and central bank, which is responsible for supervising the financial sector. One of the officials said the central bank was being “obstructionist” towards the new government’s clean-up efforts.

The central bank’s role could prove particularly problematic because the three largest Slovenian banks – most in need of a rescue – are state owned, raising questions about the supervisor’s ability to evaluate their needs impartially. “T

Concerns about Spain, however, are hampering the commission’s decision. Madrid was formally warned about its economic imbalances last month and some believe it may not be possible to impose new controls on Slovenia without doing the same for Spain – a move that commission officials worry might spark wider market unease.

“As Spain goes, so goes Slovenia,” a senior eurozone official said. The country has a governance problem of major proportions,” the official added.
Backwards Statement

The senior official has things backwards. Here is the correct statement "As Slovenia Goes, So Goes Spain". And Slovenia is going the same way Cyprus, Ireland, Greece, and Portugal went.

There is no hope for Slovenia or Spain, at least inside the eurozone.

Mike "Mish" Shedlock





http://www.zerohedge.com/news/2013-05-06/greek-finmin-proclaims-worst-over-imf-warns-rich-not-paying-fair-share

( Greek recovery - things going so swimmingly , even a Greek Caveman can see it !  Sarcasm off .....)


Greek FinMin Proclaims "Worst Is Over" But IMF Warns "Rich Not Paying 'Fair' Share"

Tyler Durden's picture
Submitted by Tyler Durden on 05/06/2013 17:28 -0400



As the IMF delivers its first 'health check' on Greece since 2009, the beleaguered nation's finance minister proudly proclaims, "the worst is over," and the country had reached its economic trough. However, while the finance minister appears unaware of the people living in caves, the record youth unemployment (that is rising still), and the accelerating non-performing loans (no green shoots there), the IMF remains a little less confident, "Greece's debt remains much too high". As the Sydney Morning Herald reports, Stournaras added that''in May 2014, the loan installments will come to an end and the country has to be in a position where it can go on its own to the markets.'' We can't wait (with GGBs under 10% yield to see which greater fool snaps up those beauties).The IMF is a little less sanguine warning Greece of its "insufficient structural reforms," and worries of the "socially painful recession." The last jab, in line with the new normal 'template' (that is not a template but really is), "very little progress has been made in tackling Greece’s notorious tax evasion," as the IMF demands, "the rich and self-employed are simply not paying their fair share."

...

Yannis Stournaras said ''the worst is over'' and the country had ''reached the [bottom of the] trough''.

...

Mr Stournaras said attempts to fix the country's parlous public finances are starting to bear fruit, and could allow it to return to financial markets as early as next year.

Athens is on course to deliver a primary budget surplus - which does not take into account debt payments - a year ahead of schedule. He added the country had already pushed through two-thirds of the reform measures needed to address the huge holes in the nation's budget. Interest costs on Greece's massive debt have been sharply reduced by the debt restructuring the government has made.

...

''Whether Greece is able to take the first step of independence from the troika will depend on all that has to happen by then,'' Mr Stournaras told Greece's To Vima newspaper. ''In May 2014, the loan instalments will come to an end and the country has to be in a position where it can go on its own to the markets.''

He told Germany's Frankfurter Allgemeine Zeitung that there were indications that the worst is over. ''For instance, the central bank of Greece told me industrial production is stabilising. Production isn't falling any more and we appear to have reached the trough.''

Well if the Central Bank of Greece told you then it must be true!!

Via WSJ,
...

Greece's debt remains "much too high" and European commitments to lighten it are welcome...

...

The IMF's recommendations in its latest review of Greece's bailout program bring to the fore the need for future "official-sector involvement" in Greece's €173.5 billion ($227.5 billion) bailout, meaning that governments could in some way forgive some of the money Greece owes them. This so far has been a no-go topic for many of Greece's euro-zone partner countries, Germany in particular.

...

The IMF said Greece's banks should be fully recapitalized by mid-2013, cautioning against "undue government interference." It added that the whole banking sector should focus on containing and reversing "the mounting tide" of loans in the red.

...

While Greece will need to find more savings through to 2016 to reach a targeted primary surplus of 4.5% of gross domestic product, the IMF said there is "no room" to tax Greeks more and there is hardly any space left for more cuts in discretionary government spending.


http://www.zerohedge.com/news/2013-05-06/spains-bad-bank-foreclosed-properties-only-6000-83000-units-have-tenants

( The only question is does Spain blow up prior to the German Elections ? ) 


Of Spain's "Bad Bank" Foreclosed Properties, Only 6,000 Of 83,000 Units Have Tenants


Tyler Durden's picture
Submitted by Tyler Durden on 05/06/2013 12:49 -0400

There is a reason why Spain's "Bad Bank" has that name (its official designation is far more jovial: SAREB) - because it is full to the brim with "assets", mostly residential loans, that no longer generate cash flows, and which are capitalized increasingly more with taxpayer cash. How much assets? At last check some €50.7 billion. The problem is that since real, documented cash flows from the real economy, not the fake, made up one reflected by various stock indices, are what funds (or don't as the case may be) said assets, the liabilities will soon be in need of more equity infusions. Specifically, there is a total of €50.7 billion in liabilities consisting of senior debt, and an equity capital buffer of €4.8 billion. Alas, this liquidity buffer will hardly be enough as more and more loans are defaulted on and turn "non-pay" (i.e., the rise of NPLs drowns out the "reserve"), while cash has to be paid out - constantly - to satisfy the liabilities cash interest demands.
So just how bad is the NPL picture for the SAREB? Reuters has the most recent breakdownwhich is as follows: "Of its loans, only 22 percent are considered "normal"; 34 percent are rated "substandard" and 45 percent "doubtful"." The "normal" loans are linked to finished products which arguable are easier to monetize, and yet there has been zero end-market demand for said "assets" despite a global central bank liquidity injection that has made the global credit carry trade the only game in town. The reason there is no interest is that there simply is no chance these assets will generate the needed cash flows to make anycash on cash return a possibility:
Most of the loans are linked to finished properties, for which it might be easier to find a buyer, but 4.3 percent are for unfinished developments and nearly 10 percent are for empty lots, for which there is little or no demand.Nearly all of the foreclosed properties in its portfolio are empty, including apartment blocks far outside big cities. Only 6,000 of nearly 83,000 housing units have tenants.
Keep in mind that in Spain, unlike the US,mortgages are recourse, and thus walking away from one is far more complicated than it is in the US. It means the bank can "pursue and pursue" the borrowers until it gets paid back in full. 
Most importantly, it also means that by the time a borrower is in default on their mortgage, they have already defaulted on virtually all other debt in their possession, very much unlike in the US where defaulting on one's mortgage is usually the first thing a financially troubled household will do.
The logical next step is what has been clear since last summer when Spain announced the first bailout of its banking system: what it has provisioned for future losses will be far less than the final shortfall. From Reuters:
Spain's bill to bail out its banks may yet rise, some bankers and analysts fear, as a worsening economy hampers the government's early attempts to sell off nationalized lenders and threatens the "bad bank" housing their rotten property deals.

The 8 percent capital cushion may however be too thin to withstand losses without a top-up, which could be hard to source from the private sector, said several senior Spanish bankers and investment bankers who have worked with the government.

"It was a big mistake. The government is going to have to take over the entire vehicle sooner or later," said a Spanish banking executive, on condition of anonymity, echoing a view from three other senior bankers.

If the liabilities of the bad bank, known by its Spanish-language acronym Sareb, were to be put on the state's balance sheet, it could add up to another 5 percentage points of GDP to the country's debt, pushing it to more than 100 percent of annual output. Spain's economy ministry declined to comment.
What is most ironic, and shows just how short-sighted market "thinking" has become, is that while no one is willing to purchase the SAREB's NPLs outright, they are more than happy to buy them indirectly when covered by Spain's "sovereign" wrapper, which in turn is funded by an implicit German guarantee. Because should Spain fail to fund its deficit and its insolvent banking sector, the Euro is done. And while it is unclear if German resentment of a periphery which has now officially declared austerity dead and buried, is enough to tell it there is no longer any guarantee to fund a profligate lifestyle, what is clear is that the deteriorating Spanish economy will need much more capital to funds the rug under which it has so far swept the bulk of the financial biohzarad in its economy.
Sareb does have a contingency plan for shoring up capital, which involves restricting eventual dividend payments to shareholders, the source said. Otherwise fresh capital will have to come from investors - the state, or sound banks, some of whom had came under pressure from the government to invest.

A spokeswoman for Sareb said "the contingency plan is the sales plan", which entails selling almost half of assets over the next five years and paying down half of the debt.
Sell NPLs to whom? Not even Japan is (hopefully) that stupid, and this despite being able to fund Spanish purchases at absolutely zero cost courtesy of the BOJ's latest monetary expansion.
While most banks maintain they have stocked up on enough capital to counter growing provisions for losses, a handful of analysts still believe some will have to do more to ward off problems outside the real estate realm.

The Bank of Spain on Tuesday tightened the rules on how banks classify bad debt in cases of refinancing, in a move that could force lenders to recognize more bad debt.

Ratings agency Moody's had forecast last October that banks had a 100 billion euro capital gap, rather than the 54 billion euros projected by Oliver Wyman in its stress test.

"Despite all the developments, it's difficult to see that all of that 100 billion euros is cancelled out," Alberto Postigo, analyst at Moody's, said.
Actually the final number will be far worse. The reason, as in the case of Cyprus, as in the case of Slovenia next, as in the case of every European country where the broader population is increasingly shifting to the shadow economy, is a simple and recurring one: non-performing loans. And as the following chart from BofA shows, when one strips away all the shiny veneer, the real problem in Europe is only getting worse.



http://www.zerohedge.com/news/2013-05-06/europes-shadow-economy-big-germany

(  Note the underlying report is dated February 2012 - think the tax evasion for France , Spain and Italy has gotten better or worse since then ? ) 



Europe's Shadow Economy: As Big As Germany


Tyler Durden's picture
Submitted by Tyler Durden on 05/06/2013 15:34 -0400

On an unweighted average basis, European shadow economies are 22.1% of total economic activity or around $3.55 trillion (as large as Germany's whole economy). A report by Tax Research, suggests that Austria and Luxemburg have the smallest shadow economies in the euro area at 9.7% of GDP, while Bulgaria at 35.3% and Romania at 32.6% top the list. Of the major economies, Germany clocks in at 16%, France at 15%, Italy at 27% and Spain 22.5%. Stunningly, in terms of tax revenues lost, the shadow economy translates into an estimated €864bn or just over 7% of euro area GDP and, in context, accounts for 105.8% of the enture healthcare spending of the EU. It appears that more and more Europeans have no choice but to shift to a shadow economy (as taxes rise among other things), and this is the biggest threat to the entire economy. This is likely one reason the 'austerity' actions have not been successful since far less taxes are being paid via the conventional channels.

The average shadow economy is 22.1% of the nation's economy...

Which equates to some dramatic absolute numbers...
and the corresponding losses of taxes are huge...

16 EU member states have a situation where the tax lost as a consequence of the existence of the shadow economy as a proportion of the annual deficit exceeds 100% - suggesting that tackling tax evasion could, in theory, entirely clear the annual deficit. Though of course, the politicians will not see the unintended consequence of that 'evasion' tackling that merely drives the economy more underground.



http://www.zerohedge.com/news/2013-05-06/japan-holiday-european-bonds-have-worst-day-six-weeks

With Japan On Holiday, European Bonds Have Worst Day In Six Weeks

Tyler Durden's picture
Submitted by Tyler Durden on 05/06/2013 11:47 -0400



With Japan in the middle of Golden Week (and the UK on holiday), it is perhaps no surprise that European sovereign bonds sold off today. After an epic month, which saw Italian bond spreads collapse around 100bps, today's 10bps widening in spread is the worst in six weeks (and Spain was of similar magnitudes). Equity indices were mostly in the red today (though not dismally) with Italy and Spain down 0.3% and 0.6% resepectively. The Swiss OMX was the only index in the green today. Draghi's comments that "he stands ready to act again" sent EURUSD gapping down 50 pips hovering arund 1.3070 by the close; but it was EURJPY and AUDJPY that were diverging bearishly from risk assets in general.

Worst day for European bonds in six weeks... as the 250bps Italy floor holds...

Stocks weakened first but bonds went out at their worst levels of the day...

EUR gapped down on Draghi's comments...

Charts: Bloomberg


Quiet Overnight Session On Third Year Anniversary of Flash Crash

Tyler Durden's picture
Submitted by Tyler Durden on 05/06/2013 07:01 -0400



On the third year anniversary of the flash crash, and in a week in which earnings season unwinds and in which there is very little macro news, the bulk of the newsflow happened overnight, starting with a drop in the Chinese Service PMI, which tumbled from 54.3 to 51.1, the lowest in two years, then we got Australian retail sales which dropped -0.1% on expectations of 0.4% gain, indicating that the Chinese slowdown is dragging down the entire Asia-Pac region further.
Afterwards, we got a barrage of European non-manufacturing PMI data starting with Spain, at 44.4, down from 45.3, the lowest since December (although one wonder if Spain has finally opened a branch of the BLS, reporting that unemployment actually dipped by 46.1k, on expectations of just a 2k decline, and down from 5k the prior month: how curious the timing of the "end of austerity" and the immediate "improvement" in the economy), then Italy Service PMI printing at 47.0, up from 45.5, on expectations of a 45.8 print, the highest since August 2011, French Services PMI rising modestly from 44.1 to 44.3, Germany's up from 49.2 to 49.6, on expectations of an unchanged print, all of which leading to a combined Eurozone PMI at 47.0, up from 46.6, and beating expectations of a 46.6 print.
And while the Service PMI data in the Eurozone came modestly better than expected if still posting the 15th consecutive monthly contraction, the retail sales data posted yet another drop of 0.1% in March, and a decline of 2.4% compared to last year, on expectations of "just" a 2.2% drop.
Elsewhere, we had ECB member Coeure saying the central bank can cut rates again if the economy worsens, France made sure to antagonize Germany even more as FinMin Moscovici declared the era of austerity is over on German flexibility. "We’re witnessing the end of the dogma of austerity” as the only tool to fight the euro debt crisis, Moscovici said yesterday on Europe 1 radio. “We’ve been pleading for a growth policy for a year. Austerity on its own impedes growth." Of course it does absent reforms, and so far still not one single country in Europe has actually implemented spending-cut reforms as anyone who looks at the soaring budget deficit of France for example can witness. But who cares about reality when you have soundbites. Finally, don't assume for a second that the Germanpeople themselves are fine with the perception of keeping the Eurozone afloat even as the citizens of the periphery revel in a newfound spending spree.
Finally, Merkel made some headlines earlier, paraphrasing what our readers know very well, such as for example a Euro breakup "would have high political cost" , and that Greece has done a lot to meet Troika’s goal. All of this likely in the aftermath of Oskar Lafontaine's recent statement that it is high time for the Euro to break apart.  She also refused to predict when euro crisis will end, saying  “years” are needed to stamp out debt crisis. Finally, on the topic of austerity, she added that EU countries must live within their means and that Europeans disagree on analysis of debt crisis. The last is quite important, as it shows just how little even sovereigns understand the "magic" of shadow/repo money creation, and where the more debt one issues, the more risk securities one can buy, until, like in 2008, there is a run on the shadow bank.
And that roughly summarizes the otherwise boring and overnight session starting a holiday-shortened week. There are no major US economic releases on the calendar today, so absent war breaking out in the middle east, today's $2.75 - $3.50 billion POMO starting at 10:15 am will be the biggest news for the headline-scanning algos.
Bloomberg's bulleting breakdown of the key overnight events:
  • Treasury yields 5Y and longer all closed near or above 200-DMAs Friday after stronger-than- forecast nonfarm payrolls report; Japan, U.K. closed for holidays with 3/10/30Y refunding auctions beginning tomorrow.
  • Euro-area services and manufacturing output shrank for a 15th straight month in April and retail sales fell in March as the 17-nation economy struggled to emerge from recession
  • French Finance Minister Pierre Moscovici declared the era of austerity over after Germany’s Schaeuble offered flexibility on deficit cutting amid renewed bickering between Europe’s two biggest economies
  • JPMorgan should name an independent chairman and oust three directors, Institutional Shareholder Servces said, boosting pressure on the bank to overhaul its corporate governance
  • The yuan fell in Hong Kong’s offshore market by the most in 15 months and the onshore spot rate retreated from a 19-year high as China stepped up scrutiny of cash transfers from abroad
  • Syria threatened retaliation against Israel after an aerial strike on the outskirts of Damascus caused explosions that rocked the capital, increasing the risk of a wider regional conflict
  • Najib Razak was sworn in as Malaysia’s prime minister after his coalition won a mandate extending its 55-year rule, with stocks and  the ringgit rallying even as Anwar Ibrahim’s opposition vowed to contest some results Barisan Nasional won 133 seats in the 222-member parliament
  • CDX High Yield closed Friday at a new record high
  • Sovereign yields higher, led by Israel and Singapore. Shanghai Compositive rose to a two-week high; European stocks lower. U.S. stock-index futures gain; WTI crude, gold and copper rise
Some more on today's macro outlook from SocGen:
The rally in risk assets came through the first three days of May unscathed, and the stronger than expected US employment report on Friday will fuel hopes that the sizzling rally in stocks can extend its seven-month stretch in May. The S&P blasted through 1,600 on Friday and the Dow scaled 15,000, pretty elevated levels if you consider the distance travelled since the onset of the crisis nearly six years ago. To put things in perspective, over the same period core inflation has dropped by a full percentage point to 1.1% and there are still 2.5m fewer people working in the US than there were before the summer of 2007. The US economy on the other hand is 3% bigger than it was six years ago. In other words, there is more work to be done to get all the jobs back that were lost, but the Fed is of course a key ally as the rebuilding and reflating efforts continue. There is no doubt that even if tapering of asset purchases does happen later this year, the support of financial and non-financial assets will not disappear. The question mark is how soon and how quick the normalisation of US yields will take place. The first rise in cash yields and swaps in three weeks may well mark a turning point from April as we near the half way point through Q2. There is some 30bp to go before we return to the levels of March. A turn in the US macro surprise index was confirmed last week and could be all that is needed for the bond market to realign from overbought territory with higher yields to boot. Supply is a bearish consideration this week, but the corrective price action could be tempered by the return of Japanese buyers after the Golden Week holiday who find yields at more attractive levels.
The AUD was the second-worst performer in G10 last week and participants will now brace for the RBA decision tomorrow. Speculation has built in certain quarters that a 25bp cut in the Cash Target rate to 2.75% could be forthcoming (SG call unchanged) and this could make a fresh dent in the currency. With the UK slowly turning the corner and the MPC set to keep rates and the APF target unchanged this week, GBP/AUD is the one to watch. Having failed to close above the 200d ma at 1.5160 in two attempts last week, a third try could be successful and launch a move towards 1.55.


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