http://www.zerohedge.com/news/2013-06-21/global-markets-stabilize-following-thursday-meltdown

Global Markets Stabilize Following Thursday Meltdown

Submitted by Tyler Durden on 06/21/2013 07:08 -0400

After Thursday night's global liquidation fireworks, the overnight trading session was positively tame by comparison. After opening lower, the Nikkei ended up 1.7% driven by a modest jump in the USDJPY. China too noted a drop in its ultra-short term repo and SHIBOR rate, however not due to a broad liquidity injection but because as we reported previously the PBOC did a targeted bail out of one or more banks with a CNY 50 billion (or more, or less - ICBC came out a few hours ago and denied all media rumors and speculation there even had been a 50 billion cash transfer so maybe the PBOC did nothing at all!) injection.

Overnight, the PBOC added some more market and liquidity color telling banks to not expect that liquidity will always be plentiful as the well-known transition to a slower growth frame continues. The PBOC also reaffirmed that monetary policy will remain prudential, ordered commercial banks to enhance liquidity management, told big banks that they should play a role in keeping markets stable, and most importantly that banks can't rely on an expansionary policy to solve economic problems. Had the Fed uttered the last statement, the ES would be halted limit down right about now. For now, however, communist China continues to act as the most capitalist country, even if it means the Shanghai Composite is now down 11% for the month of June.

Elsewhere, Greek bonds continue to get pounded in the aftermath of the report that the IMF may halt bailout payments until Greece plugs its deficit holes which, according to the joyous media reports over the past year, should not have existed, yet which materialized just over the past week. Additional news that the Greek former coalition member Democratic Left will withdraw ministers from the cabinet is not helping prospects of Greek stability and means snap elections may be imminent.

Aside from this, as SocGen observes, there isn't a lot of data or many events scheduled for today that are capable of stealing the limelight and, with most asset classes adjusting to the changed dynamics for US yields, we doubt that headlines today from the EU finmin meeting, LTRO repayments stats, UK public finances or Canadian CPI data will have the slightest bearing on the final trading session of a momentous week. With traded volumes in bonds particularly huge vs recent norms, participants will keep a close eye on the closing levels tonight to extract possible ranges in which prices will fluctuate before the next payrolls report is released in July. Buying USD dips and selling rallies in bonds is likely to be common practice until then.

The overnight highlights in bulletin format:

Treasuries steady, 5Y-30Y yields holding near highest since August 2011; 10Y notes poised for their biggest weekly loss in 15 months amid prospects Fed will start to taper bond purchases.
Fed will trim its monthly bond purchases to $65b in September and end buying in June 2014, according to the plurality of estimates by economists in a Bloomberg survey
Developing nations around the world are scaling back or canceling billions of dollars of bond sales as borrowing costs climb the most since 2008, just as spending needs increase amid slowing economic growth
China may be approaching a “Minsky moment” as credit growth in the world’s most populous country has outstripped economic expansion for five quarters, raising the question of where the money has gone, SocGen analyst Yao Wei wrote in two recent reports
China’s benchmark money-market rates tumbled from record highs after the central bank injected funds to alleviate the worst cash crunch in at least a decade; cash squeeze over the past two weeks is testing the management skills of the new Communist Party leaders
The Bank of Japan will continue easing to achieve stable price growth, Governor Kuroida said in Tokyo; financial markets will settle down as they start to reflect Japan’s economic recovery
ECB probably won’t take over as euro-area bank supervisor until the final months of 2014, further delaying the banking union that leaders wanted in place quickly to stem the sovereign debt crisis
U.S. regulators are considering doubling a minimum capital requirement for the largest banks, which could force some of them to halt dividend payments
Greek yields surge as Prime Minister Samaras may lose a coalition partner over his closure of the country’s state broadcaster ERT, heightening concern about his government’s stability
Sovereign yields higher, led by Greece and Australia. While Nikkei gains 1.7%, most other Asian stock markets fall. European stocks and U.S. index futures rise. WTI crude, copper and gold higher

* * *

SocGen recaps the macro highlights:

The moves registered across different securities have been significant to the point where we are asking ourselves if the new information that emerged on Wednesday night is now fully discounted or not. In terms of bond market reaction, the pullback in yields and swaps from intra-day highs yesterday, despite a brace of solid Philly fed and existing homes sales data, suggests that the worst of the storm has passed. This is not to say that the uptrend has stalled. The price action is a means of articulating that the news from the Fed has been priced in so far as the new unemployment metrics and the timing of the tapering. However, if a 7.5% unemployment rate is a condition to start dialling back asset purchases and 7% or thereabouts is required for QE3 to cease, there is scope for the market to speculate over the pace of employment growth and the number of new people entering the labour market (required to calculate the unemployment rate). If the data over the coming months points to a faster reduction in unemployment, then 7% could be hit before the middle of next year. Debating the length of the tapering cycle thus is set to become the markets' next obsession.

While investors concentrate on the fallout from the Fed for risk assets (S&P violating a 7-month trendline), the other theme that needs considering is the situation in China. The HSBC manufacturing PMI surprised negatively again yesterday (below 49.0) and wire reports midweek of industrial output data fudging in the country's provinces have again highlighted the ongoing statistical malpractices. The Shanghai composite does not lie: it is down 11% this month alone. Credit growth has been outpacing economic growth for five quarters, raising questions over debt servicing of the corporate sector. Separately, the ending of QE in the US next year is likely to result in capital outflows and a weakening yuan. Will this boost inflation?

* * *

Finally, here is Jim Reid's recap via DB:

Investors have continued to take backseat overnight with credit and equity markets lower again in Asia. The iTraxx Asia index is 3bp wider and is looking to finish the week about 30bp wider at 168bp, its weakest weekly performance since September 2011. The technical picture for EM Debt continues to deteriorate with EM debt funds (including both local and hard currency) bleeding an additional $2.6bn (1.0% AUM) in the latest week, marking the third consecutive week of $1.5bn+ of outflows this year. Away from Asia, the CDS spreads of a number of LATAM sovereigns including Brazil, Mexico and Columbia pushed out by around 20bp yesterday though liquidity was reportedly low. Meanwhile, 10yr government bond yields of a number of EM issuers including Brazil and Mexico hit one year highs. The EM carry trade continues to remain under pressure.

In Asian equities, the weakness in China is showing few signs of easing with the Shanghai Composite (-0.9%) down for its third successive day. The focus in China remains on the constrained liquidity in the interbank funding market. Interbank rates have eased substantially today after the PBoC yesterday finally injected RMB50bn of liquidity through short-term market operations. The funds were reportedly applied to just a single lender. DB's Jun Ma is hopeful that the PBoC will inject more liquidity via reserve repos and possibly cut the reserve requirement ratio in the coming weeks. He thinks that if Q3's economic growth continues to decelerate due to a delay in policy response, then the government may have to relax policies in a bigger way at end-Q4. On a related note, HK’s South China Morning Post is reporting that a number of Shanghai-based branches of mid-sized Chinese banks have seen a sharp increase in bad loans this year. The article says that the Shanghai branch of Beijing-headquartered China Citic Bank has seen NPLs jump to 5% of loans this month. Similar increases in NPLs were seen at the Shanghai branches of China Minsheng Bank and China Everbright Bank, according to an unnamed source.

In EM equities, the MSCI Emerging Markets index fell 4% yesterday in its weakest day since September 2011. The selloff was most acute in the Turkish (-7%), South African (-3.3%) Mexican (-3.9%) and Peruvian (-4.9%) bourses. Softness in the commodities sector also worsened sentiment in EM. Brent (-3.7%), Copper (- 2.5%) and Nickel (-3.5%) were softer across the board. Gold (-4.9%) broke through the $1300/oz level to close at a near 3yr low of $1284/oz. Gold is now down more than 30% from its 2011 peak of around $1900/oz. This led to further weakness in gold mining stocks including Newmont (-6.8%) and Barrick (-7.8%). The CME group announced a 25% hike in initial margins for the gold futures contracts, in response to the increased volatility. In the DM world, the S&P500 (-2.5%) closed below 1600 for the first time since the 2nd May. US REITs (-4.3%), utilities (-2.9%) and resources (-3.9%) were amongst the softest industry sectors. DM credit continued to march wider with the US and European IG indices closing 7bp and 12bp wider yesterday. The UST 10-year yield is steady at 2.41% in Asia overnight after having risen 2bp in the US session last night. The UST 10-year yield has reversed all of this and last year’s gains to be back to levels last seen in August 2011

In terms of data flow, it was safe to say that the better than expected PMIs in the Euroarea were largely swept aside in yesterday’s price action. But we did note that the composite PMI surprised to the upside, increasing for the third month in a row to 48.9 (vs 48.1 expected). The trend in PMIs was strong enough to prompt our European economists to remove their call for a refi rate cut later this summer. However will this be overtaken by events? The German flash composite PMI rose 0.7 points to 50.9 with a weakening in the manufacturing PMI (48.7 vs 49.9 expected) offset by strength in services (51.3 vs 50.0). The French flash composite PMI surprised to the upside, rising 2.2 points to 46.8. Both French manufacturing (48.3 vs 47.0) and services PMIs (46.5 vs 44.8) were above consensus. In US, markets took little comfort from the sharply better than expected Fed Philly print (+12.5 vs -2.0 expected). Initial jobless claims for the week of June 15th trended upwards to 354k.

Turning to the day ahead, there is very little on the data calendar today to move markets, meaning the focus remains solely on the market volatility.

Democratic Left MPs convene as gov't teeters [UPDATE]

A crisis meeting of MPs from the government's junior coalition party Democratic Left (DIMAR)was underway on Friday to determine whether the junior member of the coalition would remain in the shaky administration following a breakdown of coalition talks over the controversial closure of state broadcaster ERT last week.
Of DIMAR's 14 MPs, two or three were said to disagree with the apparent desire of their leader Fotis Kouvelis to withdraw from the government. Still, it appeared that the junior party would withdraw from the coalition, leaving Prime Minister Antonis Samaras and PASOK leader Evangelos Venizelos to continue as a two-party administration with a wafer-thin majority of 153 in the 300-seat Parliament.
Greek media reported that most DIMAR MPs were in favor of the party withdrawing its ministers from the government.
The breakdown occurred after a third round of crisis talks between the three coalition leaders on Thursday night amid reports of a serious rift between Kouvelis and Samaras over the number of ERT employees who would be hired to staff a transitional broadcast service.
“No common ground was found” on the issue of ERT, Kouvelis said late on Thursday, adding that ERT’s restructuring must be carried out with the broadcaster open. “For us it is an issue of democratic legitimacy,” he said.
Venizelos indicated that he would stick with the government and Samaras insisted that he would continue with or without Democratic Left.
In a related development, the Council of State ruled on Thursday night in favor of the government's closure of ERT but said the state broadcaster's signal must be restored. Its ruling was a response to an appeal by POSDEP, the union representing dismissed ERT workers against the conservative-led government's decision to pull the plug on ERT.

ekathimerini.com , Friday June 21, 2013 (10:53)

Greek bonds fall, underperform rebounding peripherals

Ten-year Greek government bond yields rose to their highest since late April as political turmoil put the bailed out country back in the spotlight.
Greece's small Democratic Left party could pull out of Prime Minister Antonis Samaras's ruling coalition after talks to resume state television broadcasts collapsed, party officials said on Thursday.
Ten-year Greek yields rose 70 basis points to 11.41 percent, as other euro zone peripheral yields fell.
Reuters reported on Wednesday that European foot-dragging could leave Greece some 2 billion euros ($2.7 billion) short this year as some euro zone creditors were reluctant to roll over their Greek debt holdings.
The IMF said that if its ongoing review of the Greek bailout programme was concluded by the end of July, as expected, no financing problems would arise.
[Reuters]

ekathimerini.com , Friday June 21, 2013 (12:02)

http://www.zerohedge.com/news/2013-06-21/greek-bonds-plunge-ruling-coalition-partner-pulls-out-withdraws-ministers

Greek Bonds Plunge As Ruling Coalition Partner Pulls Out, Withdraws Ministers

Submitted by Tyler Durden on 06/21/2013 08:27 -0400

As reported yesterday, Greece has stormed right back to the top of the crisis charts, not only due to the previously reported news that the IMF may be withholding further payments until Greece finally gets its house in order (three years later one can forget this will happen), but because as a result of the fallout surrounding the national broadcaster ERT, the coalition government is now in tatters. Moments ago any hopes that some political stability may be preserved were crushed following news that the Democratic Left official Vassilis Economou, who spoke libe on Greek Skai TV which is still in operation, said the party decided to withdraw its ministers from the coalition govt of Prime Minister Antonis Samaras. And there goes the fake sense of calm that has permeated the south of Europe ever since last summer's nail-biting Greek elections, which concluded in the best possible way for Germany. This time around, however, the last thing Merkel needs two months ahead of her reelection is a resurgence in the peripheral crisis, timed perfectly to coincide with the end of the carry trade, which will mean only the ECB is left to pick up the pieces.

In the meantime, all the momentum monkeys that were busy buying up Greek bonds recently on idiotic hopes of par recovery by the broke country's debt instruments, are getting carted out.

Once the 2013 support of 50 cents is broken, watch out below as reality finally reasserts itself.

Catharsis Ours

Friday, June 21, 2013

Global markets stabilize - there are no markets , just manipulations ! Greece may be the day's exception though.....

Global Markets Stabilize Following Thursday Meltdown

Greek Bonds Plunge As Ruling Coalition Partner Pulls Out, Withdraws Ministers

No comments:

Post a Comment