Stocks Dump & Euro Pumps As Draghi Says No "QE" Discussed
While rate cuts were hoped for but not expected, the key to Draghi's jawboning or future easing efforts was hopes that the recent failed sterlizations of their SMP program (i.e. as close to outright money printing as they can get within the treaty as it stands) were supporting Europe. That was until:
- DRAGHI SAYS STOPPING SMP STERILIZATION WAS NOT DISCUSSED
DAX is re-tumbling, EURUSD is soaring, and US Stocks have crumbled 10 points to overnight lows. It seems everyone wanted some intervention... and for now Draghi has disappointed.
Notice the knee-jerk reaction on the statement and now the follow-through as reality bites...
http://globaleconomicanalysis.blogspot.com/2014/02/latest-eu-proposal-lets-pretend-for.html
Wednesday, February 05, 2014 5:26 PM
Latest EU Proposal: Let's Pretend for Another 50 Years! Why Now?
What cannot be paid back won't, but that never stops officials from pretending it will. Please consider EU Said to Weigh Extending Greek Loans to 50 Years.
The next handout to Greece may include extending the maturity on rescue loans to 50 years and cutting the interest rate on some previous aid by 50 basis points, according to two officials with knowledge of discussions being held by European authorities.Why Now?
The plan, which will be considered by policy makers by May or June, may also include a loan for a package worth between 13 billion euros ($17.6 billion) and 15 billion euros, another official said. Greece, which got 240 billion euros in two bailouts, has previously had its terms eased by the euro zone and International Monetary Fund amid a six-year recession.
New money would help Greece fill a financing gap that has vexed European Union and IMF authorities working to make sure the rescue programs stay on schedule. European Union President Herman Van Rompuy said last month that Greece must continue to tighten its belt even as “the people of Greece are still suffering from the consequences of the painful but nevertheless needed reforms that are taking place.”
Under the eased terms, all the bailout-loan repayments would be extended from about 30 years and rates would be cut by 50 basis points on funds from the 80 billion-euro Greek Loan Facility, which was created for Greece’s first bailout in 2010, said the officials, who requested anonymity because talks are still in preliminary stages.
Inquiring minds might be wondering why these concessions come now. Here is the answer: Greek leftist seeks negotiated debt write-off.
Greece would seek to negotiate an international write-off of about one-third of its debt if the leftist Syriza opposition party won a general election, its leader said on Tuesday.The Debt-Slave Masters in Brussels are very fearful of a collapse in Antonis Samaras' conservative New Democracy which would lead to new Greek elections which undoubtedly Syriza would win. The New Democracy coalition hangs by a thread with a 2-seat majority in Greek parliament.
Alexis Tsipras, who is leading a Communist-backed pan-European leftist list in European Parliament elections in May, said his country's problems could not be solved by more loans, which just went to service past debts and shore up the banks.
"The solution isn't more loans. The solution is fewer loans and less debt," Tsipras, whose party leads Prime Minister Antonis Samaras' conservative New Democracy in opinion polls, told the Europresse association on a visit to Paris.
Greece, which has already been bailed out twice with 240 billion euros ($324.44 billion) in euro zone and IMF funds, is due to hold its next general election in 2016, but voting may be brought forward if Samaras' fragile right-left coalition were to lose its narrow parliamentary majority.
Hoping to stave off a parliamentary collapse, the EU is prepared to let Greece pay back 30-year commitments in 50 years. That in and of itself is nothing more than a form of default. It is also willing to commit another 15 billion euros to the debacle.
Mike "Mish" Shedlock
Germany's DAX Halted On Draghi-Driven Dump
No sooner had the ECB statement been released with its disappointing lack of unsterilizied QE or negative rate promises than European stocks mini-flash-crashed. Most notable was Germany's DAX which collapsed over 200 points only and was promptly halted in the futures markets. Only to magically re-appear after the halt almost unchanged...
The transmission mechanism is entirely broken and the Keynesian dream is over...
and for those looking for the culprits for Europe's lending freeze, look no further than Italy...
... and, of course, a "recovering" Spain:
ECB Keeps All Rates Unchanged
For once, the vast majority of economists was correct, with 62 of 66 predicting accurately what the ECB would do today: nothing. At least so far - moments ago Mario Draghi's central bank just announced no cuts across all three major rates.
From the press release:
At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.25%, 0.75% and 0.00% respectively.The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today.
European stocks not happy, and the EURUSD engaging in its usual acrobatics first surging then plunging...
... perhaps because there is still a chance Draghi may announce the end of SMP sterilization in the press conference in 45 minutes, which would free up some liquidity, but hardly have the desired impact.
http://www.zerohedge.com/news/2014-02-06/previewing-ecb-no-decision-four-possible-scenarios
Previewing The ECB (No) Decision: The Four Possible Scenarios
Over 92%, or 62 of 66 economists surveyed by Bloomberg, expect no surprises from the ECB in half an hour. Whether that guarantees a "surprise" we leave it up to readers, but here courtesy of ABN Amro's head of macro research Nick Kounis, are the four possible decisions scenarios that Mario Draghi can reveal to the world today.
1. ECB ends SMP sterilization: this is ABN’s central scenario
- Would more than double excess liquidity, spurring expectations of lower short rates and supporting EGBs -- especially 5Y sector; euro would come under pressure
- May make investors see ECB QE as more likely, supporting peripheral bonds
2. ECB leaves policy and forward guidance unchanged, without clear signal of easing in March
- This would disappoint markets, which would start pricing higher short rates; govt bonds would probably sell-off, led by periphery; euro would strengthen
3. ECB cuts rates, possibly alongside ditching SMP sterilization
- This would likely involve cuts to both refinancing and deposit rates
- Would probably spur market to expect lower front-end rates, steepen curves, compress peripheral spreads and trigger decline in euro
4. Large-scale QE program: very low probability
- All EGBs would likely benefit near-term, especially peripherals due to hunt for yield; euro would “fall off a cliff”
Source: Bloomberg
Italy threatens to sue Standard & Poor's for failing to value its history and art
Ratings agency would not have issued damaging downgrade if it had taken account of cultural wealth, state auditor claims
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Michelangelo's David at the Gallerie dell'Accademia in Florence. Photograph: Alamy
Italy is threatening to sue the credit ratings agency Standard & Poor's for failing to value its historical and cultural treasures.
The country that bequeathed the world Dante, da Vinci and an enviable vision of La Dolce Vita, thinks financial analysts would not have issued a damaging credit downgrade against Italy if they had paid more attention to its cultural wealth than its spiralling budget deficit.
According to the Financial Times, Italy's auditor general, the corte dei conti, believes that S&P may have acted illegally and could be sued for €234bn (£194bn).
The paper cites a letter from the corte dei conti notifying S&P that it is considering legal action: "S&P never in its ratings pointed out Italy's history, art or landscape which, as universally recognised, are the basis of its economic strength."
S&P has described the claims as "frivolous and without merit".
The investigation extends to S&P's rivals Moody's and Fitch, with further details expected to be revealed by the corte dei conti on 18 February.
Moody's dismissed the allegations, while a spokesman for Fitch said: "As we understand the prosecutor's concerns, we believe Fitch at all times acted appropriately and in full compliance with the law."
The prosecutor's investigation is likely to focus on S&P's decision to cut Italy's credit rating two notches to BBB+, as part of a sweep of eurozone downgrades in January 2012. Mario Monti, at the time newly installed as Italy's technocratic prime minister, described the downgrade as "a further problem as it makes certain investments impossible". The downgrade confirmed that the epicentre of the financial storm had moved to Italy, and the cost of Italian borrowing soared in the weeks after S&P's decision. S&P said the downgrades were necessary because European leaders were failing to deal with their debt problems, while eurozone leaders accused the agency of not understanding the measures they had agreed to calm the crisis.
The latest Italian case may be the first time the powerful ratings agencies have been accused of culturally illiteracy, but they already faced charges of poor maths and dismal economic forecasting.
When the US saw its creditworthiness downgraded in 2012, the then Treasury secretary Tim Geithner accused the agencies of "a stunning lack of knowledge about basic US fiscal maths". The US government is pursuing a £5m lawsuit against S&P, accusing the agency of defrauding investors by pumping up the ratings of mortgage securities to win more business from large investment banks.
The ratings agencies also stand accused of failing to see the financial storm coming. In 2009 Moody's issued a report titled Investor Fears over Greek Government Liquidity Misplaced – just six months before Athens was forced to seek a bailout.
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