Wednesday, August 6, 2014

Scrap the " European Recovery " Meme ( August 6 , 2014 ) - The European "Recovery" Is Over: Italy "Unexpectedly" Enters Triple-Dip Recession ....... Futures Tumble On Abysmal European Data, Euro Stocks Turn Red For 2014; German 2Y Bunds Negative ....... Greek Bonds Tumble To 2-Month Lows As Troika Gives Up And Goldman Downgrades Periphery

The European "Recovery" Is Over: Italy "Unexpectedly" Enters Triple-Dip Recession

Tyler Durden's picture

Goodbye European recovery, we hardly knew you.
It must have come as a huge shock to all hypnotized lemmings aka "sophisticated investors" who have been following the manipulated, artificial yields in the Italian 10Y relentlessly declining and thus suggesting at least some economic stability, when an hour ago instead of reporting a 0.1% increase for its Q2 GDP as widely expected, Italy "unexpectedly" reported a sequential contraction of -0.2% down from a -0.1% drop in Q1, and officially the start of yet another, its third since Lehman, recession. Then again, considering Italy's youth unemployment of over 40% just hit a record high, we use the term "unexpectedly" rather loosely.
This is how Italy's real GDP just dropped to the lowest level since 2000.

But... that means all those PMI and confidence surveys were.... absolute horseshit!?
From Bloomberg:
Italian gross domestic product unexpectedly dropped in the second quarter, showing the economy is in recession. Gross domestic product fell 0.2 percent from the previous three months, when it declined 0.1 percent, the national statistics institute Istat said in a preliminary report in Rome today. That compares with the median forecast of a 0.1 percent expansion in a Bloomberg survey of 22 economists. From a year earlier, output shrank 0.3 percent.

With Italian youth unemployment above 40 percent and sovereign debt of about 2 trillion euros ($2.7 trillion), Prime Minister Matteo Renzi is under pressure to quickly turn around the euro region’s third-biggest economy. Lower-than-expected growth may undermine his plans to bring the country’s deficit-to-GDP ratio to 2.6 percent this year and start reducing Europe’s second-biggest debt.

Renzi has acknowledged that annual GDP growth will probably fall well below the Treasury’s 0.8 percent forecast, while the government’s debt reduction plans also seem to be yielding disappointing results, Wolfango Piccoli, managing director at Teneo Intelligence in London, wrote in a research note this week.


10Y Yield Tumbles To 13-Month Lows, Gold Jumps: Surveying This Morning's Carnage

At 2.43%, 10Y Treasury yields are back at June 2013 levels with the entire complex presing low-yields of the day (down 5-6bps on the week). The USD is strengthening (now up 0.45% on the week) to new 11-month highs. Equity markets are reeling in US and Europe. All major US indices are now down almost 1% from last week's payrolls data, and the Dow and Russell 2000 remain notably red year-to-date. In Europe, it's getting ugly fast, the broad European stock market is now down for 2014 with the periphery suffering the most. For 2014, Portugal is worst but Germany's DAX is -3.5% YTD. European bonds are also hurting with Italy, Portugal, and Spain spreads up 12-22bps, with German 2Y yields at 1bps - their lowest in 13 months. Gold is up on the week, jumping above $1300 this morning as copper slides.

Tyler Durden's picture

Futures Tumble On Abysmal European Data, Euro Stocks Turn Red For 2014; German 2Y Bunds Negative

With everyone focused on China as the source of next systemic risk, most forgot or simply chose to ignore Europe, which through Draghi's verbal  magic was said to be "fixed." Or at least everyone hoped that the rigged European bond market would preserve the "recovery" illusion a little longer giving the world some more time to reform pretend it is doing something to fix it. Turns out that was a mistake, confirmed earlier not only by the plunge in German Factory Orders which cratered -4.3%, down from 7.7% and below the 1.1% revised, and UK Industrial production which missed expectations of a 0.6% boost, rising only 0.3%, but most importantly Italy's Q2 GDP shocker, which as we reported earlier, dropped for the second consecutive quarter sending the country officially into recession. As a result, European stock markets, Stoxx600, has joined the DJIA in the red for the year while Germany's 2 Year Bund just went negative on aggressive risk aversion, the first time since 2012.

Greek Bonds Tumble To 2-Month Lows As Troika Gives Up And Goldman Downgrades Periphery

Tyler Durden's picture

Greek 10Y yields, up 6 days in a row, have surged in the last few days to 2-month highs (bond price lows). The significant shift in sentiment appears related to two main factors. First, The Independent reports that Europe is considering pulling Troika (its economic oversight committee) - which has been likened to German Nazi occupation - out of Greece, forcing local politicians to come up with their own reforms by the start of 2015 (which clearly the market is not believing). Perhaps even more concerning is Goldman Sachs shift to neutral on European peripheral bonds, warning that "at current spread levels we think there is not enough of a buffer for investors to take credit risk in intermediate and long-dated peripheral sovereign bonds." Time for some more 'whatever it takes' we think.

Greek Bonds are tumbling...

Brussels is considering pulling the troika out of Greece to allow Athens to pursue its own plan to improve the economy, European officials have told Reuters.

The move seems to be partly a reaction to political pressure from Greek anti-troika political parties set to do well in polls.

The discussion, still in its early stages, will gather pace as Greece and its euro zone backers chart a new course for the country with its second European bailout programme due to end later this year.

Dismantling the troika, which has been likened by some in Greece to the German Nazi occupation, would probably be central to the new plan for Athens, news agency Reuters added without saying where it learnt of the plan.


Switching to a 'reform-for-debt-relief' scheme with lighter supervision could sooth public frustration and help bolster the coalition government at the expense of far-left political party Syriza, which has promised to tear up Greece's international bailout agreement and is leading in the polls.


"There must be Greek ownership of reform. The Greeks have until October to come up with a programme, which would be decided by December for the start of 2015."
As a fall back, Greece could be given a precautionary credit line - like Portugal..., however...
"It was a mistake not to give Portugal a precautionary credit line," the official said, referring to Lisbon's conclusion of its bailout without such back-up. "You couldn't make the same mistake with Greece."
So more free money in case they screw up.
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Troika or no Troika, it seem beggars remain choosers in Europe - despite the hardships of the people.
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