Italian Bonds Slide As Market Realizes ECB Has Been The Only Buyer

In an otherwise calm market, Italian bonds have been sold off today, breaking away from the broader bullish sentiment amid the European bond market, with the yield on 10Y BTPs rising as much as 5bps, above 2% for the first time since October 26.
While there has been no specific catalyst, some traders are starting to factor in the potential political confusion that could result after the Italian elections due in just over 2 months. As a reminder, on March 4, voters in eurozone’s third-largest economy will head to the polls amid dwindling support for the ruling pro-EU centre-left Democratic party and rising support for the Eurosceptic opposition.
According to the FT, the likely scenarios after the vote range include a hung parliament, a grand coalition or a populist government with a much more confrontational attitude towards Brussels, including the most troubling outcome: plans to question Italy’s membership of the single currency.

This post was published at Zero Hedge on Fri, 12/29/2017 –.

The EU Bad Loan Crisis to Get Much Worse – The Solution = Financial Pandemic

The bad loan (‘non-performing loan’ (NPL)) crisis in Europe is well known and many have been calling for this issue to be addressed. In Italy, the bad loan crisis has reached 21% of GDP. While NPLs dropped to 4.8% of all loans in the EU as a whole during the first quarter of 2017, they remained well above 40% in Greece and Cyprus, at 18.5% in Portugal, and 14.8% in Italy according to the European Banking Authority.
Now comes the bureaucrats with zero experience to save the day – or is that to create a financial pandemic in the EU? The EU Commission (EUC) along with the European Central Bank (ECB), want to ensure that banks promptly sell real estate, stocks, bonds and other assets that serve to collateralize loans according to their Mid-term Review of the Capital Markets Union Action Plan. Member States are required to adopt laws that facilitate the central directive. At this time, any bank cannot just sell a property that secures a loan. The problem is, all loans, whether secured or not, are valued the same.

This post was published at Armstrong Economics on Dec 29, 2017.

Citi’s “What If?” Scenarios: Part 2

Yesterday we published the first set of 7 “What If” scenarios that didn’t make it into the Citi Credit team’s (already rather gloomy) year-ahead forecast. Because while Citi’s “base case” was clearly bearish (our summary can be found here), what was left unsaid was even more unsettling, if not troubling. As the bank’s credit team wrote “what about the outcomes that didn’t quite make it into our base case? The scenarios that aren’t central, but which aren’t entirely implausible either – both bullish and bearish.” Citi then listed the following 7 scenarios in the first part of its quasi-forecast:
idiosyncratic risk is returning to credit? European corporates get more aggressive? global growth & commodity prices disappoint? inflation accelerates as output gaps close? the US yield curve inverts? central bank tapering really is a non-event? the market doesn’t like the choice of ECB successor?” A full discussion of the above scenarios was posted yesterday.
Today, we follow up with part 2, or the second set of 7 hypothetical questions for 2018, which shifts away from economics and finance, and focuses on politics and Europe. As Citi’s credit team writes “you tend to worry less about your leaky roof when the sun is shining. And at the moment the cyclical economic upturn is beaming across Europe. Yet there are clouds which might conceivably hold moisture – or as our economists have put it: political risk is not dead in Europe.”

This post was published at Zero Hedge on Dec 25, 2017.

2018’s Number One Risk

To find the market’s biggest weakness, a good place to look is at the most crowded movie theater with the smallest exit.
European bonds.
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You’ve probably seen the charts of European high yield floating around, so I won’t reproduce it here. Yields in the low 2s for BB credits. There was also a European corporate issuer that managed to issue BBB bonds at negative yields a few weeks ago. I think that might have been the top.
No shortage of stupid things these days:
Bitcoin Litecoin Pizzacoin Canadian real estate Swedish real estate Australian real estate FANG Venture capital But European bonds are potentially the stupidest. Maybe even stupider than bitcoin!
Although there is nothing stupid about it – the ECB has been buying every bond in sight, and there’s lots of money to be made frontrunning central banks.

This post was published at Mauldin Economics on DECEMBER 21, 2017.

“In The End, There Was Absurdity” – The Great Crash Of 2018?

Crises always take longer to arrive than you think, and then happen much quicker than they ought to.
– Rudiger Dornbusch
An eerie calm has taken over the world markets. Volatility is crashing, and economic and political shocks come and go without any noticeable effect on the asset markets. Inflation and interest rates are also low. So ‘Goldilocks’ is here, right?
Well, no. I have written a collection of dark pieces about the world economy this year. They have followed the tone set in our business cycle forecasts. In March, we took a deep dive behind the faade of the economic expansion to discover the sources of growth. We found them to be unstable, depending on political decisions and thus prone to crash.
In our latest forecast, we envisaged how the world economy would respond if the foundations of global growth would break. It was not pretty. Here I present the main takeaways.
I consider the Figure 1 (below) to give the most compelling picture on the absurdity we have arrived to. It presents the yield of the US 10 year treasury bond, the yield of Italian 10 year bond and yields of junk bonds of European and US companies as well as the QE:s of the ECB and the Fed. It implies that the default probability of an average European junk-rated company is smaller than that of the US government. This, naturally, is just absurd and it only tells the tale of a massive central bank induced market distortion. The pricing of risk in the normal sense does not exist in the capital markets anymore.

This post was published at Zero Hedge on Dec 20, 2017.

ECB Trapped: Steinhoff Liquidity Collapses As Lenders Pull Credit Lines

When yesterday we discussed the latest troubles facing embattled retailer Steinhoff, whose bonds are owned by none other than the ECB, we said that while the company’s bonds mature in 2025, its bankruptcy is at most months away. In retrospect, and in light of the latest news, that may have been optimistic, because it now appears that a bankruptcy may be imminent and is at most just weeks away. According to Bloomberg, Steinhoff – which is facing an accounting scandal that led to the recent departure of its CEO and destroyed most of the company’s value – said lenders are starting to cut off support.
The reason why Steinhoff is suddenly facing not only a solvency but liquidity crisis is that the company which owns Conforama in France, Mattress Firm in the U. S. and Poundland in the U. K. isn’t yet able to assess the magnitude of financial irregularities disclosed two weeks ago, it said in a presentation to lenders in London on Tuesday (presentation below). The South African company also said it didn’t know when it would be able to publish audited results for 2017 and 2016, nor whether additional years will need to be restated.
Furthermore, Steinhoff also revealed that it didn’t have ‘detailed visibility’ of the cash flows of individual operating companies. The units rely on the company for working capital and ‘the forecast position for each operating company is evolving daily,’ it said. PricewaterhouseCoopers has been hired to investigate the accounts, while AlixPartners LLP is working on an analysis of the cash flow.
In short, the company is flying blind with no budgeting and no corporate overnight.

This post was published at Zero Hedge on Dec 19, 2017.

Economic Stimulus Alive and Kicking in EU

Janet Yellen and company pretty much followed the script during last week’s Federal Open Market Committee meeting, raising interest rates another .25 percent and signaling three rate hikes in 2018.
We tend to focus primarily on Federal Reserve actions, but it’s important to remember the Fed isn’t the only central bank game in town. While it nudges interest rates slowly upward, the European Central Bank is standing pat on economic stimulus. And there’s no indication that is going to change in the near future.
With its latest rate hike, the Federal Reserve has pushed the Federal Fund Rate to 1.5%. That’s the highest we’ve seen since 2008. Even at that, we’re still well below the 5.25% peak hit during the last expansion.
Meanwhile, ECB chair Mario Draghi announced back in October that quantitative easing would live on in the EU.

This post was published at Schiffgold on DECEMBER 18, 2017.

ECB Keeps Rates Unchanged, Sees Current Policy Stance “Contributing To Favorable Liquidity Conditions”

As expected, there was little surprise in the ECB monetary policy decision, which kept all three key ECB rates unchanged, and which announced that rates will “remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases.”
As it unveiled before, QE will run at 30BN per month from January 2018 until the end of September ‘or beyond, if necessary, and in case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.’ The ECB also noted it can extend QE size or duration if needed.
The central bank repeated it will reinvest maturing debt for extended period after QE, and that the “reinvestment will continue for as long as necessary, will help deliver appropriate stance” and “will contribute both to favourable liquidity conditions and to an appropriate monetary policy stance.”
The market reaction to the statement which was completely in line with expectations, was modest, with the EURUSD hardly even moving on the news.
Full statement below

Monetary policy decisions 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 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases.

This post was published at Zero Hedge on Dec 14, 2017.

It’s Central Bank Bonanza Day: European Stocks Slide Ahead Of ECB; S&P Futs Hit Record High

One day after the Fed hiked rates by 25 bps as part of Janet Yellen’s final news conference, it is central bank bonanza day, with rate decisions coming from the rest of the world’s most important central banks, including the ECB, BOE, SNB, Norges Bank, HKMA, Turkey and others.
And while US equity futures are once again in record territory, stocks in Europe dropped amid a weaker dollar as investors awaited the outcome of the last ECB meeting of the year: the Stoxx 600 falls 0.4% as market shows signs of caution before the Bank of England and the European Central Bank are due to make monetary policy decisions as technology, industrial goods and chemicals among biggest sector decliners, while miners outperform, heading for a 5th consecutive day of gains. ‘The Federal Reserve raised interest rates last night, but they weren’t overly hawkish in their outlook. This has led to traders being subdued this morning,’ CMC Markets analyst David Madden writes in note.
The stronger euro pressured exporters on Thursday although overnight the dollar halted a decline sparked by the Fed’s unchanged outlook for rate increases in 2018, suggesting “Yellen Isn’t Buying Trump’s Tax Cut Talk of an Economic Miracle.”
That said, it has been a very busy European session due to large amount of economic data and central bank meetings, with the NOK spiking higher after the Norges Bank lifted its rate path, while the EURCHF jumped to session highs after SNB comments on CHF depreciation over last few months. The AUD holds strong overnight performance after a monster jobs report which will almost certainly be confirmed to be a statistical error in the coming weeks, while the Turkish Lira plummets as the central bank delivers less tightening than expected. Meanwhile, the USD attempts a slow grind away from post-FOMC lows.

This post was published at Zero Hedge on Dec 14, 2017.

US Stocks, Bonds, and Real Estate Most Expensive in History

After seeing the tax reform inspired to jump in small business optimism from the NFIB, today the Duke CFO survey optimism index rose the to the best level since June 2004. Also, it was driven by tax reform. This is though coming with building inflation pressures as the survey ‘also finds the difficulty that companies are having hiring and retaining qualified employees is at a 20 yr high, and that in part will lead to higher wages.’ The survey said CFO’s expect ‘median wage growth of about 3% over the next 12 months.’ Hopefully, higher productivity can offset this as opposed to companies passing that on in higher prices. There is also healthcare inflation that is a worry as expectations are for an 8% rise next year. ‘Nearly half of US companies indicate that the cost of employee health benefits crowds out their ability to spend on long-term corporate investment.’ Like I said before, embrace lower corporate taxes but don’t assume all else equal.
There was a slight ebbing of bullish enthusiasm according to Investors Intelligence. Bulls fell to 61.9 from 64.2 while Bears ticked up a hair to 15.2 from 15.1. The spread between the two of 46.7 is a 3 week low but is just 3.3 pts from a 30 yr high. Since bulls got back to 60 on October 11th, the Value Line Equal Weighted Geometric index is up 2.2%. A lot of tax reform generated optimism, along with better global growth will meet faster monetary tightening next year. The former certainly won that battle in 2017 also helped by $2 Trillion of ECB and BoJ largesse. That largesse changes dramatically in 2018 but markets are clearly betting on the soft landing scenario, aka a free lunch.

This post was published at FinancialSense on 12/13/2017.

The Euro Is Not Dead, Claims EU Survey

The mood has shifted.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET. Europeans are finally learning to love the euro, it seems, at least according tothe latest edition of the Eurobarometer, which is published twice yearly by the European Commission: 64% of the respondents, representing 16 out of 19 Eurozone economies, believe that having the euro is ‘a good thing for their country,’ the highest proportion since 2002, and up from 56% in 2016. Only 26% of respondents thought it was a bad thing.
A further 74% of respondents said that the euro is a good thing for the EU as a whole, the highest proportion in the 2010-2017 series. This is somewhat ironic given that even the ECB conceded this week that the main idea behind the euro as a driving force for regional economic convergence has produced, let’s say, mixed results, having essentially failed where it mattered the most, in Southern European economies:
‘It is striking, however, that little convergence has occurred among the early euro adopters, despite their differences in GDP per capita. In contrast to some initial expectations that the establishment of the euro would act as a catalyser of faster real convergence, little convergence, if any, has taken place for the whole period 1999-2016’
Nonetheless, the results of the survey point to a marked improvement in Europe’s love affair with the single currency, as growth in the Eurozone has reached its highest level (a forecast 2.6% for 2017) since the financial crisis began 10 years ago.

This post was published at Wolf Street on Dec 8, 2017.

Jobs Report Preview: Here’s What Wall Street Expects

What a difference a year makes: last December, just as the ECB was about to shock the market with the announcement of its first 20 billion QE tapering, macroeconomic data mattered, especially since the Fed’s tightening intertia appeared to truly be data-dependent, if only for a very short period of time. Fast forward one year, when 3 rate hikes into the Fed’s “paradoxical” tightening cycle, in which much to the BIS’s shock the higher Fed Funds rates rise, the easier financial conditions get, a “dovish” December rate hike is assured, and as such Friday’s payroll report, which will probably print withint a few thousands of 200K, is completely irrelevant.
Still, to at least some headline-scanning algos, the jobs report will matter, if only so that it can respond in a knee-jerk reaction, and be stopped out by yet another group of headline-scanning algos whose only job is to make sure the first group of algos pukes their trades at a loss, regardless of what the underlying data is.
With that in mind, and with the understanding that fundamental data hasn’t really mattered since 2009, here is what Wall Street expects – and algos – will expect from tomorrow’s charade, which no matter what will send the market higher.
From RanSquawk
The BLS will release November’s Employment Situation Report at 1330 GMT (0830 EST) on Friday 8 November
After October’s bounce-back, analysts expect normalisation in the rate of payroll additions (consensus 200k) Wage growth may be buoyed by calendar effects, pushing the Y/Y rate up to 2.7% SUMMARY: Analysts expect payroll growth to ease in November; the October data was boosted by unwinding negative effects from hurricanes Harvey, Irma and Maria, and therefore, analysts will see a slowing as more of a normalisation, rather than the beginning of a new slowdown. There may be some upside in retail hiring given the early Thanksgiving Holiday. Rounding effects may result in the rate of joblessness slipping slightly. Earnings growth is likely to be supported by calendar effects, which may push the Y/Y rate up to 2.7%, matching the pace of annualised wage growth seen in Q3.

This post was published at Zero Hedge on Dec 8, 2017.

Bailins Coming In EU – 114 Italian Banks Have NP Loans Exceeding Tangible Assets

Bailins Coming In EU – 114 Italian Banks Have NP Loans Exceeding Tangible Assets
– Italy opposes ECB proposal that holds banks to firm deadlines for writing down bad loans
– Italy’s banks weighed down under 318bn of bad loans
– New ECB rules could ‘derail’ any recovery in Italy’s financial system
– Draft proposal requires banks to provision fully for loans that turn sour from 2018
– ECB insists banks have better access to collateral on delinquent debt to solve problem
– Investors should secure assets as proposal suggests more bailins on horizon and banks remain at risk
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Another week and another unjustifiable move by the ECB to ‘protect’ the EU’s banking system. This time it is the decision to toughen bad-loan rules for euro-area banks.
The rules state that banks must be held to firm deadlines for writing down loans that turn sour. Banks will be required to provision fully for loans that turn sour from the start 2018.

This post was published at Gold Core on December 5, 2017.

It’s More Than Just The Absence of Acceleration, It’s The Synchronization Where There Should Be None

This is a syndicated repost courtesy of Alhambra Investments. To view original, click here. Reposted with permission.
According to the latest ECB figures, as of yesterday total ‘liquidity’ added to the European banking system for that central bank’s ongoing monetary ‘stimulus’ was just shy of 2 trillion. The outstanding balance in the core current account (reserves) held on behalf of the banking system was 1.296 trillion. In the deposit account, banks are holding 686 billion at -40 bps in ‘yield.’
To create all these euro-denominated numbers, the European Central Bank through its constituent National Central Banks (NCB) has purchased 2.21 trillion through its three main active LSAP’s (Large Scale Asset Purchases): the PSPP, or QE, which buys up sovereign bonds and is the reason for running them through the NCB’s (out of original concern exactly who would bear any default risk); the CBPP3, or the third time the ECB has bought covered bonds from banks; and the Corporate Sector Purchase Program which is self-explanatory.
The numbers given above don’t appear to balance because of the way all this stuff is accounted for. The NCB transactions of QE and other material operations actually subtract from the ECB’s asset side because it isn’t doing them, becoming instead -1.21trillion in so far accumulated autonomous factors. On the other side, the liability side of the simple balance sheet, there are outstanding 769 billion in normal liquidity operations (OMO) at the MRO.

This post was published at Wall Street Examiner by Jeffrey P. Snider ‘ November 30, 2017.

The ECB Comes Clean On Rising Rates and the Coming Systemic Reset

Remember how the Fed, ECB and others all claimed ZIRP and QE were about generating economic growth, making mortgages more affordable, and helping consumers?
Well, that was a gigantic lie. The truth is that every major policy employed by Central Banks since 2008 have been about one thing…
Maintaining the bond bubble.
Governments around the world have used the bubble in bonds to finance their bloated budgets. If interest rates were anywhere NEAR normal levels, most countries would lurch towards default in a matter of weeks.
If you think this is conspiracy theory, consider that the European Central Bank openly admitted this in its semi-annual Financial Stability Review this week:
Even so, [the ECB] said that ‘higher interest rates may trigger concerns about sovereigns’ debt-servicing capacity,’ and noted that ‘distrust in mainstream political parties continues to rise, leading to fragmentation of the political landscape away from the established consensus.’

This post was published at GoldSeek on 30 November 2017.

US Household Debt Is Rising 60% Faster Than Wages, And One Rating Agency Is Worried

In a report released today by DBRS titled “Consumer debt and debt burden”, the rating agency which is best known for keep Italian debt eligible for ECB monetization at the peak of the European banking crisis, looks at the latest Quarterly Report on Household Debt and Credit issued by the NY Fed (discussed here previously) which showed that consumer debt for the third quarter of 2017 was approximately $12.96 trillion, representing an increase of $116 billion over the second quarter of 2017. The debt level for the first three quarters of 2017 has continued to increase above the previous record debt level which was established in the third quarter of 2008 as shown in Exhibit 1 below.

DBRS also highlights that not only did total debt levels increase, but their composition changed as highlighted in Exhibit 2 below.

This post was published at Zero Hedge on Nov 30, 2017.

Biggest Bubble Ever? 2017 Recapped In 15 Bullet Points

Yesterday we presented readers with one of the most pessimistic, if not outright apocalyptic, 2018 year previews, courtesy of BofA’s chief investment, Michael Hartnett who warned that in addition to the bursting of the bond bubble in the first half of the year, the stock market could see a 1987-like flash crash, potentially followed by a sharp spike in (violent) social conflict. However, in addition to his forecast, Hartnett also had one of the more informative, and descriptive, reviews of the year that was, or as he put it: 2017 was the perfect encapsulation of an 8-year QE-led bull market.
Here are his 15 bullet points that show why in 2017 we may have seen the biggest bubble ever (and why we can’t wait to see what 2018 reveals).
Da Vinci’s ‘Salvator Mundi’ sold for staggering record $450mn Bitcoin soared 677% from $952 to $7890 BoJ and ECB were bull catalysts, buying $2.0tn of financial assets Number of global interest rate cuts since Lehman hit: 702 Global debt rose to a record $226tn, record 324% of global GDP US corporates issued record $1.75tn of bonds Yield of European HY bonds fell below yield of US Treasuries Argentina (8 debt defaults in past 200 years) issued 100-year bond Global stock market cap jumped1 $15.5tn to $85.6tn, record 113% of GDP S&P500 volatility sank to 50-year low; US Treasury volatility to 30-year low Market cap of FAANG+BAT grew $1.5tn, more than entire German market cap 7855 ETFs accounted for 70% of global daily equity volume The first AI/robot-managed ETF was launched (it’s underperforming) Big performance winners: ACWI, EM equities, China, Tech, European HY, euro Big performance losers: US$, Russia, Telecoms, UST 2-year, Turkish lira

This post was published at Zero Hedge on Nov 22, 2017.

21/11/17: ECB loads up on pre-Christmas sales of junk

Holger Zschaepitz @Schuldensuehner posted earlier today the latest data on ECB’s balance sheet. Despite focusing its attention on unwinding the QE in the medium term future, Frankfurt continues to ramp up its purchases of euro area debt. Amidst booming euro area economic growth, total assets held by the ECB rose by another 24.1 billion in October, hitting a fresh life-time high of 4.4119 trillion.
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Thus, currently, ECB balance sheet amounts to 40.9% of Eurozone GDP. The ‘market economy’ of neoliberal euro area is now increasingly looking more and more like some sort of a corporatist paradise. On top of ECB holdings, euro area government expenditures this year are running at around 47.47% of GDP, accord to the IMF, while Government debt levels are at 87.37% of GDP. General government net borrowing stands at 1.276% of GDP, while, thanks to the ECB buying up government debt, primary net balance is in surplus of 0.589% of GDP.

This post was published at True Economics on Tuesday, November 21, 2017.