Monday, January 30, 2012

Another Monday , Another Summit In Europe !

     Good morning ! Today is the latest chapter in the ongoing Summit saga for the slow burning Europe in Crisis soap opera. Coming on the heels of the last Summit in December , today we have the heads of the European Council meeting to once again attempt to fool markets that they are capable of solving a problem beyond their grasp - good luck to that ! In the run up to the Summit , activity was frantic - we saw the EU impose a oil embargo on Iran - not effective until July 1st for pending contracts ( so that the crumbling economies of Greece , Spain and Italy just didn't flatline immediately. It remains to be seen what retaliation , if any , comes from  the Iranian threat to block exports to Europe or some countries in Europe ( probably Greece , Spain and Italy earlier than the EU plan .)  Fitch downgraded various countries in the Eurozone on Friday  - Italy , Spain Slovenia saw their credit ratings cut two levels , Cyprus and Belgium saw their credit ratings cut one level - the reaction in the euro was it actually rose as this was discounted by markets !

     The private investor debt swap negotiations creep onward with imminent deal , good progress , close to a deal announcements predictably provided . as of this morning , no announcement has been made as to an actual deal being reached nor have any specific  terms been announced - the imminent deal will imminent tuesday as well. Probably the biggest announcement was the leaked paper , attributed to Germany , that for Greece to get its second bailout of 130 billion euros  ( or is it 145 billion euros  ) , they must relinquish control over their budget to a Troika selected Budget Commissioner and pledge to repay debt first before any other governmental spending would be allowed. the predictable fire storm from Greece has threatened to overwhelm any productive outcome from the latest faux Summit. As it stands presented - no PSI deal , no Greek rescue deal . expect an announcement that the ESN has been agreed , expect an announcement that the idea of a Fiscal Compact has been agreed - details to be supplied later of course !

     As one would expect , the uncertainty is somewhat reflected in stocks and commodities ( moderately lower for the major Bourse in Europe , notably lower for US Futures , gold and silver off so far ) , risk off is better expressed by looking at CDS in europe , as follows :

                         5Y                     10Y            5/10's Rolls                     
ITALY          416/426 +21        393/413      -23/-13
SPAIN          368/378 +20       342/362       -20/-10
PORTUGAL    39/40.5 +0.5      41.5/44.5      2.5/5.5
IRELAND     610/640 +5          440/510     -180/-120
GREECE        62/64   0              63/67         0.5/3.5
BELGIUM     238/248  +8         226/246       -14/0
FRANCE      169/174  +6.5    190.5/198.5     19/23
AUSTRIA     170/176  +5      184.5/194.5     14/19
UK                77/81   +2           92/98          14/18
GERMANY      88/91   +4.5    107.5/113.5     18/22

Housing data from China was not encouraging , note the following : 

  • New home transactions by area plunged 89% W/w in Jan. 23-Jan. 29 to 4,400 sq/m, Uwin says in e-mailed statement.
  • Sales during Chinese New Year holiday decline to lowest level since 2006 for same period; volume 36% of 7-yr avg. for CNY holiday
  • Avg. new home price down 41% W/w
  • New home supplies plunged 87% W/w
  • Property developers may have to continue price cuts for cashflow to survive, Uwin analyst Zhijian Huang says
  • China may remove or relax home purchase restrictions during June-Oct period: Huang
  • Policy turnaround may boost sales before home prices rebound moderately: Huang
Between disappointing news from Shanghai and the confusion from Europe , various Bourses saw red - Shanghai was off 1.47 percent , the Hang Seng was off 1.66 percent , the BSE was off 2.15 percent , Jakarta was off 1.79 percent , the Strait times was off 1.24 percent and Seoul was off 1.24 percent.  The Lunar Holiday is over and Asian investor clearly had a tad of a hangover - Japan and Australia were not as gloomy , off just .54 and .32 percent respectively. 

     So , where are things presently ? Greece's Prime Minister  is warning that the country is on the brink and faces the spectre of bankruptcy and all of the dire consequences that ensue - unless the country's international backers agree to a new bailout. Ireland is warning its votes that if a referendum is required on the new fiscal Compact and the voters vote no , Ireland  might have to leave the Eurozone. meanwhile , German Finance Minister Schauble has confirmed that a bigger contribution from public sector creditors as part of any Greek debt deal is not up for discussion at the Summit. Sarkzozy has pledged to institute a Finance Transaction Tax in France ( conveniently set to start in August , after the French elections ) , the Spanish Prime Minister has pledged to pass a decree on further bank restructuring next month. So , in sum , we see promises , threats , decrees coming forth , austerity as high as an elephant's eye and taxes being imposed flying into a european recession . Great for confidence. 

     So , as we see another Summit come and go - have the caters started working on the menus for March yet - the next big summit , we grind to the eventual and inevitable default in Greece. Equities grind lower after personal spending was flat last month ( income allegedly up 0.5 ) Portugal is still grinding toward a second bailout as its debt continues to move wider day after day. And a third Aircraft Carrier has been deployed to the Persian Gulf. Stay tuned - will other events eclipse the eventual and inevitable blow ups of sovereigns states in Europe ? who really knows - just bukcle up , its going to be a bumpy ride !