Sell-off towards the close. Realization that the economy is tanking, QE is not around the corner and Europe is not fixed finally hit the markets. S&P futures have now reached the support areas and I stick to my view that it is time to go long. Tomorrow the minutes from the last FOMC meeting will be published, and they will be closely monitored for hints of possible QE triggers. I expect the market to gain some risk appetite before the event, but would be really surprised if the minutes would provide anything more than one or two happy trading sessions.
In today's links, IMF wrote about Italy that "downside risks remain". Given the political and polite posturing of the IMF, this could be translated to English as: "things look bad". Spain's bailout memorandum of understanding gets a word or two, and the stock market price drivers get the attention they deserve.
 |
| Source: Thomson Reuters |
News – Between
The Hedges
Markets – Between
The Hedges
Recap –
Global Macro Trading
The Closer
– alphaville / FT
Market
Commentary – A
View From My Screens
Equities Smash Back To Risk-Asset Reality
Debt
crisis: live – The
Telegraph
The Euro
Crisis Blog – WSJ
FX Options
Analytics – Saxo
Bank
European
10yr Yields and Spreads – MTS indices
EURO CRISIS
The Eurogroup provides a reality check – re-define
a good reality check for those who may have got
carried away after the better than expected (only because expectations were
managed so low) results from the European Council meeting in June.
The 1992 crisis proved that the existing system
was unstable. Not moving forward to the euro would have set up Europe for even more disruptive crises.
That is why European leaders took the ambitious steps that they did. Not
proceeding now with bank recapitalization and government bond purchases would
similarly lead to disaster.
EURO CRISIS: ESM
Whose recap is it anyway? – alphaville
/ FT
the mystery of when direct recaps of banks by
the ESM will kick in, what the ‘condition’ of having a single supervisor for
banks really means, and what part the banks’ sovereign would play in recaps.
German
Constitutional Court May Take 3 Months to Rule on ESM; Finance Minister Wolfgang Schäuble
Warns of "Uncertainty" – Mish’s
The "fast track" for constitutional
review of the ESM in Germany just got a lot slower.
EURO CRISIS: SPAIN
draft memorandum of understanding for Spain’s bailout…Featuring
bank bail-ins for subordinated debt, notably
Spanish Financial Sector MOU - Analysis – TF
Market Advisors
Spanish periodic government auctions have been
quite small in recent months - about €2bn each…Spain will need to step these up
dramatically (double or triple the
amount) in order to raise the funds it needs for the rest of the year…And who
is going to buy this incremental debt?
Under the deal to bailout Spain's stricken banks, the
Government must come up with a roadmap of structural reforms by the end of
July.
Spain’s economic minister: The collateral will cover a “small
percentage” of the loans guaranteed by Finland, and the agreement won’t necessarily be made with the Spanish
government
EURO CRISIS: ITALY
Executive Directors commended the Italian
authorities for launching an ambitious policy agenda to secure fiscal
sustainability and promote growth. The economic and financial situation
nevertheless remains challenging, with downside risks to the outlook.
Prompt and consistent implementation of
wide-ranging reforms needed to revive growth. Outlook remains vulnerable, with
key risks stemming from euro area crisis. Progress in creating more integrated
euro area will be crucial for securing stability.
STOCK MARKETS
Five Ominous Charts For Q2 Earnings – ZH
Q2 2012 EPS Growth expectations have fallen - Near
record levels of negative pre-announcements - US Macro Data reports were
dramatically worse throughout Q2 2012
The Bernanke Put 'Strike' Is Now At 1200 For
The S&P 500 – ZH
It is the risk of deflation that will trigger a
policy reaction. Current conditions are not even close to levels that have
warranted additional stimulus in the past - which we estimate to be a 2% 5Y5Y
forward inflation breakeven rate.
S&P 500 Consensus Expected Earnings – Dr.
Ed’s Blog
Are we set up for lots of positive earnings
surprises as a result of these downward revisions? That was the pattern since
Q1-2009. My hunch is that the pattern will be broken this quarter as companies
report results that are in line with downwardly revised forecasts.
BANKS
Above the noise: Despite the multiples, banks
aren't attractive –
Saxo
Bank
we're going through deleveraging, meaning asset
prices are not growing as fast, the economy is growing below trend and there is
a higher probability of setbacks in any recovery…Another major driver behind
lower earnings power is the increase in regulatory requirements.
Totally Addicted To Debt – The Psy-Fi
Blog
(Banks’) real problem, though, is that the
world has changed. Their debt fuelled
addiction to old-style business models is under threat of extinction. Those last century profit margins are gone
for a generation or more: it’s time to go cold turkey, whether they want to or
not.
OTHER
What happens after the fall – Free
exchange / The Economist
the argument is not that when a country faces a
balance-of-payments crisis and devalues it somehow gets off scot free. Rather,
it's that adjustment is typically much faster and easier and carries less
political economy risk (including the possibility that devaluation may
ultimately be necessary anyway).
The negative fear bubble – alphaville
/ FT
But financial repression is no accident. It is the deliberate objective of a policy designed to curb the demand for liquid assets and force greater willingness to commit to less liquid forms of investment.
But financial repression is no accident. It is the deliberate objective of a policy designed to curb the demand for liquid assets and force greater willingness to commit to less liquid forms of investment.