Key Events In The Shortened Week

Submitted by Tyler Durden on 05/28/2012 17:31 -0400

• Brazil
• Central Banks
• Chicago PMI
• China
• Conference Board
• Consumer Confidence
• Continuing Claims
• CPI
• Dallas Fed
• ETC
• Eurozone
• fixed
• Greece
• Gross Domestic Product
• Hungary
• India
• Japan
• Money Supply
• Portugal
• Prudential
• Trade Balance
• Turkey
• Unemployment
• United Kingdom
• Volatility

Despite closed US stock markets today, FaceBook stock still managed to decline, while Europe dipped yet once again on all the same fears: Greece, Spain, bank runs, contagion, etc. Shortly Europe will reopen, this time to be followed by the US stock market as well. While in turn will direct market participants' attention to a shortened week full of economic data, which as Goldman says, will likely shape the direction of markets for the near future. US payrolls and global PMI/ISM numbers are expected to show a mixed picture with some additional weakness already fully anticipated outside the US. On the other hand, consensus does expect a moderate improvement in most US numbers in the upcoming week, including labour market data and business surveys. As a reminder, should the Fed wish to ease policy at its regular June meeting, this Friday's NFP print will be the last chance for an aggressive data-driven push for more QE. As such to Zero Hedge it is far more likely that we will see a big disappointment in this week's consensus NFP print of +150,000. Otherwise the Fed and other central banks will have to scramble with an impromptu multi-trillion coordinated intervention a la November 30, 2011 as things in Europe spiral out of control over the next several weeks. Either way, risk volatility is most likely to spike in the coming days.
More from Goldman's FX team:
In terms of policy meetings, the performance of two high-yielding currencies could get influenced by central bank meetings. In Brazil, BACEN is expected to cut rates to a record low level of 8.50%, while in Turkey CBRT will likely be on hold but could twist its macro prudential tools. The combination of significantly stepped-up FX intervention by the Brazilian authorities to stabilise the BRL below $/BRL 2.10 and a likely rate cut will be interesting to watch as both seem to work in opposite directions. A similar change in FX policy may have occurred in India last week. After substantial INR weakness, stepped-up rhetoric and a series of measures appears to have stabilised the INR – at least for now. However, the underlying external imbalance remains large and hence the path of the INR will depend on the RBI’s willingness to deploy part of their sizable FX reserves.
Finally, the latest twists in the Eurozone crisis will remain important for most FX investors. Very little additional information can be expected out of Greece until after the elections. Our base case is that Greece will stay in the Eurozone at the very least until a stable government has been found. Still, the situation for the Euro remains tricky with weak activity data on one hand and substantial unwinding risks of sizable short positions on the other.
Linked to the Greek situation it is also worth keeping an eye on EUR/CHF, which has displayed more intraday volatility in recent days, possibly a sign that the authorities are worried about spot remaining extremely close to the 1.20 intervention level.
Tue, May 29th

• Japan Labour Market Data (Apr): We forecast an increase to 0.77X for the job offers/seekers ratio, while the unemployment rate has likely remained unchanged (GS 4.5% , consensus 4.5%, last 4.5%).
• Japan Retail Sales (Apr): Retail sales have likely been close to flat mom in April. (consensus 0.1% mom, last -1.2%)
• Turkish Central Bank Meeting: Consensus expects the rate to stay on hold at 5.75% but CBRT could attempt to tighten front end liquidity to stabilise the currency, while easing via credit tools at the longer end of the curve.
• South Africa GDP (Q1): GS expects +2.8% qoq ann growth in Q1 (consensus 2.1% qoq ann, last 3.2% qoq ann).
• German Consumer Price Inflation (May): Consensus expects stable prices since April (consensus 0.0% mom, last 0.1% mom).
• US Consumer Confidence (May): On the Conference Board measure we expect a small decline (GS 68.5, consensus 69.5, last 69.2).
• Also Interesting: US Case Shiller Home Prices (Mar), Dallas Fed Manufacturing Activity (May), Bank of Portugal Financial Stability Report, Hungary
• MPC Meeting (GS: on hold).

Wed, May 30th

• Australia Retail Sales (Apr): Consensus 0.2% mom, last 0.9% mom.
• Canada Industrial Production (Apr): Consensus 0.1% mom, last 0.2% mom.
• Brazil FX Flow Data for the previous week: Given the big swings in recent days, it will be interesting to get a better sense of what kind of flows have hit the market.
• Brazil Central Bank Meeting: We and consensus expect BACEN to lower the SELIC target rate by 50bp to a record low of 8.50%.
• Speeches: ECB’s Draghi, Fed’s Dudley, Fed’s Fischer
• Also Interesting: Eurozone Money Supply (Apr), US Pending Home Sales (Apr), Sweden GDP (Q1).

Thu, May 31st

• Japan Industrial Production (Apr): Materialization of downside risk in external demand, particularly China demand, has cast a shadow over production growth. We forecast that growth continued at only 0.1% in April (GS +0.1% mom, consensus +0.5% mom, last +1.3% mom).
• UK Consumer Confidence (May): Consensus -32, last -31.
• India GDP (Q1): We expect 4QFY12 GDP growth to remain flat at 6.1% yoy (consensus 6.0% yoy, last 6.1% yoy), bringing down our FY12 forecast by a notch to 6.7% yoy. This is on the account of real activity remaining weak this quarter, seen in related indicators such as industrial sector growth and trade; also reflecting in the poor readings of business survey indicators.
• German Labour Market Data (May): After last months increase in unemployment, consensus expects a renewed decline in the number of jobless workers (Consensus -7k, last +19k).
• Eurozone CPI (May): Consensus 0.1% mom, last 0.9% mom.
• US Weekly Claims/ADP Survey (May): The continuing claims number of this survey and the ADP estimates will help fine-tune the estimates for the payrolls numbers on Friday. While consensus expects the weekly claims numbers to remain unchanged again, the estimates are for an improvement in the ADP number to +140k from +119k).
• Chicago PMI (May): Similarly to consensus, we expect a marginal improvement from April (GS 57, consensus 57, last 56.2).
• Also Interesting: Korea Industrial Production, German Retail Sales, Brazil IP, US GDP (second estimate).

Fri, June 1st

• South Korea Trade Balance (May): As every month, South Korean export numbers will be the first actual data point in global demand during the previous month.
• Indonesia Inflation (May): With recent currency weakness putting pressure on fixed income investments by foreigners in Indonesia, inflation could be an additional risk factor.
• India Trade Balance (Apr): With substantial pressure on the INR in recent weeks, markets will likely focus on the latest Indian trade data.
• Global Manufacturing PMIs (May): With global cyclical momentum slowing, the full batch of global PMIs will likely confirm slowing momentum as already indicated by “flash” readings and regional/national surveys.
• US Manufacturing ISM (May): Regional manufacturing surveys mostly softened in May, pointing to a slight weakening in the ISM (GS 53.5, consensus 53.9, last 54.8).
• Canada GDP (Q1): Consensus 1.8% qoq ann, last 1.8% qoq ann.
• Brazil GDP (Q1): The economy remains weak despite the fiscal and monetary stimulus already delivered to the economy. The sluggish performance of the economy reflects the poor performance of the industrial and other tradable sectors and likely also to the fact that imports are increasingly satisfying part of the final demand growth (GS 0.5% qoq, consensus 0.5% qoq, last 0.33% qoq).
• US Non-Farm Payrolls (May): We forecast that nonfarm payroll employment increased by 125,000 in May, given continued weather “payback” (consensus +150k, last +115k). We expect the unemployment rate to remain unchanged.
• Also Interesting: Japan Capital Spending (Q1).

Greece Jumps Most In 8 Months As Rest Of Peripheral Europe Slumps

Submitted by Tyler Durden on 05/28/2012 11:58 -0400

• Copper
• Greece
• Italy
• Reality
• Sovereigns

The Greek equity index jumped almost 7% today, its biggest rise in 8 months, on the back of absolutely no 'real' change whatsoever (Greek opinion poll results change by the second and the stability fund payments were already known) and indeed a worsening situation across most of the rest of Europe (ex-Germany) - with chatter of growing bank runs and Bankia's epic demise. Of course, one needs to bear in mind the ASE pop is off 22-year lows before sounding that all-clear here as Bund yields collapse to all-time record lows and Spanish yields (and spreads) to Euro-era record wides (and almost all-time record highs). Broad European equities and credit gapped up at the open (as did EURUSD) but the rest of the day was spent drifting inexorably back to lows as the Euro-Stoxx ended down 0.5% (with Spain - at 9 year lows - and Italy underperforming notably also - with banks halted on and off all day). Spain and Italy saw sovereign spreads leaking (16bps and 8bps respectively) as the former broke 450bps over AAA for the first time (and 510bps over Bunds). Corporate and financial credit spreads leaked back wider from the positive start to the day and ended still modestly tighter on the day - though financials notably underperformed non-financials. EUR-USD basis swaps improved modestly but EURUSD round-tripped from a decent open to Thursday/Friday highs over 1.26 and back down towards Friday's close - with the USD -0.2% from Friday's close - as AUD strength helped exaggerate the move mildly. Commodities are following USD's lead and as it strengthens into the European close, they are losing early gains (Copper/Oil up around 0.6%, Gold Unch, Silver down 0.5%). USD and Oil weakness into the European close were the most notable micro-trends.
The Athens Stock Exchange Index jumped almost 7% today - the last 2 times it did this was followed by 4-5 down-days in-a-row - don't hold your breath...

and Spain's IBEX Index fell over 2% closing at its lowest level in 9 years...

European sovereigns limped wider aside from Spain and Italy which ended at the day's worst levels (and the former near all-time record wides)...

and for once European stocks in general front-ran credit - though it looks like equity just catching up to last week's credit deterioration (also financials underperformed non-financials into the close)...

and the USD (and EURUSD implicitly) round-tripped (orange curve) as once the US came on line (630am ET) admittedly a closed market, AUD began to drift lower (red arrow) relative to USD which dragged on US equity futures which were also trading - closing near ther session lows (but up around 6pts - though 8pts off the overnight highs (notably rich to broad-risk-assets - though we note TSYs not open to temper reality)...

Charts: Bloomberg

Facebook Slide Continues Even As US Market Closed

Submitted by Tyler Durden on 05/28/2012 12:30 -0400

• Germany

The market may be closed but that does not mean long, well, short-suffering FadeBoon longs get a respite: courtesy of FB's German tracking stock, it appears that the stock traded down another 1.7% during today's trading session. This shift (adjusted for the EURUSD) implies a 2.7% drop from Friday's USD day-session close and extends the after-hours rout that occurred. And in even worse news for FB bulls, rumor has it Europe may open tomorrow again.
The EUR24.935 close today (-1.7% in Germany) implies around USD31.05. FB closed at USD31.91 on Friday (and slipped after-hours to USD31.34) inferring that Germany's equity traders see FB trading down 2.7% from Friday's US day-session (and still down from the after-hours close)...

Chart: Bloomberg

Greek Retailers Stocking Up On Shutters In Case Of Riots, Alcohol Inventories Plunge

Submitted by Tyler Durden on 05/28/2012 10:03 -0400

• Counterparties
• Eurozone
• Greece
• Ireland
• Italy
• Market Share
• Meltdown
• Turkey

While America may be experiencing the occasional zombie apocalypse breakout, probably due to the absence of easily available edible iPads, Greek retailers are preparing for the retail version. "British electrical retailer Dixons has spent the last few weeks stockpiling security shutters to protect its nearly 100 stores across Greece in case of riot. The planning, says Dixons chief Sebastian James, may look alarmist but it's good to be prepared." Why Dixons? "Europe's No 2 electrical retailer Dixons owns Greece's market leading but loss-making Kotsovolos chain, which has a 25-percent market share selling iPads and laptops as well as washing machines, televisions and air conditioning units." There we go: Bill Dudley's edible iPads. The question is what happens when this easily digestable piece of plastic is thoroughly looted after local rioters dispense with the "shutters" supposedly protecting their wares. What will be on the menu next? Sadly not booze: "Diageo, the world's biggest spirits group and the name behind Johnnie Walker whisky and Smirnoff vodka, has reacted by slashing its marketing spend in Greece, reducing stock levels and pulling cash quickly out of the country after it saw its Greek sales halve in the last three years to less than 100 million pounds." So: no food, no booze, no cheap 99 cent iPad aps: this is the way the world's most miserable monetary experiment ends.
Who else is preparing for a peak in rioting, and how?

Company bosses around Europe agree. As the financial crisis in Greece worsens, companies are getting ready for everything from social unrest to a complete meltdown of the financial system.

Those preparations include sweeping cash out of Greece every night, cutting debts, weeding out badly paying customers and readying for a switch to a new Greek drachma if the country is forced to abandon the euro.

"Most companies are getting ready and preparing for a Greek exit and have looked at cash, treasury and currency issues," said Roger Bayly, a partner at advisory and accountancy firm KPMG.

Chief Executive James says the company has contingency plans to shutter up its 69 wholly owned and 29 franchised Greek stores and close them in the short term to protect against any threat of civil unrest and prepare for a switch to a new drachma.

Greece accounts for just over 3 percent of Dixon's annual sales of around 8.2 billion pounds. The company competes with Europe's No 1 electrical chain Metro and with a number of local players which James says may struggled to survive in a crisis.

"We know it would put paid to quite a lot of our competitors and give us an opportunity to get more of a market share. So we are ready and we would be very interested to see how it would turn out," said James.

Dixons should know what is the rioter's pick du jour:

Dixons, using its experience of dealing with riots in London and other British cities last summer - big flat-screen televisions were the looters' booty of choice - has ordered enough shutters to protect its stores and is working with the Greek police and security groups.

The group's sales dipped 9 percent in Italy, Greece and Turkey in the year to late April. The group does not split out Greek sales, but these three nations make up around 7 percent of the group's annual sales.

The 6 Greek Cs:

"Businesses need to build in protection by checking payment terms, sweeping cash out of subsidiaries and into other currencies and check on the vulnerability of suppliers," said Martin O'Donovan, ACT's deputy policy and technical director.

KPMG's Bayly advises his clients to check the six Cs when preparing for a possible Greek euro exit: cash, contracts, continuity, counterparties, control and commercial. He believes that automotive companies, tour operators and pharmaceutical groups would see the biggest immediate disruption from an early euro exit by Greece.

He argues most companies are well prepared on cash issues and contracts with suppliers, but less so on how they would cope with business continuity in the immediate aftermath of a euro exit.

The worst news? No more booze:

Diageo, the world's biggest spirits group and the name behind Johnnie Walker whisky and Smirnoff vodka, has reacted by slashing its marketing spend in Greece, reducing stock levels and pulling cash quickly out of the country after it saw its Greek sales halve in the last three years to less than 100 million pounds.

Diageo has weekly meetings aimed at cutting its exposure to Greece, protecting remaining sales by bolstering its own in-house distribution network, halting supplies to some small bars and focusing on high-end hotels and clubs.

Diageo's Chief Marketing Officer Andy Fennell says its Greek sales are still falling. The once big Johnnie Walker market has already shrunk and now accounts for less than one percent of the group's 10 billion pound annual turnover.

"There could be a marked impact on Greece but the big question is what happens elsewhere across the eurozone," Fennell said with an eye on Diageo's bigger troubled markets inside the eurozone such as Spain and Ireland.

The best news: new drachma will be well stocked and easily available:

De La Rue, which as the world's biggest commercial banknote printer produces more than 150 currencies, has made no comment. Analysts say Greece could have to turn to outside printers because of the sheer quantity of banknotes needed.

Of course, if after reading this any Greeks are still not utterly terrified of what their vote for Syriza would bring (nothing but Keynesian fire and brimstone), very soon precogs will be released to arrest any and all who dare to vote for ending a disastrous monetary experiment which will eventually unleash what happened in Miami over the weekend, worldwide.

EUR Shorts Hit New Record

Submitted by Tyler Durden on 05/28/2012 09:02 -0400

• Capital Markets
• China
• Commodity Futures Trading Commission
• headlines

Last week, when we reported on the then brand new record number of EUR non-commercial short contracts as reported by the CFTC, we said: "with such a massive surge in shorts in a short period of time, this means that the likelihood of major short squeezes is substantial on even the most innocuous of news, such as a G8 summit which promises much but delivers nothing, or China once again saying it will gladly focus on growth (as opposed to what? non-growth?), or some DieBold-inspired leadership change in the Greek pro/anti-bailout polls. Our advice to FX trading readers: be very careful with EURUSD stops: it is very likely that in their pursuit of short covering squeezes, (BIS) algos will take the pair substantially into the offer-side stop limit buffer just to force short hands out, which in turn may initiate short-term covering ramps." As of last Friday, the record number of net short contracts (-173.9K), just rose to a new all time high of -195.4K. The result: something as worthless and meaningless as uber-volatile Greek political polls (which had Syriza with a 4 point lead last Friday, which somehow dissolved and is now in second place about 24 hours later), was enough to send the EUR higher nearly by 100 pips overnight. Obviously, with ever more record shorts in the currency, expect the desperate continent to come up with nothing but more flashing red headlines in attempts to spook weak hands and incite even more very transitory short covering.

Below is the random number generator on which the fate of capital markets rests:

Overnight Sentiment: Europe Is Open (Bankia Is Plunging And Spanish Bond Yields Are Soaring)

Submitted by Tyler Durden on 05/28/2012 06:49 -0400

• Bond
• Borrowing Costs
• Deutsche Bank
• European Central Bank
• European Union
• Eurozone
• Germany
• Greece
• Gross Domestic Product
• International Monetary Fund
• Italy
• Nationalization
• Newspaper
• None
• Reuters
• Saxo Bank

The US may be closed today but Europe sure is open. And while the general sentiment may be one of modest optimism in light of four highly meaningless Greek polls which fluctuate with a ferocious error rate on a daily basis, now showing New Democracy in the lead (and soon to show something totally different - after all Syriza had a 4 point leads as recently as Friday according to one of the polls), pushing equity futures higher, Spain has so far failed to benefit from either this transitory spike in optimism driven by record number of EUR shorts forced to cover (more below), with its yields touching a fresh record overnight, the 10 year hitting 6.50% and 450 bps in the spread to bunds, while re-re-nationalized Bankia, now with explicit ECB support plunging nearly 30% only to make up some of the losses and trade down 10% at last check. An earlier 2 year bond auction out of Italy did not help: the country raised the maximum €3.5 billion in zero coupon bonds, however the OID was high enough to send the yield soaring to 4.037% average compared to 3.355% just a month ago, while the Bid to Cover dropped from 1.80 to 1.66. In summary: Europe is walking on the edge right now, and the only thing preventing it from imploding this morning is some short covering as well as a furious statement out of Germany, which has to understand that its precious ECB is now directly funding nationalized banks: something Merkel and BUBA's Weidmann have said in the past is dealbreaker.
How is the ECB funding Bankia directly? Here's how:

Spain may recapitalise Bankia with Spanish government bonds in return for shares in the bank which last week asked for rescue funding of €19bn, a government source has told Reuters.

Bankia could use the sovereign paper as collateral to get cash from the European Central Bank, forcing the ECB to get involved with restructuring Spain's banking sector, laid low by lending to property developers in a boom that ended in 2008.

The state takeover of its fourth-largest lender, Spain's biggest bank rescue, has intensified fears that the rising cost of helping banks may force the eurozone's fourth largest economy to seek an Irish-style international bailout.

The Economy Ministry declined to comment on the matter on Sunday. European Union authorities are expected to sign off plans to recapitalise Bankia in June.

The Bankia rescue will affect Spain's public debt to gross domestic product ratio and the deficit at a time when the country has implemented growth-stifling austerity measures aimed at bringing state debt down to Europe-agreed levels.

ECB policymakers, who have pumped more than €1 trillion (£802bn) into Europe's financial system in recent months, are resisting pressure to do more to shore up the eurozone.

"The biggest problem here is that the ECB could object. That's a legal issue, but technically it is possible," said Jose Carlos Diez, economist at Intermoney Valores.

Of course, with bond charts looking as follows, none of the above actually matters: Spain is well on its way to a full blown PSI (remember: long foreign law, short local law bonds, sooner the better as even more LCH margin hikes are likely imminent).

Spain can mask its bond nationalization however it wants, but the truth is that once the confidence in the banking system is ruined, a system which now will see similar runs occurring at other distressed banks as we demonstrated on Friday, things will go from bad to worse in a hurry. Here is how Deutsche Bank summarizes Spain's dead end:

Time is running out. Spain has appointed two independent auditors (Oliver Wyman and Roland Berger) to assess the value of the real-estate related assets that are going to be transferred to ad hoc ?“defeasance structures?” against an additional provisioning effort. The conclusions should be published by the end of June. However, even before this exercise is conducted the news flow on this matter is clearly negative. According to El Pais on Friday, Bankia?’s board will call for government support of EUR 15bn on top of the nearly EUR 5bn already injected. This is more than what the government was communicating on (less that EUR 10bn). The same newspaper reported that three credit institutions which had been taken over by the state, which were supposed to be adjudicated back to the private sector, will actually be consolidated in one single public entity together with Bankia. This would control a loan-book of EUR 281bn, some 27% of GDP. If confirmed, Spain would be on the road to a ?“bad bank by stealth?”, an option it had rejected so far.

Good luck with getting Germany to pretend like the ECB is not bailing out a quarter of Spanish GDP in the financial sector.
Finally, those relishing the recent move higher in futures on Greek "polls" (read our prediction how this is the only headline indicator that matters in Europe right now from a week prior), it may be time to book meager profits. From Reuters:

The euro recovered from two-year lows on Monday as Greek opinion polls showed parties that favour sticking with the country's international bailout deal gaining support, leading investors to cut some of the record bearish bets against the common currency.

Most investors were pessimistic over how long the rebound would last, however, with many fretting about the lack of growth in Europe, the fragile health of Spanish banks and rising borrowing costs for peripheral euro zone countries.

These concerns have dragged the euro 5 percent lower so far in May and left it on track for its worst monthly performance since September.

Greek opinion polls pointed to victory for the conservative New Democracy party in the June 17 election, making it more likely the next Greek government will stick to bailout terms agreed with the European Union and the International Monetary Fund, enabling Greece to stay in the euro.

These expectations saw the euro climb 0.6 percent to $1.2585 , off Friday's trough of $1.2495, its lowest level since July 2010. It hit a session high of $1.2625 as stop-loss orders above $1.2620 were triggered, but robust offers layered at $1.2630/50 will check gains, traders said.

Volumes were on the lower side due to a holiday in some parts of Europe, with the U.S. also shut for Memorial Day.

"Investors have got a bit exhausted selling the euro in the absence of more negative news," said John Hardy, currency strategist at Saxo Bank. "So we are seeing some consolidation after the euro's sharp drop from $1.33 to around $1.25."

Indeed, speculators bolstered their euro bearish bets to record highs in the week ended May 22, while dollar longs rose to the highest since at least mid-2008, leaving ample scope for a correction as they cut positions and book profits.

"Heading into the Greek elections we'll fluctuate a lot. Because the market is very, very short euro, reactions to any positive news may be bigger than those to negative news," said Mitul Kotecha of Credit Agricole Corporate and Investment Bank.

"That said, even if we get some good news from Greece, the weight of bad news elsewhere is likely to keep any bounce in the euro short-lived," he said.

"Short-lived", that is, at least until the next Eurosummit. Which will fix everything this time. We promise.

EUR/USD Weekly Technical Levels for May 28 - 31, 2012

Weekly Technical Levels:

Show full picture


Show full picture

Tip (s):

R3 and S3 are considered as clear indicators of the maximum range of extreme volatility, though it is possible to pass them through.
Pivot lines work well on the sideways markets, as the prices are most likely to be located between the R1 and S1 line.
Within a strong trend the price is expected to be lower than the pivot point line and continue the movement.
In case of the breaking news release that may affect the market, the price is likely to go straight through R1 or S1 and even reach R2 & R3 or S2 & S3.

Observation (s):

• If the trend is of upside character, then the strength of the currency will be defined as following: EUR is an uptrend and USD is a downtrend.
• Most of the traders use the Fibonacci retracement to determine accurately the psychological support and resistance levels.
  

Newedge Leaves Greek Stock Market, Will Only Execute Sell Orders

Submitted by Tyler Durden on 05/27/2012 17:38 -0400

• Bank Run
• European Central Bank
• Eurozone
• Greece
• International Monetary Fund
• SocGen

Either the game of chicken in Europe has just hit and surpassed ludicrous speed, or French banks SocGen and Credit Agricole, both of which have some of the worst CT1/TA ratios in the known universe, and which are the JV participants of Newedge, have decided to formally pull the plug on Greece. As the FT reported moments ago, Newedge "has told clients that it will process only sell orders, and stop extending margin loans for existing positions in Greek securities, according to a memo obtained by the Financial Times."

A list of securities subject to the new restrictions include foreign-listed shares and American depositary receipts for Greek companies including Alpha Bank, Coca-Cola Hellenic Bottling and Paragon Shipping, a New York-listed shipowner that is headquartered in Greece.

“It is part of our ordinary risk practices to minimise our potential exposures proactively when we are concerned about potential issues,” the broker said.

Newedge – a joint venture of French banks Société Générale and Crédit Agricole – has Europe’s seventh largest hedge fund prime brokerage business, with more than $31bn in client assets, according to industry publication EuroHedge.

Its move is the latest evidence that the financial sector is preparing for a eurozone break-up, even as European officials debate the terms of the Greek bailout. A person familiar with the matter said Newedge wanted to avoid unpredictable risks in the event that Athens returned to the drachma as the national currency.

Add this to news over the weekend that Euler Hermes is "reviewing Greek export coverage." To wit - "In light of the recent developments, Euler Hermes will most probably have to switch to a more prudent approach, also in the interest of its customers,” spokeswoman Bettina Sattler said in an e-mailed response to questions. “The outcome of the new elections in June remains highly uncertain. Consequently, the situation is further deteriorating. The risk of Greece exiting the Eurozone has been revived." Translation: Greek foreign trade is about to be halted dead in its tracks.
And now, as per the Newedge hint, we have a concerted effort to crash the stock market too.
In other words, in addition to a bank run (because as has been widely reported already, Greek banks have seen billions in cash withdrawn in the past 3 weeks), in addition to trade paralysis, we are about to see a full blown stock market collapse of what little is left in the Athens Stock Exchange as everyone rushes to sell any securities at firesale prices. Sadly, this is nothing but the final punishment for a Greek population which held its first quasi-referendum on being a Eurobanker tolling operation (where European "bailout" funds go simply to fund European bank capital shortfalls, and the ECB of course) and said no.
Simply said - what we are witnessing is the concerted effort of Greece's former "allies" do everything in their power to destroy the small nation just so it has a taste of what would happen if it indeed follows the democratic process. And those organizations, such as the IMF, whose job it is to mitigate such a process, are doing the opposite, and merely pouring fuel on the fire, as LaGarde's interview in the Guardian indicated.
Basically, the entire developed world has now gone all in that Greece can be scared out of doing what its population has indicated ever since the first parliamentary election, has every intention of doing.
The only question is whether, as we asked even before the election, the "Greek population has already lost everything and is now free to do anything." Because if it has, and following 2 years of wealth transfer from the Greeks to the banks the answer is almost certainly a resounding yes, the outcome for all those attempting to herd the Greeks, will be far more disastrous than any of their fearmongering attempts of a Greek social collapse ever could be.

Weekend Video (it's a longer one): $EURUSD:

• Weekend Video (it's a longer one): $EURUSD: Trend, Consolidate or Reverse Depends on the Level of Fear http://t.co/qyieOZOl

Suspicious Gap up on the Open Here -Europe's Latest "Silver Bullet", "Secret" Bail Out Plan

 

Submitted by Tyler Durden on 05/27/2012 11:51 -0400

• ETC
• European Central Bank
• European Union
• Eurozone
• Fail
• Germany
• Goldman Sachs
• goldman sachs
• Gross Domestic Product
• Italy
• None

Mere hours after the annual European Eurovision song contest ended at a cost to the host country in the hundreds of millions, money which should have been spent productively elsewhere but wasn't while providing utterly unnecessary distraction to hundreds of millions from what is truly important, we get another stark reminder that the continent is not only broke, but that it no longer even pretends to have credible ideas about how to go about fixing itself. The latest speculation: "Secret plans are being drawn up in Brussels for a European rescue fund that could seize control of struggling banks across the Continent. The scheme, which would be funded by a levy on banks, will be presented by supporters as a "silver bullet" that could halt the steady escalation of the eurozone debt crisis. It is being worked on in tandem with a proposal from Mario Monti, the Italian prime minister, for a Europe-wide guarantee on bank deposits. The proposal would throw the financial muscle of Europe's stronger nations, and healthy financial institutions, behind weaker countries and lenders. Proponents, including top advisers to the European Commission, say the removal of the threat of bank collapses would restore market confidence in Italy and Spain." In other words, last week's rumor that was supposed to be presented at the latest flop of a FinMin summit is once again being reincarnated as apparently nothing else in the European arsenal has any remaining credibility - and as a reminder, none other than unelected Monti's one-time employer Goldman Sachs said a eurowide deposit guarantee would not work.
The kicker:

"The bank scheme would see all eurozone lenders forced to pay an annual levy to a deposit guarantee scheme set up as a separate company. The company would be back-stopped with cash from the European Union, the European Central Bank or the new European Stability Mechanism."

Bottom line: the "silver bullet" plan is "secret? because it is a total farce, and nobody could possibly present it with a straight face for one simple reason - there is no source of money. No hold on, there is - Germany. And as Merkel made it very clear, Germany will not fund it. Why? Because once it starts, it won't end.
Why won't it end?
Instead of regurgitating what we have already explained countless times, here is a CTRL-C, CTRL-V of our article from a month ago, which explains that since the total undercapitalization of European banks is as much as €2.9 trillion, there is not one entity that can possibly backstop the entire towering edifice, which is the only possible thing that could restore confidence in Europe's financial system. Simply said: banks can not raise levies to prop up their peers, as they have to raise capital to support themselves! And anyone suggesting otherwise, is merely pandering for populist brownie points, and hoping their electorate is dumb enough to fail even elementary math. Our only question is how long will Merkel tolerate Monti's increasinly louder demands that Germany bail out Europe's insolvent states, such as Italy... and just how truly deep is the Italian "hole"?

From Zero Hedge, April 29, “A Trillion Here, A Trillion There...” – Why 90% Of The European Bank Sector’s Market Cap Is Vaporware*
Two weeks ago the BIS released the Basel Quantitative Impact Survey, "Results of the Basel, III monitoring exercise as of June 2011" which contained several very scary numbers that were noted in Zero Hedge yet which barely received any mention in the broader press. Because the numbers were all very, very large (think eyes glazing over 11-12 digits large), and because their existence meant that the long-term, chronic pain for Europe, which is and has been one of public (and selected private) sector deleveraging (which oddly enough is called “austerity” by everyone to no doubt habituate people to associate debt reduction with pain - where is "mean-reversionism" when you need it?), they, and the BIS report, were promptly buried under the dense foliage of the signal-to-noise forest. Yet it is numbers such as these, that provide us with the best possible glance at the entire forest, no matter how much the various global financial authorities enjoy inundating the hapless speculator crowd with endless irrelevant “trees” on a daily basis.
The numbers referred to are the BIS-suggested bank solvency deficiency to reach a viable capital level (not liquidity) explained as follows by UBS:

The QIS states that the June 2011 shortfall of common equity to a 7% common equity tier 1 ratio for major banks globally was €486 billion. We can estimate from this that the shortfall to a 10% common equity tier 1 is €1.02 trillion. Some years hence and before the mitigation that banks will undertake aggressively, but nevertheless, a trillion is a striking number.

UBS is perfectly happy to "go there":

A trillion here, a trillion there...

The QIS then goes on. The shortfall to the Liquidity Coverage Ratio is €1.8 trillion and 40% of banks have a LCR below 75%. And the shortfall to the Net Stable Funding Ratio is €2.9 trillion. A third of large banks would not meet the 3% tier one leverage ratio. These are gigantic figures relative to the size of the real economy.

Total bank debt issuance globally in the last 12 months was €1.1 trillion. That is, the shortfall in the Net Stable Funding Ratio is almost three year’s worth of issuance capacity.

In other words we not only finally have a problem quantified in terms of scale, but the scale happens to be very, very big:

These figures compare with global GDP of US$59 trillion (€45 trillion). In other words, the NSFR shortfall is equivalent to over 6% of global GDP. We would not regard this as insignificant.

One can just feel the smirk on the author's face as they added that last bit...
But forget global GDP - a number goosed by debt creation itself, and thus one which benefits from leverage, the very process the BIS is warning against. Far more disturbing is this number when juxtaposed in the context of the European financial segment, also the inspiration for our title:

For Europe specifically, a related EBA publication15 implies a €511 billion equity shortfall to a 10% common equity tier 1 ratio. This is 90% of the €565 billion in free float market capitalisation of the European bank sector. The Basel III leverage ratio of large banks as of June 2011 would have been a measly 2.7%; the LCR just 71%, representing a shortfall of €1.2 trillion; the NSFR shortfall is €1.9 trillion. Total European bank debt issuance over the last 12 months has been less than €600 billion.

In simple terms, virtually the entire equity buffer of the European financial system, or 90% to be exact, would be wiped out if instead of focusing on maxing out risk returns by unsustainable leverage, Europe’s banks were to actually seek to transform into viable, stable entities, in the process marking their massively mismarked asset base to market. Something tells us that the equity tranche in Europe, and elsewhere, would be rather averse this dramatic writedown in valuation merely for the sake of avoiding future taxpayer bailouts. After all that’s what naïve, stupid, $0.99 cent iApp-fascinated taxpayers are there for: to be abused.
In other words, thanks BIS but your math is not welcome here. The can will promptly be kicked down the road or else.
Yet what is most troubling is that there appear to be no way out for European banks, in other words not even the status quo’s favorite pastime – can kicking – is very sustainable at this point:

Returns on banking are now quite inadequate to attract significant fresh equity into the sector. The regulatory agenda means that there is likely to be little confidence in this changing over the next several years. Banks must therefore turn to the state for their incremental capital or seek to shrink their profile into the amount of stable funding and equity they presently have. Deleveraging is alive and well and living in the euro area.

And just a tangent, the BIS data and analysis was of June 30. That's before all the fun in Europe really started.
Needless to say, raising $2+ trillion in new capital over the next 5 years will be next to impossible as European banks are hardly what one would call profitable (implying retained earnings as a source of capital is nothing but a cruel joke; now as for retained losses...), and as we saw when UniCredit tried to raise some equity in the open market only to see its stock get annihilated in January, pitching capital raises through equity issuance to Euro fins is the surest way for any investment banker to get sacked.
Which means one thing: as markets get progressively smarter (yes, it will take a while) that there is a difference between capital and liquidity, and demand it from banks that otherwise risk a Lehman-like fate, the asset dispositions, i.e., sales of the blue-light special variety, are about to kick into high gear. Here, while for every buyer there may be a seller, when faced with a known onslaught of about $2.9 trillion in asset sales over a period of time, one thing is certain: it will be a mecca of a buyer’s market as liquidations become wholesale and prices across most asset classes tumble as a result.
And as noted in the post just prior, courtesy of Europe’s Dead Bank Walking list, the market will know just where to go first (and second, and third, etc) for the biggest liquidation deals once the “For Sale” signs are posted.

* Vaporware in a Jon Corzine sense, circa November-December 2011; not in the context of Duke Nukem

SkyNet Wars: Presenting The Rogue Algo Responsible For FaceBook's Downfall

Submitted by Tyler Durden on 05/26/2012 12:10 -0400

• Capital Markets
• Central Banks
• ETC
• NASDAQ
• New Normal
• Reality

Back on March 27, following the epic disappointment that was the BATS IPO, we presented a detailed forensic analysis courtesy of Nanex, which demonstrated step by step how a Nasdaq-borne algo may have been the culprit shattering BATS' hopes of ever going public. Fast forward two months later to the most anticipated IPO in recent history, in which FaceBook's even more epic, if not quite as stark, implosion has set back the general public's faith in capital markets decades back. The irony, of course, is that FB didn't do anything that many weren't warning about: it simply plunged which would make perfect sense in a normal world. This in turn was the spark that provoked the public ire - had FB simply doubled since IPO day, nobody would care about what really happened on May 18. Alas, it didn't. And now the lawsuits come. The problem is we don't transact in a normal world, but one dominated by central banks and algorithms - which is why the most pressing question for those who grasp the real new normal is how come in a market as controlled and manipulated as the central bank-dominated venue we have now, was FB stock allowed to plunge? For what may be the actual definitive answer, as opposed to now trite philosophical ruminations on valuation, ethics, underwriter and shareholder greed, we once again go to Nanex, which has caught the perpetrator red handed once again.
Somehow we doubt many will be surprised to learn that the reason FB failed to take off following its break of trading in the low $40s, has everything to do with, you guessed it, another HFT algo, which in those first instants of trading, did something that threw the entire market off: it kept crossing the market, with the Bid surging above the Offer, in the process shocking the entire price-supporting HFT array, designed to build upon upward momentum, resulting in the only other natural outcome: a steep, rapid selloff.
As Nanex' Eric Hunsader tells us: "Turns out just before Nasdaq's quote crossed and became non-firm, one copy of the same quote (crossed) was marked regular, and I think that caused other algos to react and immediately sell off the stock. When that crossed quote from nasdaq appears, bid prices from other exchanges suddenly evaporate and that causes the NBBO spread to explode from 1 cent to 70+cents in 1/10th of a second! Nasdaq's quote started doing this when the stock approached 42.99 -- that effectively prevented the stock from going higher (a few spurious trades right at the open came from BATS for 44 ~ 45 etc, before Nq's quote was in play). So these stupid Algos effectively short circuited the stock for Facebooks IPO! Unreal."
Sadly, for millions of people who were gullible enough to buy into the propaganda, all too real.
Below is Nanex with its traditionally lauradtory forensic analysis that leaves nothing to the imagination:

Did a Stuck Quote Prevent a Facebook Opening Day Pop?

On 18-May-2012, within seconds of the opening in Facebook, we noticed an exceptional occurrence: Nasdaq quotes had higher bid prices than ask prices. This is called a cross market and occurs frequently between two different exchanges, but practically never on the same exchange (the buyer just needs to match up with the seller, which is fundamentally what an exchange does).

When Nasdaq's ask price dropped below its bid price, the quote was marked non-firm -- indicating something is wrong with it, and for software to exclude it from any best bid/offer calculations. However, in several of the earlier occurrences the first non-firm crossed quote was immediately preceded by a regular or firm crossed quote!

During the immediate period of time when the Nasdaq quote went from normal to non-firm, you can see an immediate evaporation in quotes from other exchanges, often accompanied by a flurry of trades. We first noticed this behavior while making a a video we made of quotes during the opening period in Facebook trading.

The reaction to the crossed quote often resulted in the spread to widen from 1 cents to 70 cents or more in 1/10th of a second! It is important to realize that algorithms (algos) which are based on speed use existing prices (orders) from other exchanges as their primary (if not sole) input. So it is quite conceivable, if not highly likely that these unusual, and rare inverted quotes coming from Nasdaq influenced algorithms running on other exchanges.

It is now more than a curiosity that the market was unable to penetrate Nasdaq's crossed $42.99 bid which appeared within 30 second of the open and remained stuck until 13:50. Could this have prevented the often expected pop (increase) in an IPO's stock price for FaceBook?

This also brings another example of the dangers of placing a blind, mindless emphasis on speed above everything else. Algos reacting to prices created by other algos reacting to prices created by still other algos. Somewhere along the way, it has to start with a price based on economic reality. But the algos at the bottom of the intelligence chain can't waste precious milliseconds for that. They are built to simply react faster than the other guys algos. Why? Because the other guy figured out how to go faster! We don't need this in our markets. We need more intelligence. The economic and psychological costs stemming from Facebook not getting the traditional opening day pop are impossible to measure. That it may have been caused by algos reacting to a stuck quote from one exchange is not, sadly, surprising anymore.

Chart 1. NBBO (National Best Bid or Offer) Spread along with Nasdaq quote.
NBBO Spread colored black: bid < ask (normal), yellow: bid = ask (locked), or red: bid > ask (crossed).


Chart 2. Nasdaq's Stuck Bid appears to set a defined ceiling in Facebooks stock price during the first minute of trading.


Chart 3. Close-up showing NBBO along with ARCA quotes (red) and Nasdaq quotes (black = normal, green if non-firm).


Chart 4. Same period of time as chart 3, but showing NBBO and trades from Arca (red circles) and Nasdaq (black circles) for reference.


Chart 5. Note how the spread tightens in all exchanges when Nasdaq Quote goes from Non-firm to normal.


Chart 6. Just before Nq Quote changes to non-firm, a crossed quote from Nasdaq appears and is marked normal.


Chart 7. The next charts are more examples of other exchange prices reacting to Nasdaq's quote changing to non-firm


Chart 8.


Chart 9.


Chart 10.


Chart 11.


Chart 12.


Or, another way of presenting what happened, is the following video.

Hunsader's explanation of what you are seeing:

Watch Nasdaq's quote (first box to appear - 10 o'clock). Note the crazy bid prices are higher than the equally crazy ask prices. After trading opens, Nasdaq's quote will start turning red when it's no longer eligible to set the NBBO. Watch how quotes on the other exchanges react wildly causing the price to evaporate.

Each box represents one exchange. The SIP (UQDF in this case) is the box at 6 o'clock. It shows the National Best Bid/Offer. The shapes represent quote changes which are the result of a change to the top of the book at each exchange. The time at the top of the screen is the time of the last quote or trade update in Eastern Time HH:MM:SS:mmm (mmm = millisecond). We accelerate time until the open, and then we slow time down so you can see what goes on at the millisecond level. A millisecond (ms) is 1/1000th of a second. The blink of an eye is about 200 ms.

Note how every exchange must process every quote from the others -- for proper trade through price protection. This complex web of technology must run flawlessly every millisecond of the trading day, or arbitrage (HFT profit) opportunities will appear.

Dear class action suit attorneys - you are indeed quote (sic) welcome.

Gold Up. Silver Up. USD... Up?

Submitted by Tyler Durden on 05/25/2012 14:41 -0400

Is this the overwhelming exodus of 'real-not-synthetic' Euros finding safety? Or just an aberration? It seems yet another event-risk-driven divergence is occurring as different asset-classes seem to be disagreeing over who will do the printing (when, not if, they print) and whether the mattress or barbarous relics offer most protection.


Chart: Bloomberg

European Stocks On Verge Of 50%-Off Greek Light Special

Submitted by Tyler Durden on 05/25/2012 10:53 -0400

• Bond
• default
• Eurozone
• Greece
• Recession
• Risk Premium
• SocGen

It seems the clarion call for central bank intervention to save us all is growing louder as following Citigroup's imploring letter earlier in the week, SocGen has done its homework on the impact of a Greek exit from the Euro and finds Euro Stoxx could drop by 50% under a contagion scenario. They believe the reason why the eurozone market is holding up relatively well - despite the rising risk of a Greek exit - is that contagion has not really spread yet, which is then 'discounted' away based on expectations of a central bank put to save the world. In the case of a disorderly break-up (the only kind there can be realistically in our view), they expect eurozone profits to decline for two years, a rise in bond yields (raising cost of funds), a rising equity risk premium, and the implicit drop in P/E multiples. A Greek exit alone (with no contagion) would likely knock 10% off Euro Stoxx but the significant rise in correlations across the euro-zone suggests the idiosyncratic becomes systemic very rapidly.
European market ex-financials has held up relatively well...

but risk of contagion is dramatically high considering the correlation in the euro-zone...


In order to profile the impact of a Greek exit on the DJ Euro Stoxx 50 SocGen imputes:

• a profits growth decline for two years after restructuring as a result of lower consumption and fiscal tightening in countries remaining in the eurozone,
• euro depreciation vs the dollar,
• a rise in bond yields due to risk of default, partly offset by recession fears,
• a domino effect which is proportional to correlations we showed on the previous page,
• a rise in the equity risk premium.

Once the potential level of this year?s euro profits is recalculated using our top-down regression model, we input the result into an earnings yield equation to get the DJ Euro Stoxx 50?s sensitivity to both rates and profits. Should profits fall 20%-30% and yields widen 100bp-200bp, we find the DJ Euro Stoxx 50 could lose up to 50% of its value at 23% in the best case and 45% in the worst.
With a 50% drop possible and 10% probable if Greece leaves...


with various scenarios as follows:


Source: SocGen

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Police Urging Greeks To Stop Stuffing Mattresses

Submitted by Tyler Durden on 05/24/2012 23:10 -0400

• Eurozone
• Greece
• Reuters

We have spent a considerable amount of time in the last week or two explaining just why depositor withdrawals (or bank runs) are the death knell for the Euro experiment. We first described the 'run on banks and governments' on the basis of the potential for overnight loss of 'fungibility' back in December but the escalation last week in Greece (and the contagion to Spain's Bankia) signals things are shifting to 11 on the amplifier of Euro-Fail. This evening brings new information from The Guardian that 'Police are urging Greeks to keep their money in bank accounts rather than putting it at risk of theft, amid further uncertainty about whether the austerity-struck country will remain in the eurozone.'
Greece's national police spokesman, Thanassis Kokkalakis, told Reuters:

"Many people have withdrawn their money from the banks fearing a financial crash, and they either carry it on them, find a hideout at home or in storage rooms. We urge people to trust the banking system, leave their money there, or at least in a safe place, not hide it at home."

Uhm, does anyone remember Cramer and his 'Bear Stearns' call? Or are we just "being silly?"

Speculation of a Euro-wide deposit guarantee scheme was quashed somewhat by yesterday's dismally predictable non-event summit - especially given the only three-week span to the next elections. That leaves Greek citizens juggling the possibility of having their home robbed against the probability that the government, via GEURO-isation, will do it for them in the bank.

What Do FX Traders Know That Stock Momos Don't?

Submitted by Tyler Durden on 05/24/2012 23:39 -0400

• Bond
• European Central Bank
• Greece
• Monetization
• Price Action

Two days ago we highlighted the growing divergence between Italian sovereign credit spreads (tightening) improving while EURUSD was deteriorating rapidly - suggesting (for those with deep pockets) an interesting convergence trade. It seems that whatever message the FX traders are hearing is being ignored by equities too now as today US equities diverged even more dramatically joining the rest of risk assets in their divergence from strong USD, weak EUR flows. It seems risk assets broadly are pricing in 'an event' and then thinking ahead to the subsequent 'intervention' that will inevitably float all boats. However, what is clear, in our view from the EURUSD price action, is that unlike many who expect the Fed to save the day, EUR weakness implies some form of monetization by the ECB (or reduces the market's implied expectation for Fed QE3/4). Given tonight's weak equity futures performance (ES -7pts from late highs), we suspect the FX market has it right and momos are over-thinking the reaction impulse function as a given - or more clearly - if Greece exits and no other risk-assets drop (having already anticipated the central bank reaction), will the central bank reaction come?

Either equities and Italian Bonds have it right and EURUSD should be more like 1.28 (with the ensuing short-squeeze causing chaos in currency futures); or the S&P 500 should be under 1300 and Italian Bond Spreads over 60bps wider at 480bps?
We can't help but think the latter seems more reasonable here - whether as a path or the end-point given the event risk potential.
It does seem that the other large and majority professional market for swaps is following EURUSD's path lower also (though interestingly implies a EURUSD level similar to US equities aroudn 1.2700) while the more manipulated peripheral bond market and algo-driven chaos that is ES are pushing higher on hope...


Chart: Bloomberg