Posts from Monday Jun 11 2012

The Closer


US markets weren’t too impressed by the Spanish rescue either. Financial stocks weighed on the S&P 500, which closed down 1.26 per cent at 1,308.93. Shares in Morgan Stanley fell 2.5 per cent (Reuters). Read more

The day according to CDS

There was some chatter on Monday about whether the bailout of Spain’s banks could trigger credit default swaps that reference the sovereign. It centred around the question of subordination.

As Joseph pointed out earlier, it remains unclear whether that funds tapped from the European Stability Mechanism will be de facto senior. Read more

Can the Bank keep Posen, please?

Ultimately, central bank independence depends upon having built a coalition of support in society for that independence – legislative rules and protections regarding the central bank’s ability to set monetary policy will change to reflect sustained variations in that degree of support, albeit with some lag. The only way for a central bank to defend its instrument independence is by making a persuasive case to the public, or at least to a majority of their elected officials, that it is doing a good job. That kind of transparent accountability has been the source of inflation targeting’s success in anchoring inflation expectations, which shows how this can work.

Thus, religious declarations of what assets a central bank should or should not handle in its pursuit of monetary policy goals, or of what constitute fiscal versus monetary policy, are shibboleths. They are mouthed with fervor but should not be taken seriously. What matters instead is that the goals of monetary policy being pursued are consistent with the central bank’s legislated mandate, that the means used in that pursuit are transparent to monitor, and that the central bank can and does explain why the means fit the goals. In short, monetary policy is like any other delegated public responsibility.

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The euro as ‘EM currency’

As the euro fell 1.3 per cent against the dollar on Monday…

It seems like an opportune time to discuss a Nomura note arguing that the euro increasingly trades like an emerging market currency — in an emerging market currency crisis. Read more

Can someone tell this “EU Source” to shut up?

Click to read

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An ESM subordination… save?

Hat-tip to Charles Forelle for pointing out a feature of ESM creditor status that we really should have noted earlier. From the Treaty:

In the event of ESM financial assistance in the form of ESM loans following a European financial assistance programme existing at the time of the signature of this Treaty, the ESM will enjoy the same seniority as all other loans and obligations of the beneficiary ESM Member, with the exception of the IMF loans.

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And at the beginning of the 14th week… (updated)

ECB data published on Monday showed that it once again resisted intervening in government bond markets last week, taking its non-interventionist run to 13 weeks. Read more

Are the Brics going to lose an I?

Slowing GDP growth and political roadblocks to economic policymaking could put India at risk of losing its investment-grade rating.

That’s the Standard & Poor’s latest warning on India, coming just two months after it revised the country’s BBB- rating (one notch above junk) from stable to negative as GDP growth fell to 5.1 per cent in the first quarter. Are the Brics about to become the Brcs? Read more

Just buying time?

On Monday morning, a relief rally took place in markets around the open-half of the globe as investors digested the bailout of Spain’s banks, as announced by the Eurogroup.

The move was, of course, recognition of what was known for a long time — that Spain could not backstop its ailing bank sector alone. It would seem, however, that Monday’s rally might already be losing steamRead more

Irish banks, future losses and awkward timing

Well, it’s an awkward wet morning for this type of thing but sometimes it just can’t be helped. As markets fail to keep smiling upon the announced bailout (now failout, apparently) of Spain’s banks, it might be worth dropping in and taking a quick look at Ireland’s troubled financial sector and its creeping bank rescue.

The ever worthy Nama Wine Lake did some good work and peered at the 2011 financial reports for Ireland’s major banks. The results are troubling. Read more

China’s pick ‘n mix economic data

Excuse the cliche, but there really IS something for everyone in the many bits of Chinese economic data released in the past few days.

Here’s a very brief summary, courtesy of Nomura (it excludes the loan data which just came out at pixel time – we’ll get to that further down): Read more


*Reverse Can Kick*

Go on, give us your best label for this: Read more

Building risks in Poland

All eyes are on Poland as it hosts the Euro 2012 football championships, but as SocGen analysts have already pointed out, there’s more than just football at stake here.

The construction boom that accompanied the tournament’s preparations is believed to have been critical in supporting the Polish economy over the last few years. Read more

Markets Live transcript 11 Jun 2012

Live markets commentary from 

The (early) Lunch Wrap

Good morning, New York…

FT ALPHAVILLE on the Spanish bank bailout Read more

The €249bn hole

We should remind ourselves that Spain’s banks need bailing out because of rampant property speculation in the past — and the banks’ prior resistance to acknowledging that many of the related loans had already gone bad.

Plenty of estimates on the depth of the resultant black hole are doing the rounds. The external auditors brought in to report on this, Oliver Wyman and Roland Berger, were supposed to produce their own numbers by the end of June, although there are now suggestions they will not do so until the end of July. What’s that old rule about bad numbers taking longer to add up than good ones…? Read more

Spailout reaction

And… we’re up:

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Four questions and a subordination

1) How do holders of Spanish bonds react to ESM subordination?

The cat’s out of the bag now, isn’t it. On the one hand Spain borrows up to €100bn for the bank recapitalisation which everyone knew was coming, but at a lower rate than everyone had priced into Spanish bond yields. Bond yield relief, maybe. Read more

Further reading

– About the Spanish bailout — err, “assistance”.

– Bears be warned – the liquidity failure won’t eventuate. Read more

The 6am Cut London

Rajoy presents the Spanish bank bailout as a victory says the FT, although there are fears it raises more questions about the country’s level of sovereign debt. The 17 eurozone finance ministers agreed to lend up to €100bn to the banks via the country’s bank restructuring fund, Frob. Although the deal is relatively light on conditions, the amount lent to each bank will be deciced by the European Commission and tough new rules for the finance sector are expected. Now Italy moves into the crosshairs, says Bloomberg. And so does the Greek election, says the WSJ.

Markets are tending to agree with Rajoy, with the MSCI Asia Pacific up 1.6%, its biggest gain in two months, reports Bloomberg. The euro strengthened 1% to $1.26. Read more

Overnight markets: Up

Investors were relieved after eurozone finance ministers agreed on loans to help Spain’s banks while China’s exports grew faster than expected while inflation slowed. Figures at the weekend showed exports rose 15.3 per cent in May from a year earlier while inflation receded to a two-year low of 3 per cent, says the FT.

The MSCI Asia Pacific index gained 1.2 per cent with the Nikkei 225 Stock Average up 1.7 per cent and South Korea’s Kospi Composite index 1.6 per cent higher. Hong Kong’s Hang Seng index advanced 2.2 per cent while China’s Shanghai Composite index inched up 0.4 per cent. Australia’s markets were closed for a holiday. Read more