August, 2011
Further further reading
For the commute home,
- Today was the sixth worst day in Dow history.
- What would Adam Smith think of the idea of “Job Creators”?
- The return of the white/non-white wealth gap.
- A FOMC preview.
The return of the un-rally monkey
Upside-down bananas at the ready:
US stocks just had their worst day since the depths of the credit crisis. And they ended at their lowest point: an ominous sign for tomorrow.
Markets Live transcript 8 Aug 2011
Markets Live chat transcript for the chat ending at 19:35 on 8 Aug 2011. Participants in this chat were: John McDermott Joseph Cotterill, FT Paul Murphy Neil Hume, FT Johanna Kassel, FT JMWhoa!
Emergency Markets Live: in search of the patriotic relief rally
Bring your tin-hats, burnt fingers and emergency scotch:
DJA around 500 points down at pixel time. We’ll be kicking off an emergency Markets Live in 5 minutes.
Goldman: this is not 2008
US financials are melting on Monday:
As at pixel time, we’re facing a broad-based sell-off but the banks are among the hardest hit.
However, Goldman Sachs, appropriately enough, reckons this will be a short-term soft patch.
Will the last person to sue BofA please turn out the lights
Everyone’s favourite bank was again the S&P 500′s worst performer at pixel time:
AIG (and thus the taxpayer) are trying to recover $10bn, reports Reuters.
Vix curve implies a ‘systemically important shock event’
As the Vix and More blog duly noted last Friday, not only has spot Vix been spiking in its own right (last print seen around the 40 mark on Monday), the entire Vix term structure has flipped into backwardation over the last 10 trading days:
Car falls down mineshaft…
…Europe gets convulsed by full-on growth scare. Note all the car-makers and miners in Europe’s biggest fallers in Monday’s sell-off:
Both the CRB and (as Reuters columnist John Kemp notes) GSCI commodities indices are flat in 2011.
Morgan Stanley and that downgrade
Morgan Stanley’s 10-Q statement – that’s a quarterly report for European readers – is getting plenty of attention on Monday.
Or rather, the section on risk factors is getting a lot of attention.
Now,
Why money market fund actions will be key
Bank of America Merril Lynch’s Shyam Rajan is one of our favourite repo market experts. He’s been following every twist and turn in this unique post-Lehman crisis repo environment.
And his view regarding the downgrade is clear.
Sterilising Silvio
(More salubrious title: did the ECB just rescue Italy from a liquidity trap, or keep it there?)
Key points:
Italian government bonds outstanding: €1,597bn
Spanish government bonds outstanding:
Who has to act on Treasuries?
Leaving aside the volatility and growth fears, who is really compelled to sell Treasuries as a result of the S&P downgrade?
The answer, when it has all played out, might go some way to explaining just how powerful the ratings agencies are right now.
A sterling safe haven
Here’s a safe haven idea you may not have thought of.
The Great British Krona.
Standard Bank’s Steven Barrow points out that sterling has fallen, on a trade-weighted basis, much more than the other major currencies:
The other ECB Italian backstop
Seen on the Bank of Italy’s balance sheet — a marked jump in Italian bank borrowings from ECB liquidity operations in July:
Click to enlarge. We know that €15bn of this was Intesa SanPaolo’s borrowing from the MRO for example,
Markets Live transcript 8 Aug 2011
Markets Live chat transcript for the chat ending at 11:34 on 8 Aug 2011. Participants in this chat were: Neil Hume, FT bryce.elder NHBuon giorno! NHwelcome to markets live
The QE3 pain threshold
Here’s an interesting graphic from Nomura’s fixed income team for bubble addicts.
It shows the pain thresholds for QE3.
As you can see, inflation expectations are some way from being compatible with another round of bank note printing – although that hasn’t stopped a lot of market participants and parts of the media talking about QE as a potential market saviour.
‘HFT is killing the emini’, says Nanex
Nanex’s Eric Scott Hunsader — the guy who likes to dig through trading data to unearth weirdly fascinating algorithmic patterns — is out with quite a chart on Monday:
And no it’s not a new design for a Missoni scarf.
Where one rating agency goes…
… another fears to tread (at least for the time being).
(Nota bene – split ratings should mean fewer knock on effects.)
What happens when you lose a global oil benchmark…
Another one, somewhere in the world, flourishes…
From the Dubai Mercantile Exchange — the keeper of the world’s only possible alternative to the ailing WTI and Brent crude contracts (for now) — on Monday:
Goldman says ‘it’s got riskier’ (but we still ♥ commodities)
For anyone wondering how commodities will do out of the USA(A+) downgrade, Goldman Sachs takes a stab at predicting the course of events in its Monday commodities research note.
In a nutshell, it’s going to get riskier out there,
ECB sighted
Seems the ECB has bought five-year bonds in both Italy and Spain, pushing yields on both down about 60bps to below 5 per cent. Huge moves in ten-year bonds. A great day for scared longs to offload…
Further AA+ reading
Elsewhere on Monday,
- Ratings and reversing the onus of proof.
- Oh, the credibility!
- Chinese media ridicule US debt levels.
- But then again, Chinese media say, perhaps it won’t be so bad.
Pink picks
Comment, analysis and other offerings from Monday’s FT,
Clive Crook: America can fix its inner workings
At a moment of renewed financial market turmoil, a historic downgrade of US government debt and gathering signs that the recovery has stalled,
Snap news
Breaking pre-market news on Monday,
- FTSE 100 seen down 84 points – IG Index.
- Rio Tinto and Mitsubishi launch $1.5bn buyout offer for Coal & Allied — statement.
- Bid target Evolution Group acquires BNP Paribas Private Investment Management — statement.
Crisis weekend, Asia open + G7 edition [Updated]
Well, then. Asian markets did open lower but hardly in armageddon territory; look like the bankers were prepared after all. Or the G7 and ECB assurances have really helped.
Anyway, here are key points from that G7 ministers’ statement issued shortly before the Asia open:
ECB promises decisive action [updated]
Standby. It’s another Sunday night eurozone special.
This time the ECB is preparing to use its big bazooka.
Via Reuters:
ECB CONFERENCE CALL FINISHED, STATEMENT TO BE ISSUED SHORTLY – EURO ZONE MONETARY SOURCE
EURO SYSTEM HAS DECIDED TO RESPOND DECISIVELY ON MARKETS TO CRISIS – EURO ZONE MONETARY SOURCE
ECB CONFERENCE CALL CAREFULLY CONSIDERED SITUATION IN ITALY,