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Pelea en el Banco Central Europeo

Pelea en el Banco Central Europeo

El Financiero de El Garaje. LQSomos. Diciembre 2014

El pasado jueves día 4 de diciembre no cambió nada y sin embargo puede que haya cambiado todo.

El BCE mantiene los tipos de interés cercanos a cero y Draghi sigue prometiendo compras (en el futuro) de bonos estatales. Pero por otro lado se han acabado unas cuantas ficciones.

De aquella falsa “unanimidad para actuar si fuese necesario” no queda…

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La “presa in giro” delle banche (Qelsi)

La “presa in giro” delle banche (Qelsi)

Minimo rischio, massimo risultato. Perchè c’è ancora chi crede che le Banche abbiano una finalità sociale?

“Oggi mi è successa una cosa assurda”.

“Cosa?”

“La mia banca ha chiamato e mi ha chiesto se potevo fare loro il favore di prendermi un fido di 500 mila euro a tassi stracciati; meno dell’1%”.

“Beh, mi sembra ottimo; forse qualcosa si sta muovendo”.

“No, non hai capito. Io di quei soldi non…

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Tomasz Gabiś: Europejska unia walutowa jako system socjalistycznej redystrybucji kosztem Niemców...(?)

Tomasz Gabiś: Europejska unia walutowa jako system socjalistycznej redystrybucji kosztem Niemców…(?)

“Utworzenie wspólnej waluty dla kilkunastu krajów Europy było podjętym na wielką, de facto kontynentalną, skalę eksperymentem polityczno-ekonomicznym, formą interwencji państwowej o zakresie i głębokości skłaniającym od początku wielu ludzi – ekonomistów, publicystów ekonomicznych i dziennikarzy – do pytania, kto i jakie koszty tego eksperymentu poniesie.  Zawsze bowiem, kiedy takie interwencje…

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Banks in the eurozone are now more exposed to government debt than at any time since the financial crisis began, with many increasingly using their balance sheets to prop up ailing governments, deepening the bank-sovereign link that has already pushed a number of countries and lenders into bailouts. Banks in the region now hold about euro 1.75 trillion in government debt, equivalent to 5.7% of their assets and the highest relative exposure since 2006, according to European Central Bank data. 

In Italy and Spain, roughly one in every 10 euros in the entire banking system is now on loan to governments. Although the ECB has said it is keen to break what it terms the sovereign-bank nexus, analysts warn that its hands are tied. European governments need - and many encourage - their banks to finance growing public debt piles because many simply do not have enough alternative buyers after an exodus of foreign investors. “The sovereign-bank nexus is growing and it is a concern,” said Nikolaos Panigirtzoglou, a strategist at J.P. Morgan. “The ECB and regulators want to reduce this risk, but they know they can’t right now because the region is only just emerging from a debt crisis. If debt sustainability issues resurface in the future, it will be a problem for heavily exposed banks." 

Since the 1980s, global banking regulations have enshrined incentives to hold government debt by making it zero risk-weighted. The Basel Committee chose not to change these zero weightings when the rules were last updated in 2010. Fitch said the latest rulebook even "turbocharges” previous risk weightings. “The reason that government bonds are zero risk-weighted by regulators is partly political; it is not how we weight them in our credit analysis,” said Bridget Gandy, a bank analyst at Fitch, who added that underdeveloped capital markets often necessitate the bank-sovereign nexus.

“Somebody has to buy government bonds, and many countries have traditionally leant on their banking systems to do exactly that. Only once a country’s capital markets develop, with a healthy insurance and pension sector, do you increase the pool of buyers, and some countries aren’t there yet.” The ECB is blamed by many for having facilitated an increase in exposures, providing banks with cheap loans initially at just 1% - falling recently to 0.25% - which they can pump into government securities that over the past few years have yielded 7% and more - in effect an easy profit.  – (Reuters via Business Recorder)

Spain’s 10-year government bond yield fell 2 basis points to 5.8 percent yesterday after two lawmakers from Angela Merkel’s Christian Democrat bloc said Germany was open to Spain seeking a precautionary credit line from Europe’s rescue fund. Spanish and Italian yields have fallen most at the short end of the curve, showing the distortion caused by the ECB’s potentially unlimited bond-buying program and its LTRO funding for banks.
—  Paul Smith

Italy 2, 5 and 10y Yields and 2s5s 2s10s over last 12m

While yields have been moving on the long end of the curve lately, yields on the short-end remain significantly lower than last fall. Due to the heavy reliance on short-term markets, we wouldn’t expect additional action from the ECB until IT or ES curves are in danger of flattening or inverting. Expectations of another long-term liquidity program by the ECB before that are, in my opinion, premature. As seen by yield action following Feb 29 LTRO, there is not much impact to be had
unless there is a much larger spread to be earned by participating banks. See also: SPAIN yields

Friday’s Session Kicks Off in Apocalyptic Fashion; Where is the Bottom?

[caption id=“attachment_688” align=“alignnone” width=“300” caption=“Friday’s Session Kicks Off in Apocalyptic Fashion; Where is the Bottom?”][/caption]

  • Panic, fear and uncertainty take hold of markets
  • Euro looking to establish below 2012 lows from January
  • Yen starts to find renewed bids on flight to safety status
  • Eurozone political turmoil fuels intensified risk off trade
  • Rating agency downgrades and Greek political developments weigh

The risk liquidation continues into Friday, and markets to this point have shown no real interest in any form of a bounce. The US Dollar and Yen have been the prime beneficiaries on their flight to safety status, while the Swiss Franc is still not participating given the aggressive SNB intervention measures. We wonder how much it is costing the SNB to keep the EUR/CHF cross propped above 1.2000, especially in these intense risk-off markets. At this point, the Euro should accelerate to test the yearly lows from January by 1.2625, although any additional declines from there would be hard to comprehend in light of the severely oversold daily technical studies.

Elsewhere, US equities are now testing some key support levels, while gold has finally found some bids ahead of $1500. It certainly isn’t common to see so many analysts bearish on the Euro and risk in general. We have seen even the most aggressive Euro bulls retract their positions, and these include some larger banks, hedge funds and even central banks.

Moving on, Moody’s downgrade of 16 Spanish banks, along with Spanish yields rising back above 6% has not helped matters, while comments from Greek SYRIZA leader Tsipras that his party will not join the any pro-bailout coalition only weighs further on risk sentiment. European leadership needs to step up and offer a solution; otherwise, we could see additional risk liquidation over the coming hours. It is more than likely that the burden will fall on the European Central Bank, and the introduction of a Eurobond or additional bond buying could offer some relief. Other tools at the ECB’s disposal include the LTRO and the ability to cut rates, both of which would also likely be viewed as a risk positive. One thing is for sure, the G8 Summit kicks off today and we should expect nothing from this front in terms of any helpful solutions.

ECONOMIC CALENDAR

TECHNICAL OUTLOOK EUR/USD:

The market remains under intense pressure and the focus for now is squarely on a retest of the 2012 lows from January at 1.2625. While we would not rule out a possibility of a test of this level over the coming sessions, short-term technical studies are well oversold and are showing a need for some form of a corrective bounce from where a fresh lower top is sought out. Ultimately however, any rallies should now be very well capped by previous support turned resistance at 1.3000 in favor of additional weakness over the medium-term that projects deeper setbacks into the lower 1.2000′s. GBP/USD:

The market remains under intense pressure since breaking back below 1.6000 and setbacks could now extend towards next key support in he 1.5600 area over the coming sessions. Still, daily studies are now stretched and we would prefer looking to sell into rallies towards 1.5900 where a fresh lower top is sought out. USD/JPY:

The market continues to consolidate around 80.00 and is in the process of looking for a medium-term higher low ahead of the next major upside extension back above the yearly highs at 84.20 and towards 90.00 further up. However, for the time being it remains in question whether the market will still head lower towards the 200-Day SMA by 78.50 before ultimately reversing higher. The key level to watch above comes in by 80.60, and a break and close above this level will officially alleviate downside pressures and suggest that a higher low has now been carved in the 79.00′s.

USD/CHF:

Overall the structure remains highly constructive and we continue to project additional upside over the coming months back above parity. For now, the latest break and close above 0.9335 is expected to accelerate gains for a retest of the yearly highs by 0.9600, while any intraday pullbacks should be very well supported ahead of 0.9200. Ultimately, only back under 0.9000 would negate outlook and give reason for pause.

Original Article

The LTRO Hustle

Say I can borrow some money at 1%.  Then, I can take that money reinvest it in an asset generating a 5%, 6% or 7% return.  Then, using the newly purchased assets (and their associated rate of return) I use them as collateral against the first loan which I only paid 1% to access.  This generates a guaranteed return of 4-6%, while moving the risk of non-payment on the higher yielding assets to the entity that loaned the original sum at 1%.  In a nutshell this is the European Central Bank’s LTRO hustle.  To increase liquidity within the Euro Zone system this is the price that is paid.  It is good for banks and for the time being good for the Euro Zone economy as it stymies credit contraction and makes the books of banks look better.  But, like all good things, this must end. 

The LTRO has created over 1 trillion Euros of liquidity,  yields on Spanish and Italian debt have fallen (though maybe just because demand has risen as banks lock in their profits - see step 2 above) and spurred the carry trade in Euros to higher yielding assets.  While mitigating some of the short term hazards, the LTRO is not a long term solution.  The Greek tragedy has taken a hiatus but shows no signs of abating; Portugal is nearing the breaking point; Spain is going in the wrong direction as it’s debt burden expands; Italy is Monti’s mess but post Berlusconi he’s looking pretty good.  All in all, the risk premium on the Euro is high and will remain so as political dysfunction between a monetary union without a fiscal union continues to create tensions.  And, with French presidential elections on the near horizon, and Merkel’s German coalition facing internal strife over Euro Zone policy, the grand leaders of the grand plan for a grand Euro/EU are faltering.