Bad News Swarm Attack


Europe is back.

Portugal - Two government resignations and the 10 year moves from 6.5% to 7.75%.  That's a big daily move by any old fashioned measure but if you look at where we have come from we are only back to levels seen last November so well below OMT announcement levels and there is fat chance of Dr Aghi being able to do anything pre German elections. But it's a spike big enough to spook everything Euro and encourage the Euro-disasternistas out of the wood work with the "Toldjaso, Europe is bust" mantra's. Add Italian and German PMIs, ignore the French, add a dose of USD buying anyway and it's enough to give the start off the day a whiff of summer 2011/12. 

But TMM think this remains psychological and whilst there is a chance of a pukefest in everything today, the Euro component is a "buy on dips".

The worrying part though is that Europe is the kick in the nuts to a market that was already falling. US markets rejecting 1625 50d mov/av again and that sizeable pull back after European close didn't set things up well. But our core concern remains in Asia where it would appear that the recent fall back in regional sov CDS (see Indo) and rally in Investment Grade and Sovereign bonds is camouflaging real problems in the High Yield and  the corporate market.
Despite trackable indices showing "not too bad" measures ( look at Indo CDS) behind the scenes are... well, pretty foggy.

China's bill discount markets and the like are not on bloomberg, not widely reported and if you want to get even the vaguest sense of what is going on you need to survey a bunch of loan officers. Thank god for consultants because efforts to create a senior loan officer app to be distributed via iTunes have thus far not been successful - we just wish they were bearing better news. All indicators are that the engine block of China's economy - credit - have frozen and while Shibor is semi under control much as Libor came under control post Bear Stearns it really isn't telling us much of anything about shorter term OTC markets with echoes of 2008 repo markets. TMM have learnt one thing over the last couple of crises and that is that if the transmission mechanism isn't working its time to get liquid or flat and continue trading from safely by hiding under ones desk.

Due to the opacity of China TMM have concluded that fixing this is going to look at lot less data driven / Target2 / Draghi like and a lot more like fixing the plumbing of a very old house in London where previous works were done by squatters in the 80's (undocumented) and original work done by pre-war owners whose records are as readily recoverable as the library of Alexandria. In summary, crossing the river by feeling the stones.

Which leads us to Egypt and the Arab spring part 2 that we have been expecting for a while. The headlines are spectacular but we don't see major market contagion. If Syria can't shake things then a second round rumble in Egypt with the Army acting as a stabilising force is unlikely to. However we bear in our minds one of our old dictums that some countries end up with effective dictatorships in the first place because that's all that works governing a populace of disparate extremes.

Put that lot together with this morning's price moves and it feels as though we are only a hair's breadth away from an old fashioned general meltdown in everything, involving more positional liquidation (which might explain why AUD/USD is not falling any further after Steven's comments overnight).

The market can cope with one problem at a time but today feels more like a swarm attack. 

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abee crombie
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July 3, 2013 at 1:54 PM ×

Dont forget a little Batista battering for good fun as well. Not helping confidence in LatAM bonds.

EM FX creeping up as well. BRL, RUB, INR....

And what will kick this market in the balls? A GOOD NFP number! What a game this is.

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Leftback
admin
July 3, 2013 at 3:03 PM ×

Portugal on sale. PT, if you fancy that, or for the beta driven amongst us, there is Banco Espirito Santo, a stock for those who think the volatility of NBG isn't exciting enough.

Egypt reverting to military control? Yawn. It's a buy, more than a sell. EURUSD being beaten a bit going into the ECB meeting, but it will bounce off this level when Dr Aghi sits on his hands. DX peaked this morning at 83.72 and may be fresh out of juice unless there is a +250k number on Friday.

BRLUSD looks like a double top here. EM, other than China and maybe India, are definitely worth a look.

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Leftback
admin
July 3, 2013 at 3:26 PM ×

Selling of REITs again today, on more rate hike fears. These will all prove unfounded once again when the real number rolls around on Friday....

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Anonymous
admin
July 3, 2013 at 3:36 PM ×

On the other hand, if markets do not crush even with those negative news, does it suggest a rally is in the pipeline?

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Leftback
admin
July 3, 2013 at 3:39 PM ×

It suggests a lot of players are out for the week.....

The bond markets, FX and Europe all of considerably more interest than US equities, which will oscillate up and down like a jack in the box this week over yet another +130k lukewarm jobs number.

Next week is another story. We will need to look at the innards of the NFP report more than the headline, and then there are those earnings reports....

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Anonymous
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July 3, 2013 at 4:32 PM ×

Is HK-10yr a reasonable proxy for Chinese banking concern? Its one of the nastier moves lately - +120bp in the last 2 months from 80bp.

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Hotairmail
admin
July 3, 2013 at 5:00 PM ×

I think you've been 'swmed' MM.

July 4th without a rally would be unpatriotic.

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Anonymous
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July 3, 2013 at 5:45 PM ×

TMM, given you sometimes go on long periods where there are no blog posts, would be great if you could add Africa as a blog topic. The last frontier needs to be talked about and who better than TMM.

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Polemic
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July 3, 2013 at 6:48 PM ×

Anon . 3.36
yes.. this morning we were watching with baited breath as our near term stops on some equity longs were nearing fulling expecting them to be hit ( had to say we flipped to hope from sensible at one point) as we think the Portuguese part is not warranting such a reaction. It was just the general shape of the price action that was looking so worrying.

And yes Hotair.. managed to swot away each issue in the swarm but the China internals are still a big concern.

As for Africa .. If you could find a suitable candidate to join TMM as "Africa Expert" then it would be a runner, as other than Southern Africa, the odd commodity link and the politics in hot spots, we really are pretty clueless on the region and are looking for guidance ourselves for the reasons that you cite. Unfortunately TMM is more "Wizard of Oz" just holding it together, than large macro research company, hence the pauses between recent posts. Its not that we are twiddling our thumbs!

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Gus
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July 3, 2013 at 9:49 PM ×

Anon 5:45

In the current absence of TMM's "African Expert", perhaps this article may be of interest:

http://jkornet.com/2013/06/12/where-to-invest-now-the-most-promising-african-stock-markets/

Also, here's a good African zeitgeist: "One indicator of African potential: Nigerian sales of Guinness beer now surpass those in Ireland, despite the dry stout’s origins in Dublin."

http://www.spokesman.com/stories/2013/mar/22/african-stocks-draw-interest-from-investors/

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Hotairmail
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July 4, 2013 at 3:33 PM ×

Polemic: FT article

http://www.ft.com/cms/s/0/38dc9ed0-e47b-11e2-875b-00144feabdc0.html


"Chinese money rates return to normal levels "

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