With all the compelling news coming out of Libya, the Arabian peninsula and Japan, it’s been easy for investors to overlook the festering sovereign-debt crisis in Europe. But it may come back onto the radar this week, like tomorrow.
Our colleague Min Zeng penned the following missive:
The financial markets are shrugging off the turmoil in Portugal and Ireland today, yet Andrew Brenner, head of emerging markets at Guggenheim Securities, says these two could lead to more volatility in stocks and bonds Wednesday when Portugal’s legislators are scheduled to debate the budget plan. Brenner says Portugal’s main opposition party said they will not support budget cuts so if the budget isn’t passed, Portugal could be forced to ask for funding from the EU. In Ireland, the continued disagreement between Germany and Ireland over corporate tax rates continue to plague negotiation for possible interest rates reductions from the bailout funding for Ireland, he says.
The Journal has a story on Portugal’s budget dilemma. There were reports earlier this week that Portugal’s going to seek a bailout no matter what happens with this vote, but if the measures are rejected, it would force the nation to seek a bailout within a few weeks.
As an indication of how jittery European debt markets are, Ireland’s debt (junior debt, mind you) tanked after after a rumor went through debt markets that Allied Irish Bank missed a coupon payment. The rumors were denied, and the market calmed down, but Ireland’s 10-year bond yield was pushed up to 9.658%. They later fell to 9.278%, for whatever that’s worth.
It’s a good thing the Europeans agreed to that new, permanentbailout fund. They’re gonna need it.
US stocks are spring-loaded for an early burst higher, goaded by big M&A news (AT&T’s $39B deal for T-Mobile), reports that Japan is gaining control over its nuclear plant crisis and rallying markets in Europe.
Chatty week for the Fed, with a host of speeches scheduled for the central bankers, while the data calendar is relatively thin. February existing home sales set for 10:00 a.m. ET, and new home sales due Wednesday. Other data include February durable goods on Thursday and a third look at 4Q GDP Friday.
Oil running higher, nearing $103/barrel. S&P futures up 14.80, Dow futures up 111. Ten-year note slides, yield at 3.33%.
Posted by Paul Vignaon March 17, 2011 Geopolitical /
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The images that mollified the markets here in the states today were fuzzy ones of helicopters dumping water on the destroyed nuclear reactors at Fukushima Daiichi, and the statements that mollified the markets were vague assurances of progress in fighting that catastrophe.
There’s also been a general feeling that the area stricken by the triple calamities isn’t economically vital, and the market’s been banking on the idea that the nation’s output won’t be too badly crimped. So long as Tokyo’s okay things will be okay seems to be the general idea.
But the disruption to daily life in Tokyo is growing, and if daily life there is being upended, then the economic effects of the calamity can only grow. I was here on Sept. 11. Nobody fled New York City, even though many wanted to. Everybody worked through a nightmare. I have no doubt that the Japanese people will as well, but this idea that it’s a “well contained” calamity, to borrow a phrase, is starting to look just a bit silly.
Obviosuly the situation in Tokyo is nowhere near as dire as that in the north, but the capital is becoming a very chaotic place itself, as the FT’s Gwen Robinson makes clear in this post that provides a look at the mood inside one of the world’s largest cities, and one of the world’s three major financial centers :
The television showed images of enormous queues at international airports around Japan. Some people, unable to make reservations by phone, went to Narita or Haneda airports near Tokyo to try to buy tickets over the counter.
Train stations were also packed with people trying to head west, particularly expatriate families seeking to relocate to cities such as Osaka, Kyoto and Fukuoka near international airports.
In fact, one expat wife who was taking her children to Kyoto earlier in the week described the bullet train, normally half full with besuited Japanese businessmen and a smattering of other travellers, as a “rolling high-speed nursery,” packed with screaming kids and foreigners all fleeing Tokyo.
Posted by Paul Vignaon March 17, 2011 Markets /
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Dennis Gartman touched on the topic of the yen, as he does most every day, in today’s Gartman Letter:
THE PANIC CONTINUES and quite honestly that is all one can say at this point, for the violence of the moves since the close of trading in N. America last evening have been nothing short of astounding. We cannot recall markets such as these since the days more than a decade ago when Long Term Capital Management was collapsing amidst the panic that was the Russian Crisis. That August we can recall the Yen moving 7 “Big Figures” in one day, sufficient to take trader after investor after institution after speculator…bullish and bearish of all markets everywhere… out of the positions with sizeable losses. Such are the markets when panic breaks out.
Gartman makes the point, without coming out and saying it. The horrific events of the past week in Japan, an earthquake followed by a tsunami followed by a nuclear crisis that, are still playing out. You do not know where this crisis is going to lead. Nobody does, and anybody who says the worst is over is trying to sell you something they do not, in fact, own.
Yesterday’s frantic trading in the yen — pushing it to a new record high against the dollar — were stunning in their pace, and even if the forex market doesn’t get as much press as the stock market, it pointed to a big shift in the marketplace. How big, and what else it will affect, remain to be seen.
Posted by Paul Vignaon March 16, 2011 Markets /
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As if to illustrate our post this morning, and to illustrate just how jittery the market is, and to painfully illustrate just how dangerous the situation in Japan is still, the news late this morning out of Europe, regarding the nuclear crisis in Japan, drove every asset into an immediate nosedive (or in the case of the safe havens, a sharp spike higher.)
The latest news roiling the markets is about Japan, but it isn’t actually coming from Japan. Rather, the EU’s commissioner for energy, Guenther Oettinger, told a European Parliament committee “the site is effectively out of control.” This reiterated the same comments reported in two UK papers, the Telegraph and Daily Mail.
Look at the pictures in the Mail’s story; I have a more comprehensive grasp of just how bad the damage is after seeing them. They are sobering. There have been reports that those 50 people who’ve been — heroically — trying to save the plant had to be evacuated temporarily, and you wonder how long they can stay there.
The Dow dropped as much as 190 points in a matter of minutes. It bounced back to about down just 100, and is currently down around 170. All this underscores the fact that the market is a rough place to be right now, especially if you’ve been hooked by the Street’s usual sunny pronouncements.
The doctor said the clinical term for the condition is “davosis.”
It’s described as an annual sense of rising expectations that something important or transformative will be said or done, only to be quickly replaced by an empty, used feeling.
The origin of the malady’s name comes from Davos, Switzerland, site of the annual meeting of the World Economic Forum. Year after year, the business, academic and political elite gathered there to discuss “big global issues.” And despite the media’s ardent attempts to bring gravity and significance to the assemblage in the sleepy mountain resort, nothing important or significant ever came of the meeting.
This is what can happen when you think jawboning can replace concrete policy. While European leaders have talked, and talked, and talked, without actually doing much of anything about the escalating Greek crisis, the rest of the world has watched, and waited, and worried, and wondered if this was all going to be settled and contained before it spread to the rest of Europe, and God knows where else after that.
Contagion 3, Jawboning 0.
“It’s not a question of the danger of contagion; contagion has already happened,” Organization for Economic Cooperation and Development Secretary General Angel Gurria said in an interview with Bloomberg television in Berlin today. “This is like Ebola. When you realize you have it you have to cut your leg off in order to survive.”
The ratings agency S&P threw a Molotov cocktail into the serene marketplace yesterday, downgrading both Greece and Portugal. Not content with bolstering their battered reputation with those moves, S&P tossed another grenade today, downgrading Spain. The only “PIIGS” members left unaffected are Italy and Ireland. But they may not remain so.
More downgrades are coming, says BBH’s Win Thin, as ratings agencies are “on the warpath and unlikely to relent any time soon.”
So far, over here the reaction has been almost nonexistent. Stocks have been volatile, and fell on the news of the Spanish downgrade, but are back to their morning highs. Of course, U.S. investors are waiting to hear from the Fed at 2:15 p.m. I wonder what’ll happen after that, especially with the dollar up sharply as the euro sells off. The euro is threatening the $1.31 level; $1.32 was seen as a line in the sand.
“We have gone past the point of no return,” said Jacques Cailloux, chief Europe economist at the Royal Bank of Scotland, as reported by Ambrose Evans-Pritchard in the Telegraph.“There is a complete loss of confidence. The bond markets are in disintegration and it is getting worse every day.” And that was before the Spanish downgrade.
I’m not really sure what I can say about the Greek thing that I haven’t already said. Sure, there’s news today, there are new developments, new newsy news out there, but there isn’t anything new about the situation. That’s the biggest point, really; that the Greeks are still in an awful bind.
There isn’t anything surprising about what’s going on now, and anybody who thought that so-called, purported EU-IMF rescue plan last month was anything more than more jawboning is finding out the truth now. Of course, some of those anybodies included the Greeks, the Germans, the French and maybe even the IMF.
Greece has exhaustively said it isn’t asking for money, it only wants some vague assurance of “support” that will get those nasty speculators off its back and get the yields on its debt down, so it can afford to run a government. I don’t recall Greece exactly specifying a level at which its debt would be so expensive that the interest payments alone would overwhelm its austerity efforts, but it’s a fair bet that a record 7.58% yield is above whatever level PM George Papandreou had in mind.
And the belt-tightening has to be it, the solution, the way out, the path, because it should be fairly obvious to everybody that, much as Greece hasn’t been asking for it, no money’s coming their European neighbors, and the Argives themselves have doubts about the net benefits of getting money from the IMF. Those strings attached can be rather constricting, you know.
What else do you need to know about? The market loves ObamaCare (right?), but nobody in Europe more and more looks like a bunch of squabbling children (like Lord of the Feta, or some such thing.)
Partisans will try to pin any selloff on last night’s vote on healthcare reform, which depending upon your political leanings is either historical or Pyrrhic. But there are other factors at work, and besides, the bill doesn’t even go into effect until 2014, so there’s still time to make hay.
There are other things of more immediate import going on, like the resolution of the Greek situation. With the EU holding a summit meeting, and with time running out for the Greek to get their funding in place before they have to turn over something like $20 billion in bonds in April and May, this week has all the makings of a Rubicon-type event (I know, that’s a Roman, not Greek, reference, but you know, if the sandal fits…)
The Brussels summit begins on Thursday, so we have three full days to twist in the breeze while this whole drama drags on. This is pressing down on the euro, which is driving up the dollar, which lately has been a heel on equities. So as much as Kudlow will probably be ranting by 11:30 a.m. that the market hates the healthcare plan, it ain’t that. It’s the Greek thing.
And for as much as this story seems to change hourly, the basic outlines have not changed at all: the Greeks fibbed for a decade, ran a dangerously profligate nation, and need a bailout. The prim and proper Germans don’t want to bail them out.
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