Yes, another day and the markets had to try to understand the significance of Cyprus. The newswires were filled with analysts claiming this was a “tempest in a teapot” and that the doomsayers were blowing the Cypriot problem into a pseudo crisis. Again, a world that is highly leveraged is subject to a “single spark starting a prairie fire” and the fear of contagion and an electronic bank run are very real if the major policy makers don’t invoke the trust of the electorate and investors. The perceived actions by IMF Director Lagarde (the joker) and the liquidationist mentality being thrust from Berlin and Chancellor Merkel (the thief) have created a situation where European bank depositors are nervous, especially so in the peripheral banks. THE MAIN COMPONENT OF THIS UNCERTAINTY WAS THE MOVE IN THE FRONT MONTH EURIBOR CONTRACTS,AS THE JUNE 2013 FELL 10 TICKS ON A DAY WHEN OTHER INTEREST RATES WERE LOWER. NOTHING SAYS BANK FEARS THEN A COUNTER MOVE IN THE EURIBOR AND LIBOR MARKETS. An increase in bank yields with equity markets falling is a sign about the fear in the bank deposits market. It seems that the policy makers that are leading the previously “revered” TROIKA (IMF,European Commission and ECB) have initiated fear for a mere pittance.
As the Dylan song continues: “There’s too much confusion, I can’t get no relief.” For all those traders, keep a close watch on the Euribor markets and do your technical work to look for possible levels of increased downside momentum. Yes, the EURIBOR had been building in a rate cut as I have previously discussed so the market may be merely taking back some of the ECB anticipated easing, but that would be contra to a market sensing economic turmoil. Thus, it is most likely an indication of concern about the banks. The markets have other areas of vulnerability but at this juncture calm has prevailed. The selloff in the SPOOS and GLOBAL EQUITIES has been well contained as it seems investors are looking to havens to park their funds. Stocks have been a favored haven as well as investments deemed not to have the taint of European banks.
Anyone notice that the Japanese Bonds (JGBs) have made all-time highs on the CQG futures chart? The YEN has been a weak currency for the last four months, especially against the EURO, as Japanese investors (Mrs. Watanabe) have moved their funds to places of higher yields and possible appreciation. If the banking problems in the EU become more unstable, look for some repatriation of YEN back to Japan, especially as we near the Japanese fiscal year-end … just something as traders to watch. As always, look at the EUR/YEN technicals to see possible corrections in what has been a very powerful trend.
***Tomorrow the FED will release its FOMC statement at 1:00 p.m. CST followed by a Bernanke news conference at 1:30. The turmoil in Cyprus and its impact on the markets would keep the Fed on its present course.It will be of interest to see if the FOMC comments about headwinds from the global financial crisis. But more importantly, I will be watching how the committee votes. Before this week’s turmoil in Europe, Fed Governor Jeremy Stein had delivered a speech warning about the growing risks in the bon markets because of the Fed’s QE program. The response to Governor’s Stein’s speech in the financial sector was so great that Chairman Bernanke and Vice Chairman Yellen were forced to speak on the issue. I WANT TO SEE IF JEREMY STEIN VOTES AGAINST FURTHER QE that would be a significant statement and give the noted hawks on the Fed some major support. Otherwise, the Bernanke press conference will be the main event.
***In a followup to last night’s post on the hypothetical use of Cypriot natural gas as collateral for a Russian loan to bail-out its banking system, Jim Sinclair forwarded a piece about the Cypriot gas fields. I will post the piece tonight and thank Jim for the update. Also, the article with the map notes that Turkey has been
reticent to recognize the Cypriots claim, but if the gas fields are Russia’s collateral, the Turks may well rethink their stance. Again, the law of unintended consequences set into motion by the Joker and the Thief.
Tags: Angela Merkel, Ben Bernanke, Christine Lagarde, Cyprus, ECB, euribor futures, Euro, Fed, FOMC, IMF, Janet Yellen, Jeremy Stein, SPS, Troika, Yen
March 20, 2013 at 7:40 am |
Businessmen they drink my wine, plowmen dig my earth, none of them along the line “know what any of it is worth”. To me, that is the most frightening line of all and pertains very directly to the current situation in Europe. Valuation.
March 20, 2013 at 7:45 am |
Yes Ray Mack–agree and thanks for completing it–valuation may well be in the hands of those who see the world in far bigger pictures—natural gas fields and mediterranean ports for the russian navy –some value does register on in the case studies of business schools–hmm some should have smoked more herb to see the world outside the box
March 20, 2013 at 9:38 am |
Yra- Some reading you might find of interest. Take care. http://www.edelweissjournal.com/pdfs/EdelweissJournal-012.pdf
March 20, 2013 at 9:47 am |
Could this be the opportunity?
HXM – “HXM has broken down from a triangle
pattern. This is bearish and the risk is
that HXM breaks the 2009 low near $10
ahead of a deeper decline to $8. Rallies
that stall below $11.25-11.60 keep the
trend bearish.”
March 20, 2013 at 10:00 am |
Chicken–I am looking at it this morning and as a Trader I am out as it makes new lows in a market where it should be rallying—I will buy it back if it makes a move over 15 dollars but as of now a market that is trading opposite a macro fundamental is a warning
March 21, 2013 at 1:40 am |
I live in Cyprus. I am absolutely sick in my stomach from watching all this. It is purely political and has nothing to do with the economics.
I used to believe in the EU idea. Not any more. The EU has placed the tombstone. If there was any doubt before I believe this seals it. The EU idea and euro have no future and will never become the powerhouse dream off.
March 21, 2013 at 6:54 am |
Sophocles–I am sorry for your predicament and as I have tried to portray to my readers for the last 31/2 years–the problems of Europe are immense because the leadership just continues to make rules up as it goes.The whole EU is built on lies as nobody felt the electorates were capable of understanding and supporting the ideals of a Euro elite.The problem is no one thinks a head and once the crisis moves from the headlines–it is back to business as usual–
March 21, 2013 at 7:31 am |
Geopolitical expert, Ian Bremmer: “We will not be talking about Cyprus in two weeks.” Bloomberg
March 21, 2013 at 8:27 am |
Global Macro expert Yra Harris–as long as media puts out shit we will be talking about the various “experts” that fill the airwaves to prevent going to black–including myself—for time ad nauseam
March 21, 2013 at 8:32 am |
Arthur–in all serious ,Ian Bremmer is right but that is because the ability of the public is concentrate on any news story for more then that period of time is just a fact of our times—the Russians taught us that by their doing whatever they wanted and knowing that public opinion would fade–the more exposure the shorter the impact—anybody remember the terrible shooting story in Sandy Hook Elementary,except for the relatives living with real pain
March 21, 2013 at 9:05 am |
very useful conversation, thanks!
March 21, 2013 at 2:00 pm |
Agree Yra on the shortness of public attention on the latest news story. I always say the circus moves quickly from town to town.
March 22, 2013 at 6:33 am |
We are under a German dictatorship. We have no right to negotiate or discuss any terms. All proposals are rejected and we are being punished for doubting the German wisdom. Conclusion: we must vote for any laws proposed to live another day… This is the blackmail that the society is today enduring.
March 22, 2013 at 6:49 am |
The Truth on 1 page.
http://edition.cnn.com/2013/03/21/business/opinion-cyprus-bailout-pissarides/
March 22, 2013 at 7:02 am |
Sophocles—great post and a very good article–keep us informed with such info.As the saying goes–when you point your finger there are two fingers pointing back at yourself
August 6, 2013 at 8:20 pm |
[…] has realized the damage done from QE, which was cited by Jeremy Stein in his February 7 speech. I noted back in March that the Stein speech had seemed to unnerve Chairman Bernanke about the potential damage the FED […]