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12May2015 Pre-Market Commentary: US Futures Down On Continuing Worries On Greece 'Grexit', European Bond Issues And General Unrest

Written by Gary

Greece emptied an emergency IMF holding account to repay 750 million euros ($839 million) due to the international lender, a Greek central bank official said, avoiding default but underscoring the dire state of the country's finances

European government bonds and stocks were hit with a renewed selloff as recent signs of a return to stability in the market proved short-lived.


Here is the current market situation from CNN Money

European markets are sharply lower today with shares in Germany off the most. The DAX is down 2.01% while London's FTSE 100 is off 1.68% and France's CAC 40 is lower by 1.27%.

What Is Moving the Markets

Here are the headlines moving the markets.

Verizon to Buy AOL for $4.4 Billion

Verizon is buying AOL for $4.4 billion in cash, a deal aimed at advancing the telecom giant's growth ambitions in mobile video and advertising.

US Equities Give Up All "Goldilocks" Jobs Data Gains

What's the opposite of 'Goldilocks'?


Markets In Turmoil - When Carry Unwinds

When risk-free assets, with de minimus regulatory capital requirements move like penny stocks, firms are forced to do something about economic risk capital - either derisk (sell assets), or increase capital (delever carry). The ongoing carnage in the world's bond market is creating just such a self-fulfilling problem for risk-assets everywhere (despite simpleton hopes that bond-selling means stock-buying - it doesn't as the marginal buyer is all repo/carry funded and not 'real' cash being rotated). Everywhere one looks, financial markets are turmoiling...

Bonds...

Commodities...

The Dollar...

Stocks...

Charts: Bloombe ...

Shelby to Unveil Legislation Heightening Fed Scrutiny

Senate Banking Chairman Richard Shelby plans to unveil a bill that would heighten scrutiny of the Federal Reserve and revamp rules faced by smaller banks.

Exclusive: Greece tapped its emergency IMF reserves to pay IMF debt - sources

ATHENS (Reuters) - Greece emptied an emergency IMF holding account to repay 750 million euros ($839 million) due to the international lender, a Greek central bank official said, avoiding default but underscoring the dire state of the country's finances.

'The Crash" Will Not Be Caused By An Event...

Via The Burning Platform blog,

Hussman analytically describing the process leading to a crash. It hasn't happened yet, so it won't happen. Right?

From an investment standpoint, market conditions remain characterized both by obscene valuations and still-negative market internals. It's that combination that continues to suggest potentially vertical downside risks.

When people think about crashes, they tend to think about an event â€" as if some massive, grotesque, red, scaly, fire-breathing, razor-toothed catalyst should be obvious beforehand. But we know from history that that's not the way it works.

Instead, the sequence goes like this: the conditions that create vulnerability to a crash emerge first (elevated valuations coupled with deterioration in market internals and/or widening in credit spreads), the crash emerges second, and catalysts are then identified â€" often just flashpoints that were consistent with speculative breakdown. Many investors think that "Lehman" caused the global financial crisis, but the mortgage crisis was already unfolding well before that. Lehman and Bear Stearns before it were only symptoms, not causes.

The cause is always speculative distortion that was well-known for quite some time: elevated valuations, often accompanied by speculation and new issues of low-quality stocks representing some "new economy" theme, or yield-seeking speculation and heavy issuance of low quality debt. The main reaso ...

Verizon to buy AOL in $4.4 billion deal

(Reuters) - Verizon Communications Inc said it would buy AOL Inc in a $4.4 billion deal that gives the biggest U.S. wireless carrier access to AOL's successful digital advertising service and content including the Huffington Post news website.

Central Planning + HFT = Global Bond Crash

Six years ago we first warned that unbridled central planning around the globe in the form of runaway debt monetization (which adds to stock market "liquidity" while soaking up trillions in high quality collateral i.e., government bonds) together with the uncontrolled proliferation of HFT which in turn soaks up all liquidity, can only mean one thing: crash across all assets classes. Years later, everyone is starting to finally get it.

Here is today's epiphany by Deutsche Bank's Jim Reid.

Everyone seems to have different theories with heavy corporate supply expectations a new one of late. What most traders have said though is that liquidity is awful. Big moves are possible on relatively low or average volumes. What has become increasingly clear over the last couple of years is that the combination of high money liquidity (ZIRP and QE) and low trading liquidity (regulation and bank capital constraints) creates air pockets. The former encourages investors to move in a similar (positive) direction until overheating occurs with the latter then creating problems when they want to collectively lighten up. Those of us in the credit market saw this close up with HY in H2 last year. However that this is increasingly spreading up the top of the capital structure is a worry. It's also a worry that these events are occurring in relatively upbeat markets. I can't help thinking that when the next downturn hits the lack of liquidity in various markets is going to be chaotic. These increasingly regular liquidity issues we're seeing might be a mild dress rehearsal.

... a dress rehearsal for a main event that will be one for the ages.

European Bonds, Stocks Sell Off Again

European government bonds and stocks were hit with a renewed selloff as recent signs of a return to stability in the market proved short-lived.

Thales chairman-elect Proglio quits in spat over Russian interests

PARIS (Reuters) - Henri Proglio gave up his claim to the chairmanship of defense group Thales on Tuesday, bringing into the open a simmering row with Economy Minister Emmanuel Macron over the veteran French businessman's Russian interests.

Chinese Smartphone Makers Place Call to India

As domestic sales slow and the country's economy cools, China turns to the much smaller but fast-growing market in India. Above, a young Indian with a mobile phone, on a cycle rickshaw in the old quarter of New Delhi.

China's Stock-Market Boom Won't Erase Bad Debts

The wrong companies are taking advantage of China's frothy markets to sell new shares.

Tighter Competition for Low-Cost Carriers Weighs on EasyJet

The airline swung to a profit in its first half but said that stiff competition for fares in the summer could offset savings from lower fuel costs.

Frontrunning: May 12



Bonds Extend Global Rout as Europe Stocks Slide, Dollar Weakens (BBG)

Verizon Communications to Buy AOL for $4.4 Billion (BBG)

Fresh Nepal earthquake kills dozens, triggers panic (Reuters)

Sen. Shelby to Unveil Legislation Heightening Fed Scrutiny (WSJ)

Bill Gross: The Amount of Money I'll Give Away 'Is Staggering, Even to Me' (BBG)

U.S. rejects notion that Gulf rulers snubbing Obama summit (Reuters)... what about AIIB?

In Asia, Debt Market Gets Tougher (WSJ)

Iran's Mahan airline defies sanctions in shadowy aircraft deal (FT)

After Galaxy Smartphone Debacle, Samsung Questions Game Plan (WSJ)

Nomur ...

Hyperinflation in Art Investment Market as Picasso Sells for $179 Million

Hyperinflation in Art Investment Market as Picasso Sells for $179 Million

- Picasso's "Les Femme d'Alger" sells for a record $179 million
- Most expensive painting ever sold at auction
- Hyperinflation in art market as painting appreciated nearly $150 million in 20 years ...
- Reports in February of the private sale of Gauguin's "When Will You Marry" for $300 million
- Art price volumes doubled since 2009
- As currencies debase super rich seek out stores of value
- Gold remains accessible store of value for middle classes

Pablo Picasso’s “Les Femme d’ Alger” Pablo Picasso's "Les Femme d' Alger"

Pablo Picasso's "Les Femme d' Alger" sold at Christie's in New York last night for $179 million - the highest price ever paid at auction for a painting.

It smashed the record previously held by Francis Bacon's "Three Studies of Lucian Freud" which sold for $142 million in 2013.

The painting appreciated nearly $150 million in less than 20 years. Hyperinflation appears to be taking hold in the art investment market.

Painted in 1955, Les Femmes d' Alger is based on Delacroix's 1843 painting "Femmes d'Alger dans leur Appartement" a sensuous depiction of how the Europe ...

European Markets Ruffled by Bond Gyrations and Greek Cash Crunch

Volatility in bond markets and the lack of an outcome from bailout talks between Greece and its creditors caused European markets to slump on Tuesday.

Judge's Ruling Against 2 Banks Finds Misconduct in '08 Crash

Judge Denise L. Cote of Federal District Court in Manhattan ruled on Monday that Nomura and the Royal Bank of Scotland misled Fannie Mae and Freddie Mac.

Greece Effectively Defaults To IMF Using SDR Reserves To "Repay" Fund; 1 Month Countdown Begins

When Monday's Eurogroup meeting concluded without an agreement between Greece and its creditors, it should have been game over for Athens. With pensioners at their breaking point and with local governments reluctant to comply with a decree mandating a sweep of excess cash reserves, the idea that Greece would somehow be able to scrape together €750 million euros to make a scheduled payment to the IMF today seemed far-fetched at best which is why we asked the following question Monday afternoon:

Where, if not from local governments who have been extremely reluctant to comply with Athens' cash sweep decree, and if not from the IMF which will apparently not be paying itself tomorrow after all, is Greece going to get three quarters of a billion euros in the next 12 hours?

We now know the answer to that question. As Bloomberg reports, citing Kathimerini, Greece tapped IMF reserves to pay .. well, to pay the IMF:

Greece used up ~EU650m reserves from its SDR IMF holdings account to meet loan payment of ~EU750m due to Fund today, Kathimerini newspaper reports, without citing anyone.

Reserves kept in IMF holdings account need to be replenished within one month

IMF agreed over weekend for their use, given Greece's liquidity situation; without use of those reserves, payment due today wouldn't be possible.

Reuters has a bit more color:

Stock futures down sharply on global bond rout, Greece worries

(Reuters) - U.S. stock index futures were sharply lower on Tuesday as a global bond sell-off and continuing worries on Greece's perilous financial situation weighed on the market.

Here We Go Again: Verizon To Buy AOL Marking Another Tech Bubble Top

The last time AOL was involved in a mega merger was January 2000, when AOL acquired Time Warner for $182 billion in what was the mega deal of the last tech bubble, creating a $350 billion behemoth... which nearly dragged down both companies a few years later.

Fast forward 15 years and here is AOL again in yet another period-defining if far, far smaller transaction, when moments ago Verizon announced that it would acquire AOL for $50/share, a deal value of $4 .4billion. And with that the golden age of digital (and in many cases robotic) content, has now been top-ticked.

Then again, the joke will be on us if Verizon backs out of the deal just before the end of the 30-day free M&A trial period.

From the press release:

Taking another significant step in building digital and video platforms to drive future growth, Verizon Communications Inc. (NYSE, Nasdaq: VZ) today announced the signing of an agreement to purchase AOL Inc. (AOL) for $50 per share -- an estimated total value of approximately $4.4 billion.

Verizon's acquisition further drives its LTE wireless video and OTT (over-the-top video) strategy. The agreement will also support and connect to Verizon's IoT (Internet of Things) platforms, creating a growth platform from wireless to IoT for consumers and businesses.

AOL is a leader in the digital content and advertising platforms space, and the combination of Verizon and AOL creates a scaled, mobile-first platform offering directly targeted at what eMarketer estimates is a nearly $600 billion global advertising industry. AOL's key assets include its subscription business; its premium portfolio of global content brands, including The Huffington Post, TechCrunch, Engadget, MAKERS and AOL.com, as well as its millennial-focused OTT, Emmy-nominated original video ...

Bond market blues hammer stocks, drive euro higher

LONDON (Reuters) - Government bonds sold off again on Tuesday, driving down stocks and helping push the euro sharply higher against the dollar.

Australia targets 30 multinationals in tax crackdown

CANBERRA (Reuters) - Australia on Tuesday proposed new legislation to tighten tax loopholes that the conservative government says have allowed around 30 of the world's largest multinational companies to avoid paying taxes.

Manager Feels Heat on IPO

Newton Glassman, managing partner of Toronto-based private-equity firm Catalyst Capital Group Inc. and known as one of Canada's most aggressive investors, finds himself on the defensive.

Spain withdraws permission for Airbus A-400M test flights

MADRID (Reuters) - Spain's Defence Minister Pedro Morenes said on Tuesday that flight permission for Airbus A-400M planes currently in production in Spain has been temporarily withdrawn until the reasons for Saturday's fatal crash were determined.

Global Bond Rout Returns With A Vengeance; 10Y Treasury Tumbles Under Key Support; Futures Pounded

It all started again in Asia, although not in China where the berserker mania bid for stocks has returned and the SHCOMP is now up nearly 5% in the past two days following the PBOC's latest easing, but in Japan where once again the massively illiquid JGB market, of which the BOJ owns roughly a third as of this moment, is going through yet another shock period (if not quite VaR yet) with last night's 10 Year JGB auction seeing the lowest Bid to Cover since 2009.

This was the beginning, and promptly thereafter bond yields around the globe spiked once more, with 10-year Treasury yields climbing to a five-month high, as the global rout in debt markets deepened. The biggest casualty so far is the Bund, which having retraced some of the flash crash losses from two weeks ago is once again in panic selling mode, and while not having taken out the recent 0.8% flash crash wides, traded just shy of 0.75% this morning.

Germany's 10-year bund yield, the euro area's benchmark, rose 12 basis points to 0.73 percent and Japanese yields also increased.

Just as notably, treasury bond yields have also spiked, jumping seven basis points to 2.35% and breaching the 2.32% support zone we noted last week. Recall: "in the instance of 2.2 ...

Alibaba rolls out three-hour delivery service for healthcare goods

BEIJING (Reuters) - Chinese online shopping giant Alibaba Group Holding Ltd is rolling out a three-hour delivery service for healthcare goods, mimicking rival JD.com Inc.

FDIC Chief: Big Bank Failure Won't Imperil System

FDIC Chairman Martin Gruenberg says U.S. regulators can safely guide a major financial firm to failure without taxpayer bailouts or catastrophic consequences for the financial system.

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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