However that is only considering the June contracts, today is Quadruple witching which means contracts for stock index futures, stock index options, stock options and single stock futures all expire.
Yesterday we saw Egan Jones cut France's credit rating from A- to BBB+, the reasons include an expectation of higher funding (credit costs) which is the contagion of the core, a need to support French banks and Hollande's campaign promises which are seen to hurt French credit quality. Really it seems all of the Credit agencies are trying to get in front of the Greek elections, a possible if not likely Syriza win and a possible exit from the Euro-zone which would be disastrous for the remaining member nations and the entire banking/financial industry.
We also heard the rumor that drove risk up in the last hour from G-20 sources about a globally coordinated Central bank easing action to provide "Emergency Liquidity" should it be needed (obviously an attempt to head off problems caused by a Syriza win in the Greek elections this weekend).
Overnight....
Moody's downgrades 5 Dutch banks (the Credit rating companies have been very busy in front of the Greek election), most were downgraded 2 notches including ING.
The UK Treasury and BOE said overnight they will work together to enhance credit and provide emergency liquidity for UK banks, again more preparations for a possible Syriza win in the Greek elections. This has caused analysts to speculate the BOE would further ease at their July rate decision and add to asset purchases to the tune of $50 bn pounds. Currently analysts expect at least a 25 basis point cut by the end of the year (80% probability).
Overnight the BOJ left policy rates and asset purchases unchanged and also slightly upgraded their economic outlook, still warning of credit risks (read Greece).
As far as the G-20 and yesterday's news/rumor, there is a EU finance ministers conference call scheduled for today to discuss planning for a possible Central Bank move, expect rumors to fly today about this conference, but it is unlikely any action will be taken before the Greek election results are known. Syriza has put the Fear of the higher power in the world's economy as can be seen by rating agency actions and central bank actions and rumors of action, this is a big event.
On that news the Spanish 10 year yields have seen some relief, last seen at 6.88%, off the 7+% level from yesterday and Italy is close to 6%-still huge unsustainable yield levels.
The president of Germany's Bundesbank has backed referendums across Europe on a Eurozone fiscal union, which could pave the way for Eurobond, allowing the debt-burdened periphery to borrow more cheaply-an interesting development out of Germany who is staunchly opposed to Eurobonds.
The German finance minister says he rules out relaxing the terms of the Greek bailout; adding
that not everything can be solved with a rate cut and that Greece not meeting accords would lead to a funding interruption, and this could have repercussions for staying within the Eurozone.
The ECB's Draghi seems content to remain on the sidelines, saying overnight, "We have reached a contingency where political decisions are predominant over monetary policy decisions we can take in the short term and the ECB will continue to supply liquidity to solvent banks when needed."
In the US this morning, the Empire Manufacturing Index (which was surprisingly solid last month) has slipped along with most other US data points, but slipped hugely, as is a major slip and fall.
Released On 6/15/2012 8:30:00 AM For Jun, 2012
| Prior | Consensus | Consensus Range | Actual | |
| General Business Conditions Index - Level | 17.09 | 13.8 | 5.0 to 16.1 | 2.29 |
The index plunged from consensus of 12.5-13.8, dropping from the previous 17.09 all the way down to 2.29! This is a HUGE miss. The devil is in the details, well the devil was there as well, all of the subcomponents (New Orders, Shipments, Unfilled Orders, Inventory, Prices Paid, Prices Received, Employees and Workweek) fell from last month's reading-THERE WAS NO SILVER LINING.
The general business conditions index fell fifteen points, but remained positive at 2.3. The new orders index declined six points to 2.2, and the shipments index fell a steep nineteen points to 4.8. Price indexes were markedly lower, with the prices paid index falling eighteen points to 19.6 and the prices received index dropping eleven points to 1.0. Employment indexes also retreated
The first place to look for a reaction, gold which is trading up.
Just before the open this news hit the wires:
ECB TO STOP PREPARATIONS FOR COLLATERAL MANAGEMENT PROGRAM
What does this mean? I have absolutely no idea other than some thoughts about the ECB's balance sheet and how they lowered the credit rating standard for bank collateral at the last LTRO operation in order to allow banks to access money at 1% for 3 years as most banks had either used up their "A" rated or better collateral in LTRO 1 or were saving it for private funding purposes. I can only assume the ECB sees a mess in their collateral bin. This also makes me think about how quiet the ECB has been, they have taken very little action, they're not even in the secondary bond market trying to stabilize yields like that of Spain's hitting 7%, a year ago this would be unthinkable and the ECB would be seen everywhere in the secondary credit markets. Could it be the ECB is in big trouble itself? I think the probable answer is yes.
The next US data point just came out about 30 mins ago, the University of Michigan Consumer Confidence read, like the Empire Manufacturing, it was not good.
| Released On 6/15/2012 9:55:00 AM For Jun, 2012 | ||||||||||
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Of course as gold is acting as a QE sentiment indicator and bad news is good news for those longing for QE, gold did what you'd expect on the release and ticked up.
As for ES and EUR/USD, 3C was right about the change in character in ES overnight...
ES gained over 9 points overnight, it went negative in to the European open at the green arrow and has slightly stabilized since the pre-market lows.
The Euro which broke above the major resistance trendline has had trouble holding it, it's no wonder given the huge event risk over the weekend in Greece.
Here's the action since 9:30
Basically everything can be summed up in two words, "Greek Elections", everything revolves around them, a possible Greek exit from the Eurozone which would plunge the EU in to chaos (more chaos), possible activation of Central Bank intervention, uncertainties as to whether the CB action would be effective or completely change the intermediate trend, if Syriza doesn't win the market could be disappointed in thinking it is less likely to see easing from the Central banks. There are so many scenarios and unintended or spiderweb consequences, it's simply unimaginable, but one thing is for sure, get ready for major volatility, if not starting today, then by Sunday night's open and throughout next week.
This could be a true Black Swan event.
Updates on the way....
Basically everything can be summed up in two words, "Greek Elections", everything revolves around them, a possible Greek exit from the Eurozone which would plunge the EU in to chaos (more chaos), possible activation of Central Bank intervention, uncertainties as to whether the CB action would be effective or completely change the intermediate trend, if Syriza doesn't win the market could be disappointed in thinking it is less likely to see easing from the Central banks. There are so many scenarios and unintended or spiderweb consequences, it's simply unimaginable, but one thing is for sure, get ready for major volatility, if not starting today, then by Sunday night's open and throughout next week.
This could be a true Black Swan event.
Updates on the way....
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