The European markets had a bad day Thursday and the gloomy data releases in the US (terrible Philly Fed manufacturing numbers and an unexpected fall in existing home sales due to contract cancellations) led to a second day of sharp falls in equity prices overseas. . Asia didn’t fare too well either. The Nikkei closed down 1.9% and the Hang Seng was off 3.0%. The yen is back in nosebleed territory at 76.4. S&P futures are off 19 points.
Treasuries are trading at their lowest yields in 60 years. Gold has risen to $1868. The FTSE is now off 2.8%, the CAC 40 also down 2.8%, and the DAX off 3.3%. Brent crude is at $106. The euro is at 1.43.
The most worrisome (but not irrational) development is that UK and Eurobank stocks are on their third day of getting hit (note by contrast US banks stocks were whacked only a tad more than the rest of the market). Per Bloomberg:
European banks tumbled, led by Lloyds Banking Group Plc (LLOY) and Commerzbank AG (CBK), on concern firms will struggle to fund themselves and increase earnings as the region’s sovereign debt crisis strangles economic growth.
Lloyds fell as much as 9.4 percent in London trading, and was 2.4 pence, or 8 percent, lower at 27.44 pence by 8:55 a.m. Commerzbank slid 4.7 percent in Frankfurt, while UniCredit SpA (UCG) fell 4.2 percent in Milan. The 46-member Bloomberg Europe Banks and Financial Services Index tumbled 3.4 percent after dropping the most in two years yesterday.
And the Wall Street Journal:
U.K. banks were among the heaviest fallers. Barclays PLC was down 6.2% at 144 pence, Lloyds Banking Group PLC fell 5.7% to 28 pence, and Royal Bank of Scotland Group PLC was down 3.7% at 21 pence.
In France, Société Générale SA, which lost over 12% Thursday, was down 2% at €20.94 and BNP Paribas SA dropped 3.4% to €33.03.
The Bloomberg story quoted a brave analyst who said the odds of a 2008 style liquidity crisis in Europe was remote (huh? If you think Trichet is gonna gear up as fast as Bernanke did, I suspect you will be disappointed). But the leaks from regulators suggest otherwise. Again from the Journal:
European banks were also being hit by funding worries. The Wall Street Journal reported Thursday that the Federal Reserve Bank of New York, which oversees the U.S. arms of many large European banks, had demanded more information about the banks’ access to funding.
Concerns about funding were also fueled by data from the European Central Bank Wednesday showing that an unnamed bank had borrowed $500 million, the first use of the ECB’s seven-day dollar fixed-rate swap operation for 23 weeks. “This is feeding new fears,” said a Paris-based analyst.
from zero hedge this morning Bruce Krasting
I don’t buy this. As much as Bruce is a smart guy generally, the Fed is not his beat. Chris Whalen, who is a bank and regulatory expert, reported that the Fed was telling US banks to cut their credit lines to Eurobanks weeks ago. Had Krasting been paying attention, the Fed has been unusually open about its views on the Eurobanks, I assume to pressure the ECB to get off its butt (if I, who am not that connected, have heard that the ECB is loath to balloon its balance sheet, which will be absolutely necessary in a crisis as a short term measure [but fixing the banks also needs to be done later, we tried to skip that step]).
Zero Hedge is mainly wrong re the Fed (if you are gonna attack the Fed, and I am NO fan of the Fed, you need the right reasons, otherwise you play into the hands of Fed defenders by making critics loook like cranks). It is also not very good on credit markets generally (they do report CDS spreads, but beyond that, take them with a fistful of salt). I know a lot of hedgies who have quit reading ZH because they find too many of its stories to be inaccurate. Ditto with journalists, they try more in depth reporting of ZH leads and find they don’t pan out. So read with skepticism.
C’mon, people are getting crazy with these Fed conspiracy theories—me thinks that access to the internet news cycle is causing people to go Mel Gibson in that one movie of his from way back.
Why not just throw in Hitler, Elvis and the fourth generation of the Rothchilds.
Zero Hedge is the NY Post of financial blogs. Fun to read its hyperbolic headlines, occasionally witty and insightfuly but you’d be crazy to take everything that they write with blind faith.
“NY Post of financial blogs” is good!
I think Yves’s comment on ZH’s lack of accuracy is also helpful. It seems they have a dozen breathless headlines a day that never amount to anything.
It hit me reading one of their comment threads (i do that about once a month) that their readership is made up of folks who think the financial markets should (and can) exist to make everyone, especially them, rich. No piece of data will ever approach affirming that, so every disjointed figure or number can be construed as a conspiracy.
Silver lining for someone out there:
AUTONOMY CORP 2,489.02p +74.18%
How rare is an increase of that size?
Such a deal for HP, too!
The selloffs in Europe are abating for now. This could turn out to be a flat day in the U.S., with the Dow making another effort to close above 11,000.
Hey, how about those stress tests!
It’s over. The time for faking a “liquidity crisis” has expired and time for waking up to a solvency crisis is arrived. The mountain of debt built up over the past forty years should have built a highway to Mars paved with gold, yet instead was imposed for a measure of wealth extraction unparalleled in history. The physical economy now operates far below breakeven, and in no way can sustain current debt structures.
If the massive addition of sovereign debt throughout the trans-Atlantic region since 2008 necessary to prop up a banking system filled to the brim with all manner of debt — sovereign and otherwise — upon which the now collapsed securitization scam was based is not evidence enough for you to suggest the physical economy cannot possibly make good on all currently outstanding financial claims, then go back to sleep and see if you can summons your sweet liquidity dreams again. Meanwhile, those awake will go on to face reality: the trans-Atlantic banking system is hopelessly insolvent.
The Fed is finished. It can do no more but hasten the end. Report after report show the effect of the Fed’s hyperinflationary attack on excess capacity: shutdown. That’s why there’s now a JSC. The Fed is no longer needed. Consolidation of choice physical assets, destruction of sovereign representation and chaos like you cannot imagine now await the fat lady to sing, which she promptly did the minute this unconstitutional piece of dog dung backed by a filthy fascist-in-chief became law of the land.
So, we’re talking a parallel whose only precedent goes back to the collapse of the house of Bardi in the 13th century. We know what followed. Now it is time to realize that death was the plan all along. Sadly, there’s no time to think this a ridiculous conclusion. Rather, there is but brief moment remaining to wage a winnable war against the slime who purposely brought the world to this moment. It’s Glass-Steagall or DIE.