2015.02.05 News


The Greece/Eurozone saga continues as the ECB suddenly removed the ratings waiver that allowed Greek bonds to be used as collateral by banks. Back during the Eurozone crisis, when Greek sovereign debt was downgraded, the ECB waived its minimum rating requirement for Greek debt collateral against loans to banks. Today the waiver was lifted as the ECB made its move in the “game of chicken” with Greece.

The Greek stock market immediately tanked 10% (after hours) as evidenced by the the Greek market ETF.

I am not sure what objectives the ECB achieves by doing this now. Negotiating leverage? The whole thing feels just a touch childish.

The ECB can’t really force the banks to repay their current loans. At some point the Bank of Greece will have to step in and provide emergency financing that is not shared by the Eurosystem. It will be important to watch what happens to Greek bank depositors – are they moving funds out of Greece?

There is, amazingly enough, some positive news out of the Eurozone. I know many doubt what I’ve been saying about the euro area. But if this group of nations finds a way to put the Greek mess behind it – and that’s a big if – the region’s economy could see some significant improvements. This is particularly true with the ECB keeping the euro and interest rates low. Here are some signals:

2. Spain’s business output:

3. Surprisingly strong growth in Eurozone retail sales:

China’s central bank finally eased monetary policy today by cutting the reserve requirement ratio (RRR) by 50bp. The move releases about RMB600B into the banking system. The impact is not dramatic, but symbolically helpful nevertheless. The PBoC is now officially in easing mode, following large numbers of central banks around the world.

The big question is going to be the yuan. Is Beijing planning to “widen” the trading bands to let the currency fall some more? Just to put this issue in perspective, here is the how much the euro has depreciated against the yuan. This makes Chinese products more expensive in Europe.

The Bank of Japan’s latest balance sheet report came out today. This gives a new meaning to “open-ended” QE.

As I discussed yesterday, the crude oil enthusiasm may have been a bit premature. Today’s EIA report showed US crude oil markets massively oversupplied. Inventories are at record levels and production remains robust.

WTI futures quickly shed some 9% …

Some emerging market nations continue to devalue their currencies in order to improve competitiveness and preserve FX reserves. Here is Egypt quietly conducting devaluation (EGP is at record lows), with little coverage from the media.

And Brazil is letting the real trade lower as the nation fights the currency war with Australia (and to some extent Indonesia).


– The world is awash with more debt than before the global financial crisis and China’s debt relative to its economic size now exceeds US levels. This interactive examines how hopes that the turmoil of the past eight years would spur widespread “deleveraging” to safer levels of indebtedness were misplaced.
– ECB turns screw on Greece The eurozone’s monetary policy makers tightened Greek lenders’ access to cheap liquidity, banning the use of the country’s debt as collateral for the ECB’s cash. The ban signals the ECB’s determination to take a tough line with Athens on its attempts to secure funding from the central bank for the three months between the exit of its bailout programme and the hoped-for new agreement with eurozone leaders. (FT)
– Nato defence ministers who meet in Brussels to discuss Russian nuclear strategy. Tension is already high over the Ukraine conflict but concern has grown over indications that Russian military planners may be lowering the threshold for using nuclear weapons. (Reuters)
– Greek negotiations Yanis Varoufakis meets German finance minister Wolfgang Schauble. Schauble is expected to insist that Greece must stick to its existing EU-backed rescue programme. (FT)


– Russia Said to Lead UN Effort to Curb Islamic State’s Cash Flow – Bloomberg Business
– U.S. West Coast shippers invoke specter of port shutdowns | Reuters
– China’s Total Debt Load Equals 282% of GDP, Raising Its Economic Risks – Real Time Economics – WSJ

ECONOMY Aussie new home sales fell at year-end
ECONOMY Aussie retail sales grow for seventh month
ECONOMY German factory orders trounce forecasts
MARKETS Chinese equities soar after PBoC loosens policy
MARKETS Asia Pacific markets: PBoC rally proves short-lived
MARKETS European stock markets rattled by Greek debt saga
MARKETS Greek stocks plunge and bond yields soar



– Zero National Debt? Not Long Ago, Budget Forecasters Planned for It

– China’s Total Debt Load Equals 282% of GDP, Raising Economic Risks

“The three major risks identified in the McKinsey report:

1. About half the debt of households, non-financial firms and government is either directly or indirectly linked to real estate.
2. Rapid growth in lending by local governments, “many of which may not be able to repay”
3. Around a third of total outstanding debt in China is provided by a highly opaque shadow banking system, made up of various forms of non-bank lending.”


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