Is This The Trigger That Will Send The World Into Crisis?

"Another Pair Of Eyes – My good friend, Peter Boockvar, over at the Lindsey Group put out a very thorough note on markets this morning.  Here's a bit on Europe:

 

European stock markets are modestly rebounding from yesterday’s sell off but Greece again is the problem due to its political concerns. After jumping by 93 bps yesterday, the Greek 5 yr CDS is spiking by another 115 bps to 950 bps, the highest since October ’13 (though remains a fraction below the default concerns in 2012). The 3 yr Greek yield was up by 182 bps yesterday and is higher by 108 bps today to 9.38%. It was 6.44% one week ago. The 10 yr yield is up by 33 bps to 8.51% after the 94 bps jump Tuesday. The Athens stock market is down another 1.7% after plunging by almost 13% yesterday. Greece in itself should be a non event for the rest of us but there is a 2nd day of selling in the peripheral debt of Italy, Spain and Portugal. Spain’s 10 yr yield is up 8 bps over the past two days while Italy’s up by 13 bps and Portugal’s 10 yr is higher by almost 20 bps.

 

You still need a microscope though to see the yields that these bonds ex Greece bring the buyer. Mario Draghi wants to buy a lot of sovereign bonds soon but we have to ask if European banks will sell their holdings to them. The Bank of Italy today said Italian banks own the most amount of Italian sovereign debt in 6 years. The question then is what will these banks do with the money that they collect on a sale to the ECB. Will they lend it out? Hopefully but only if there is demand and good credit borrowers. If not, Italian banks will have to settle for a negative interest rate if they park the money at the ECB. To avoid this penalty and if lending is not attractive, these banks may choose to hold on to their bonds. We’ll see and while Draghi will likely have plenty of support for sovereign QE, we can add ECB governing council member Ardo Hansson from Estonia who is “quite skeptical about the idea of long term, large scale purchases of sovereign assets.” He said he’s “much more comfortable with the idea of looking into the universe of corporate bonds.”

 

Lastly in Europe, French industrial production in October fell .8% m/o/m, well worse than expectations of up .2% as manufacturing production went negative. On a y/o/y basis, French IP is negative for 8 out of the last 9 months. The overall level of production is 17% below its ’08 peak. Sovereign QE from the ECB is not going to fix this when the French 10 yr yield is already trading at .97%..."

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/12/10_Is_This_The_Trigger_That_Will_Send_The_World_Into_Crisis.html