The equity and commodity markets get rocked as Sovereign debt woes resurface.
The burning question: Will the dramatic widening of credit spreads in Sovereign debt, beginning to resemble the CDS collapse of 2008 in the private sector, lead to a revisit of a 2008 type credit crisis and all the fallout associated with it?…
Greece, Portugal woes intensify – WSJ The Wall Street Journal reports the cost of insuring the debt of euro-zone members with large budget deficits against default rose Thursday, dashing hopes that the European Commission’s qualified endorsement of Greece’s budget plan would calm investor fears. Greece, Portugal and Spain were in focus, with their five-year sovereign credit default spreads moving sharply wider. Greece’s five-year sovereign credit default swap spreads were recently at 4.14%, compared with Wednesday’s closing level of 3.97%, according to to CMA DataVision. Portugal’s five-year sovereign CDS spreads were at 2.09 basis points—their widest level ever—after closing Wednesday at 1.96%. Spain’s sovereign CDS spreads widened to 0.12 percentage point to 1.64%. The moves followed news Wednesday that the European Commission had put Greece under more pressure to cut its deficit; that the Portuguese government sold only EUR 300 million of treasury bills at an auction, compared with an indicative offer of EUR 500 millon; and that the Spanish government had raised its budget deficit forecasts for 2010 through 2012. Spanish and Portuguese stock markets fell sharply for the second consecutive day, with banks leading decliners on sovereign debt worries.
…The jury is still out on the above question but market participants are voting today. As usual, voting like this is detrimental to long term investment decision making. I would suggest all take a step back relax and reassess after the smoke of today’s battlefield clears. In the meantime, tomorrow’s employment report may shed some light on the absurdity or validity of today’s flight into the US$. I stress the word, may, because government released employment numbers are notoriously manipulated. For those who wish to debate this manipulation issue and wish to cast aspersions about conspiracy theorists please view the following story…
Explaining The Government’s 1.8 Million Job Overestimation In Pictures
Last October the BLS announced it would revise historical payrolls lower by 824,000 on February 5 (this Friday’s NFP release). While this number will not impact the actual January NFP report (a loss of nearly one million jobs in a month would probably even take out the persistent SPY algo that has been hugging the bid for the past 10 months), it will be prorated across all months in the 2008-2009 reporting period. The reason for this adjustment has to do with a huge glitch in the birth-death model, which is exactly the same problem that the rating agencies faced when housing prices plummeted: the birth/death model assumes, in the long-run, jobs are created, not destroyed. Any period of excess volatility in the stock market therefore translates into major prior downward revisions to already disclosed payrolls. And while we know what the current revision will be, the scarier prospect is that the next historical adjustment, due out in early 2011, will be even larger, at least 990,000. This means that the government has overrepresented running payroll data by over 1.8 million jobs over the past 20 months. Read More…
Today, world equity markets suffer, the “risk” trade is reduced and scared investors run into treasuries and the US$. Meanwhile, the underlying fundamentals of the US$ continue to deteriorate….
Zerohedge: It’s Official: Congress Passes Debt Ceiling 231-195; All Republicans, 20 Democrats Vote Against Raise. Congress Democrats have just signed off on the US hitting 100% debt/GDP. About 140% if one adds GSE liabilities which also should be on the budget.
Initial Claims 480K vs 455K consensus, prior revised to 472K from 470K
Continuing Claims rise to 4.602 mln from 4.600 mln
NY Fed’s Dudley says “nothing is on automatic pilot” when asked about ending MBS purchases in March, according to AP – Reuters (The expected end of Q.E. in March has been a major factor in the strong US$ theory since Dec.. Now we see, at the 1st sign of trouble, S&P500 down 3%+ today, the Fed begins to backtrack – surprise, surprise.)