Friday, June 29, 2012

Germany Blinks a bit/ESM to be modified/No real change in Italian or Spanish bond yields

Good morning Ladies and Gentlemen:

Gold closed up today by $41,00 to $1598.00.  Silver also joined the party up 1.17 to $27.49
Yesterday a lot happened with respect to Europe which will be hugely bullish for gold.  Basically Germany blinked a bit as they agreed to modify the ESM to directly loan to the troubled banks and to remove the seniority of the ESM.  These terms must be re ratified and I doubt that various parliaments will agree to it.  So it looks like we will have a modified version of the EFSF.  We will go into all of these details bel but first let 's  travel to the comex.  I am using my lap top as I am away so please forgive me as I struggle through thisl

Let us now head over to the comex and assess trading today.

The total gold comex OI rose by approximately 1000 contracts to finish the week at 416,509.  The non official delivery month of July saw its OI fall from 735 to 694 for a loss of 41 contracts.  The next delivery month is August and here the OI remained relatively constant at 213,193.  The estimated volume on Friday was 210,172 which was huge.   The estimated volume yesterday was more subdued at 153,915.

The total silver comex oi rose again by about 1400 contracts from 123988 to 125,366. The front delivery month saw its OI fall from 10,220 to 3,952.  Thus on a preliminary basis it looks like we will have a touch less than 20 million oz standing which is good but I expected a little better.  The next delivery month is September and here the OI rose by a monstrous 7,000 contracts from 58,999 to 65,703.  It seems that we have a lot of paper players wishing to take on the banking cartel.  The estimated volume today was quite high at 61,510.  The confirmed volume yesterday was monstrous at 91,864.  However we had considerable switches into Septembe

June 28.2012


Withdrawals from Dealers Inventory in oz
Withdrawals from Customer Inventory in oz;194,102.162 JPM/Scotia
deposits to the Dealer Inventory in 
Deposits to the Customer Inventory, 
32,150 (JPM)
No of oz served (contracts) to be served
652   (65200 oz)
No of oz to be served (notices)
 52  (5200 oz
Total monthly oz gold served (contracts) so far this month
(652)   65200 
Total accumulative withdrawal of gold from the Dealers inventory this month
Total accumulative withdrawal of gold from the Customer inventory this month

We had considerable activity in the gold vaults today.
We had another of our round number and a perfect 1 tonne of gold enter the vault of
JPM i,e, 32,150.000 oz.  The fact that it is JPM leads me to believe that this is a paper deposit.
This entry was in the customer category.  We had no dealer activity today.

The customer had the following withdrawal of 194,102.162 oz

out of Scotia:  8037.5 oz
out of JPM: 186,064.562

we had one adjustment of 25,355.878 oz from the customer to the dealer at JPM
the registered gold inventory rests tonight at 2.639 million oz.

The CME notified us that we had 652 notices filed for 65200 oz of gold. To I take the OI for July at 694 and subtract out Friday's delivery notices at 652 which leaves us with 52 notices or 5200 oz left to be served upon our longs.

Thus the total number of gold ounces standing in this non official delivery month of July is as follows\;

65200 oz served  +  5200 oz (to be served upon)  =   70,400 oz which is considerable for a non delivery month.

Withdrawals from Dealers Inventorynil
Withdrawals from Customer Inventory473,360.617 (Delaware,,HSBC,Scotia)
Deposits to the Dealer Inventory600,727.86 (Brinks)
Deposits to the Customer Inventory5,181.4 (Brinks)
No of oz served (contracts)11(55,000)
No of oz to be served (notices) 3941  (19,705)
Total monthly oz silver served (contracts)11   (55,000)

Total accumulative withdrawal of silver from the Dealers inventory this monthnil
Total accumulative withdrawal of silver from the Customer inventory this month473,360.617 oz

The silver vaults were very busy today.

The dealer at Brinks took in a huge 600,727.86 oz
The customer at Brinks took in 5,181.4 oz

1. out of Delaware, 6,013.862 oz
2. out of HSBC:  347,078;8 oz
3. out of Scotia:  120,267.94 oz

total:  473.360.617 oz

we had no adjustments and thus the registered inventory rests at 36.493 million oz and the total of all silver rests at 145.932 million oz

The Cme reported that we had only 11 notices filed for a first day notice which must be a record low for a big delivery month.  The total number of oz that this represents is 55,000 oz.  To obtain what is left to be delivered upon, I take the OI standing for July (3952) and subtract out Friday notices (11) which leaves us with 3941 or 19705,000 oz left to be served upon..

Thus the total number of silver ounces standing in this official delivery month is as follows:

55,000 oz (served)  +  19,705,000 ( oz to be served upon =  19,760,000 oz

this is high but I was hoping for a lot higher.

.Let us now proceed to our ETF's SLV and GLD and then our physical gold and silver funds:

Sprott and Central Fund of Canada.

The two ETF's that I follow are the GLD and SLV. You mu

.t be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuitrying to recover your lost investment.
There is now evidence that the GLD and SLV are paper settling on the comex.

Thus a default at either of the LBMA, or Comex will trigger a catastrophic event.

June .29

1279.51 tonnes of gold                                                           value:  65,734,737,787.06




Value US$:64,195,819,533.0

JUNE 27.2012:




Value US$:64,814,601,161.72

June  26.2012:




Value US$:64,918,322,863.64

we lost 2.11 tonnes of gold on Friday at the GLD


And now for silver:   June 29.2012:

Ounces of Silver in Trust317,512,767.500
Tonnes of Silver in Trust Tonnes of Silver in Trust9,875.75

June 27.2012:

Ounces of Silver in Trust317,512,767.500
Tonnes of Silver in Trust Tonnes of Silver in Trust9,875.75

June 26.2012:

Ounces of Silver in Trust317,512,767.500
Tonnes of Silver in Trust Tonnes of Silver in Trust9,875.75

No change in the SLV today.  (6 pm)

And now for our premiums to NAV for the funds I follow:
(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that)

1. Central Fund of Canada: traded to a positive 2.6percent to NAV in usa funds and a positive 2.6%  to NAV for Cdn funds. ( June 28.2012)

2. Sprott silver fund (PSLV): Premium to NAV rose to  6.76% to NAV  June 28 2012 :
3. Sprott gold fund (PHYS): premium to NAV rose to    3.06% positive to NAV June27, 2012).

note the rise in premium on the central fund of Canada (equal silver and gold)
and the Sprott silver NAV at 6.76%.  It seems silver is in short supply.


At 3;30 pm, the CME releases the COT report on positions held by our major players.

First let's see the gold COT:

and now the silver COT:


Now let us see some of the major physical stories which will shape the price of gold and silver.

First:  gold gets a big shot in the arm with Europe's big monetization thrust:

Your early morning report with respect to gold.  We have two reports, the first
from Ben Traynor of the London Gold Market Report and the second from Goldcore.


 Ben Traynor/London Gold Market Report

Gold Gets "Shot in the Arm" from Europe, But H1 2012 Numbers Show Gold "Has Taken a Breather"

By: Ben Traynor

-- Posted Friday, 29 June 2012 | Share this article | Source:

London Gold Market Report

SPOT MARKET gold prices hit $1584 an ounce ahead of Friday's US trading – a 2.3% rise from the previous day's low – while stocks, commodities and the Euro also rallied following news of an "important" agreement at the European Union summit in Brussels.

Silver prices climbed to $27.38 by lunchtime in London – a 4.6% gain on yesterday's low.

"Resistance [for gold prices] is at the top of the past week's range in the $1587-88 area," says technical analysts at bullion bank Scotia Mocatta, who add that further resistance is seen at $1625.

News of an agreement among European leaders on the use of bailout funds ""has been positive for the Euro and positive for confidence in general," adds Scotia's head of precious metals Simon Weeks.

"[This] means that equities and commodities, including gold for the time being, have all received a shot in the arm."

European leaders meeting in Brussels have asked the European Council to consider proposals for the creation of a single Eurozone banking supervisor "as a matter of urgency by the end of 2012", an summit statement issued early on Friday said.

The creation of a supervisory body could then be followed by allowing money from bailout funds to directly recapitalize banks, rather than being loaned to governments for that purpose, the statement continued.

"We affirm that it is imperative to break the vicious circle between banks and sovereigns," said the statement from the EU summit, which continued Friday.

European leaders also confirmed that assistance given by the European Financial Stability Facility to Spain's government – up to €100 billion to fund banking sector restructuring – will transfer to the permanent bailout fund the European Stability mechanism when it becomes operational next month.

The loans will transfer to the ESM "without gaining seniority status" over other Spanish government bonds.

The statement also included a commitment to use "existing EFSF/ESM instruments in a flexible and efficient manner in order to stabilize markets".

"We have taken important decisions last night," said German chancellor Angela Merkel, who prior to the summit expressed opposition to using bailout fund to buy bonds.

"We agreed that if countries need the instruments to buy bonds on the primary or secondary market from the EFSF or ESM then...conditionality would apply."

A country report would need to be presented and a memorandum of understanding drawn up, Merkel added.

"That would be the case if Spain or Italy, with regards to their interest burden, make use of such instruments."

Benchmark yields on Spanish 10-Year government bonds fell as low as 6.4% this morning, their lowest level this week. Italian 10-Year yields traded as low as 5.8%, also a weekly low.

"While not unwelcome, we do not see [the summit agreement] as a game changer," says a note from Societe Generale.

"We remain concerned that the EFSF/ESM will be seen as lacking in both efficiency and size to offer credible support to Spain and/or Italy if requested. Attention is thus likely to turn again to the European Central Bank."

European stock markets rallied this morning, with Germany's DAX up around 2.5% by lunchtime, though it remained 1.6% off last week's high. Spain's IBEX index was up 2.7%, while Italy's FTSE MIB gained 3.3%, although both indexes remained below June highs.

The Euro jumped 1.3% to $1.26 following the release of the summit statement, pushing Euro gold prices briefly below €40,000 per ounce Friday morning.

Based on London Fix prices, the gold price in Euros looked set by Friday lunchtime in London to end the second quarter of this year more or less where it began it. On a year-to-date basis, gold in Euros was heading for a 3.3% gain over the first half of the year. The Euro itself has lost around 3% against the Dollar during H1 2012.

Sterling gold prices by contrast looked set for a 0.8% H1 2012 loss, and a 2.8% loss over the second quarter. Gold prices in Dollars meantime were up slightly on where they started the year, but were sitting on a 4.9% quarterly loss by lunchtime in London, having given up gains made in the first three months of the year.

A PM London Gold Fix below $1581 per ounce would see gold record its largest quarterly loss since Q2 2004 – while a fix below $1553 would mark the worst quarterly performance this century.

"After 11 years [of gains] it is only natural that gold stops and pauses for breath before taking the next step higher," says Ole Hansen, commodities strategist at Saxo Bank.

"The worry is obviously that momentum has been completely lost and leveraged players (such a hedge funds) have left the building...they will come back, but the market needs to reassert itself before that happens, as they are more followers than instigators of trends."

Over in India meantime, Rupee gold prices fell to a two-week low Friday, as the Rupee gained against the Dollar, newswire Reuters reports.

"There was demand yesterday evening," says Ketan Shroff, director at Pushpak Bullion in Mumbai.
"If prices are maintained at this level, we can see some buying."

Gold demand in India, traditionally the world's biggest market, was down 29% for the first quarter of 2012 compared to the same period last year. The Rupee has fallen around 25% against the Dollar over the last 12 months – while India's government has twice raised its import duties on gold bullion since the start of 2012.

Ben Traynor


and now Goldcore

note the big move to store gold in Switzerland.

(courtesy Goldcore)

Europeans Storing Gold in Switzerland On Concerns About Inflation and Systemic Risk

-- Posted Friday, 29 June 2012 | Share this article | Source:

Today's AM fix was USD 1,569.50, EUR 1,248.01, and GBP 1,006.09 per ounce. Yesterday’s AM fix was USD 1,567.75, EUR 1,261.47, and GBP 1,008.98 per ounce.
Gold fell $17.70 or 1.12% in New York yesterday and closed at $1,557.00/oz. Gold climbed over 1% overnight in Asia and maintained those gains in European trading.

 Cross Currency Table – (Bloomberg)
Gold rose after European leaders agreed a “deal” which has helped bring down soaring borrowing costs in Italy and Spain.

Stock and commodity markets have greeted the news with enthusiasm and seen strong gains. Peripheral Euro nations bonds have seen gains in a relief rally and their yields fallen although Italian bond yields remain over 6%.

German bonds fell quite sharply and yields rose with the German 10 year rising from 1.51% to 1.62%. UK and US bonds were also sold with a consequent rise in yields.

While the move helped ease fears over the region's debt crisis, large structural issues remain unaddressed and much of the debt remains  still there and there may even be more of it post this 'deal' (see Dr Gurdgiev of GoldCore’s Investment Committees analysis in Commentary below).

For the month of June, gold is 0.6% higher in dollar terms, 0.7% higher in sterling terms and 1.1% higher in euro terms.

While, gold is on track to post its worst quarter since 2004 (down 5.7% in dollar terms), year to date gold is up 0.35% in dollar terms, 3.3% in euro terms and only down 0.1% in sterling terms (see performance table).
Thus, despite its correction and ongoing consolidation, gold has again outperformed most currencies and indeed many assets.

Stocks are mixed year to date with the S&P 500 and DAX both up nearly 6% while the FTSE is 0.3% lower and the CAC in France is down 1.5%.

Europeans trying to protect their wealth from global economic uncertainty have been stashing bank cash and gold bullion coins and bars in safety deposit boxes and depositories in Switzerland.
The euro zone debt crisis and fear that ultra loose monetary policy by central banks will stoke inflation have sent investors in search of extra security according to Reuters.
With central banks around the world flooding markets with liquidity, some people fear spiralling inflation. People are turning to assets that will keep their value if prices rise.
“So much money has been pumped into the system that people are worried about inflation down the road,” said Bruno S. Frey, professor of economics at the University of Zurich. “You counter that by buying real assets of material value.”
Gold is an increasingly attractive option.

An Italian businessman was recently caught trying to smuggle gold bars into Switzerland under his car seat.

Further evidence of rising interest in gold is seen in the fact that due to the increased flow of gold bullion into Switzerland, the respected depository, Via Mat International is currently adding capacity in their storage facility in Zurich airport.
Private-banking clients in Switzerland and Austria are holding wealth in less risky assets as confidence in the financial system and the ability of advisers to secure investment returns remains low, according to a study by LGT Group and Johannes Kepler University which was reported on by Bloomberg.
“The majority of private-banking clients remain risk-averse,” Vaduz, Liechtenstein-based bank LGT Group and Linz, Austria-based Kepler University said in a joint report. “The high level of risk awareness and loss of confidence are reflected in the high cash share of portfolios.”
In Switzerland, 77 percent of investors described themselves as “risk averse” or “risk neutral,” compared with 78 percent in Austria.

More than half of those surveyed said confidence in the financial system had been “severely dented,” while 22 percent expect the euro region to “collapse,” a scenario that prompted Austrians in particular to ditch their home-currency holdings in favor of Swiss francs and some are also turning to gold bullion.

European clients including German, Austrian and Swiss clients have definitely been adding to allocations in recent weeks as the debt crisis contagion risk rose again.

There remains a preference for allocated accounts in Zurich but allocated accounts in Perth, Singapore and Hong Kong have seen increased interest.

(Bloomberg) -- Morgan Stanley Recommends Gold, Copper on Outlook for Demand
 Morgan Stanley backed gold, copper and iron ore on expectations that demand will increase while supplies are constrained even as it cut forecasts for the metals after prices fell on concern that global growth is slowing.
“The gold bull market is not over,” analysts Peter Richardson and Joel Crane wrote in a report today. The bank reduced gold estimates by as much as 16 percent to 2014, saying bullion may average $1,677 an ounce this year compared with the previous estimate of $1,825.
(Bloomberg) -- Gold Traders Extend Bullish Streak on Debt Crisis: CommoditiesGold traders are bullish for a sixth week on speculation that Europe’s debt crisis will boost demand from investors seeking to protect their wealth and drive prices higher after the biggest quarterly slump in eight years.
Sixteen analysts surveyed by Bloomberg said they expect a rally next week and 10 were bearish. Another five were neutral. Investors added about $1.9 billion to holdings in gold-backed exchange-traded products this month, the most since November, according to data compiled by Bloomberg. Hedge funds and other speculators have increased bets on a rally for four consecutive weeks, U.S. Commodity Futures Trading Commission data show.
Spain formally asked for a bailout for its banks on June 25 and Cyprus that day became the fifth member of the 17-nation euro zone to ask for outside help. European leaders agreed today to ease repayment rules for emergency loans to Spanish banks and relax conditions on potential help for Italy. Gold fell to within 1 percentage point of a bear market in May as some investors sold bullion to cover losses in stock markets as $7 trillion was erased from global equities in about two months.
“While demand has been weaker for bullion in recent months, it has picked up in the last month,” said Mark O’Byrne, the executive director of Dublin-based GoldCore Ltd., a brokerage that sells and stores everything from quarter-ounce British Sovereigns to 400-ounce bars. “A resolution to the crisis is not going to be seen in the short term. A lot more speculators could pile back into the market.”
(Bloomberg) -- Commodity ‘Supercycle’ Has Not Ended, David Hightower SaysThe commodity “supercycle” is not over because consumer demand for food and energy won’t ebb, said David Hightower, the president of the Hightower Report in Chicago.
“The talk of the commodity supercycle being ended is just utter nonsense,” Hightower said today in a presentation at the INTL FCStone Outlook Conference in Chicago. “The downside potential in most physical-commodity prices has already run almost to the end of its train track.”
For breaking news and commentary on financial markets and gold, follow us on Twitter.


Gold will finally be brought back into the financial system as a tier one asset and a riskless one at that.

(courtesy, Hathaway, Von Greyerz and Kingworld news)

Hathaway, von Greyerz see growing legitimacy for gold

1:26p ICT Friday, June 29, 2012
Dear Friend of GATA and Gold:
Interviewed by King World News, Tocqueville Gold Fund manager John Hathaway sees signs in Europe and the United States that gold is being brought back into the financial system as the best sort of collateral if not as money itself:
Also at King World News, Matterhorn Asset Management's Egon von Greyerz analyzes the financial turmoil, heaps contempt on the European political leadership, and says gold will come out on top:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


The following should also bring to light the gold manipulation as libor rates are critical in the determination of lease rates for gold.  The rigging was necessary to keep gold from going into backwardation as Europe and the USA went into ZIRP  (zero rate interest policy)

the formula used in the lease:

Current Interest Rate that one can obtain on a debt instrument on a set duration  minus libor costs per set duration =  lease rate.

by keeping libor low or equal to current interest rate, the lease rates were positive. A negative lease rate in gold would have put gold in backwardation.

(courtesy Robert Winnett/the UK Telegraph/GATA)

RBS and Lloyds drawn into rate-rigging scandal

By Robert Winnett
The Telegraph, London
Thursday, June 28, 2012
Royal Bank of Scotland and Lloyds have been accused of systematically rigging financial markets in a growing international scandal that wiped billions off the value of shares in Britain's biggest banks.
Bob Diamond, the chief executive of Barclays, is under pressure to resign after the bank admitted it had conspired to fix global interest rates, with David Cameron, the prime minister, saying he should take responsibility.
The scandal now threatens to engulf taxpayer-funded Lloyds and RBS, which according to court documents obtained by The Daily Telegraph have also been accused of routinely distorting basic financial data used to set interest rates.

As British banks faced a potential criminal investigation billions were wiped off their value, with shares in Barclays falling by 15.5%. RBS's share price plunged by more than 10 percent yesterday, wiping more than L2 billion off the value of taxpayers' stake in the bank.
Executives at HSBC are also being investigated alongside London-based financial firms for their role in the scandal, which is estimated to have cost consumers, investors, and businesses L30billion.
Mr Diamond's position appears increasingly fragile. Vince Cable, the Business Secretary, said that he could be banned from running a British company following regulatory investigations.
David Cameron suggested that Mr Diamond should resign, saying that "people have to take responsibility for the actions" and that this process must go "all the way to the top."
The growing scandal, which has international implications but largely took place in the City of London, has led to calls for the Prime Minister to establish a public inquiry into the banks.
Downing Street had initially tried to dismiss the situation as a "regulatory matter" but ministers yesterday queued up to condemn Barclays and other banks, as it emerged that:
-- The Serious Fraud Office has begun talks with regulators over potential criminal investigations into senior Barclays executives and other bankers.
-- George Osborne said the scandal was a "shocking indictment of the culture at banks like Barclays" as he pledged to tighten the law to make criminal prosecutions possible.
-- A Barclays whistleblower accused the Government of failing to address the scandal which he first exposed more than four years ago.
-- A former trader at the Royal Bank of Scotland claimed that it was "common practice" among senior employees to make requests to fix the Libor rate -- and that senior management knew about the tactic.
-- An independent analysis presented to American courts estimated that the scandal may have cost $45 billion (L30 billion) during the financial crisis alone. Most of the losses may have been incurred by pension funds and other investors.
-- Senior financiers warned that the City's position as a trustworthy place to conduct business was under threat by the action of the London bankers.
Earlier this week, Barclays was fined a record L290 million after it admitted that its traders and managers repeatedly made "false reports" in order to push Libor and other interest rate measures higher or lower than its true rate.
The manipulations helped increase traders' profits and initially protected Barclays' reputation.
However, they cost consumers and business dear. Market rules dictate that executives providing information to set Libor rates should be isolated from traders who have a financial interest in the rates.
One Barclays trader wrote: "Dude. I owe you big time! Come over one day after work and I'm opening a bottle of Bollinger."
The country's most senior politicians condemned Barclays and the bank's executives.
Speaking in Brussels, the Prime Minister said: "I'm determined we learn all the lessons from what has happened at Barclays. People have to take responsibility for the actions and show how they're going to be accountable for those actions. It's very important that goes all the way to the top of the organisation."
Mr Diamond is expected to be hauled before a Parliamentary Committee next week to answer "some serious questions."
Vince Cable Business Secretary said that it would be "seriously premature" to decide now whether Mr Diamond should be sacked, but added that the Government did have powers to disqualify directors.
"If the facts suggested action -- and obviously we would be subject to legal advice; this is a legal process -- then indeed that could well follow," he said.
Mr Diamond was resisting calls to resign and the Barclays board was said to be supportive of his ongoing position. However, the bank is likely to consider further actions -- possibly including repaying previous bonuses -- in the coming days.
Senior sources said they were "taken aback" by the political reaction to the scandal, but believed that part of the reason the share price had fallen yesterday was the concern that Mr Diamond would be forced to resign and this would damage the bank.
Mr Diamond, one of the country’s top paid bankers who previously headed Barclays' investment banking division, has already acknowledged that the settlement over the scandal with regulators would damage customer trust in the bank, and said he and other senior executives would forgo bonuses this year.
The British Bankers Association (BBA), which establishes the parameters for how Libor is set each day, said it was "shocked" by the behaviour that led to Wednesday's fine, and called on the government to look at imposing new rules.
"The banks which contribute to the Libor rate must meet the necessary obligations to their regulators," the BBA said. "As part of this review we will now be asking the authorities to consider in what manner the Libor setting mechanism should be regulated in the future."
More than 20 other banks are being probed by regulators from London to Japan and Brussels to North America.
"Barclays was extremely cooperative and the majority of these cases come down to not just the complexity but whether a firm is willing to cooperate and how much a firm is willing to cooperate above and beyond their legal requirements," a regulatory source said.
Others who have already fired, suspended, or seen staff leave after internal investigations include JPMorgan, Deutsche Bank, RBS, and ICAP, run by former Conservative treasurer Michael Spencer.
"One of the reasons London is a major international financial centre is because of the perceived emphasis on trust and integrity in the London market," said Simon Culhane, the chief executive of the Chartered Institute for Securities and Investment. "This scandal can only serve to damage London's reputation."


And now let us see the major paper stories that happened from last Thursday night until this morning.

By supper time, Thursday night, the Merkel and Hollande division widened as to a possible fiscal pact.
Merkel held firm.  However as you will see, Merkel blinked later in the evening.

First:  the divide grows:

(courtesy zero hedge)

Horkel Divide Growing

Tyler Durden's picture

France's 'happy' Hollande is out, apres-dejeuner, opining on what occurred today and where he stands. The critical items appear to be the growing divide between his immediate need for 'debt stability' measures versus his disagreement over the assumptive 'fiscal pact' that Merkel will require before any money leaves that nation's shores in its transfer-of-wealth way. Headlines via Bloomberg:
but its just not fair... sacre bleu...
and the piece-de-resistance:
When we said that the Spanish bailout inspired Syriza to push on with renegotiating all the Greek pacts, little did we know that Syriza itself would inspire all of Europe to gang up on Merkel. Problem is: Syriza failed as Germany sadly still has all the leverage aka money. The other beggars will be no more successful.
The market's response to this less-than-total-print-fest Summit resolution: ES -8 pts from late-day highs... given back well more than half the 'fat-finger' fiasco...

European Stocks Surge After Leaders Ease Rules

European stocks rallied after policy makers eased repayment rules for Spanish banks, relaxed conditions for possible aid to Italy and unveiled a $149 billion growth plan for the region’s economy. U.S. index futures and Asian shares also rose.
Banco Santander SA paced banks higher, jumping 2.9 percent, after euro-area leaders at a summit in Brussels dropped a requirement that their governments get preferred-creditor status on crisis loans to Spain’s lenders. Actelion Ltd. climbed 1.9 percent after getting U.S. approval for its Veletri drug.
The Stoxx Europe 600 Index (SXXP) advanced 1.5 percent to 248.42 at 11:05 a.m. in London, heading for a weekly increase of 0.7 percent. The benchmark gauge has gained 3.6 percent this month as Greece formed a coalition government after its second election in six months, easing concern the nation will leave the euro. Standard & Poor’s 500 Index futures added 1.3 percent, while the MSCI Asia Pacific Index rose 2 percent.
“The European summit has given a very precious chance to Italy and Spain,” said Theodore Krintas, managing director of Attica Wealth Management, which manages 100 million euros ($126 million). “They’re addressing directly the needs of both countries to reduce their funding costs. They will be addressing all other banking unification issues in a very short period of time. By European standards, this is a quick move.”
The Stoxx 600, which climbed 7.7 percent in the first quarter for the best start to a year since 2006, has lost 5 percent in the three months through June as Spanish bond yields surged and political discord persisted in Greece.

Creditor Status

After 13 1/2 hours of talks ending at 4:30 a.m., leaders of the 17 euro nations dropped the requirement that governments get preferred-creditor status on crisis loans to Spain’s banks and opened the door to recapitalizing lenders directly with bailout funds once Europe sets up a single banking supervisor.
The leaders also discussed reducing the market pressure on Italy and Spain by allowing them to access rescue loans without relinquishing control of their economies.
European Union leaders late yesterday approved a 120 billion-euro ($149 billion) plan to promote growth in the 27- nation bloc including a capital boost for the European Investment Bank.
The Euro Stoxx 50 Index (SX5E), the currency union’s benchmark, has dropped 4.5 percent so far in 2012, extending two years of losses. The decline has pushed stocks to the lowest valuations ever, prompting fund managers from Invesco Ltd. to JPMorgan Chase & Co. to increase holdings in Spain, Italy and Germany.

Bank Shares

Santander gained 2.9 percent to 5.03 euros. Banco Bilbao Vizcaya Argentaria SA jumped 4.5 percent to 5.40 euros. In Milan, UniCredit SpA and Intesa Sanpaolo SpA added 4.1 percent to 2.71 euros and 4.2 percent to 1.04 euros, respectively. A gauge of European banks was the among the best-performing industry groups on the Stoxx 600, rallying 2.7 percent.
Credit Suisse Group AG (CSGN) rose 3 percent to 17.08 Swiss francs after it said it expects to report a profit for the group and all divisions for the second quarter.
Actelion (ATLN) climbed 1.9 percent to 38.88 francs after it said it received U.S. Food and Drug Administration approval for its Veletri drug for treating pulmonary arterial hypertension.
Cairn Energy Plc advanced 1.3 percent to 259.4 pence after it raised 20.6 billion rupees ($365 million) selling a stake in Cairn India Ltd. (CAIR), operator of the nation’s biggest oil deposit on land. The sale was at the lower end of its proposed price range, said a person with direct knowledge of the matter.

Monoprix Deal

Casino Guichard-Perrachon SA, the French retailer, rose 1.7 percent to 68.12 euros after agreeing to acquire full control of the Monoprix supermarket chain from Groupe Galeries Lafayette for 1.18 billion euros, resolving a dispute between the partners.
Berkeley Group Holdings Plc (BKG) added 3.4 percent to 1,412 pence. The U.K.’s largest homebuilder by market value said annual profit rose 66 percent after the company sold more of its homes at higher prices.
Deutsche Boerse AG (DB1), the operator of the Frankfurt stock exchange, rallied 4.5 percent to 41.23 euros. The stock was raised to overweight, the equivalent of buy, from neutral at JPMorgan Chase & Co.
Vivendi SA (VIV) gained 2.1 percent to 14.50 euros. JP Morgan raised the shares to overweight from neutral. The stock jumped 5.5 percent yesterday after people familiar with the matter said Chief Executive Officer Jean-Bernard Levy was stepping down. The company confirmed the news after the market closed.
Adidas AG (ADS), the world’s second-largest maker of sporting goods, fell 1.7 percent to 55.51 euros after Nike Inc. (NKE) posted an unexpected decline in fourth-quarter profit. Nike’s sales also slowed in Europe, which accounts for a quarter of its revenue, as recession and government cuts curbed consumer spending.
To contact the reporter on this story: Tom Stoukas in Athens at
To contact the editor responsible for this story: Andrew Rummer at


The key event last night was the stripping of ESM seniority.  Thus the ESM will probably be scrapped and a new EFSF is to be implemented.  This will need to be re ratified by all 17 nations including Germany and Finland.  Finland no doubt will require collateral and I am not so sure how they will go about this. Generally you can look at this as a plan to implement a plan. The plan is for the ESM or its new successor EFSF to directly recapitalize banks

Full EU Summit Statement (In All Its Conditional Wishy-Washy Glory)

Tyler Durden's picture

The early Friday morning release of an entirely conditional 'plan' for a 'plan' that will likely require the ESM contracts to be torn up and a new contract to be re-ratified (by ALL members - including Finland and Germany), due to the stripping of the ESM seniority via the EFSF 'workaround', was high-fived by any and all EU leader still standing. Is it any wonder (given the conditionality and ratifications required) that the best the market could manage, on what is now obviously nothing but yet another watered-down talking-point ridden 'promise-of-more-to-come' plan (as opposed to the impossible becoming possible as Ireland's Kenny so eloquently described it), is a 1% pop in US equity futures.

"We affirm that it is imperative to break the vicious circle between banks and sovereigns. The Commission will present Proposals on the basis of Article 127(6) for a single supervisory mechanism shortly. We ask the Council to consider these Proposals as a matter of urgency by the end of 2012. When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly. This would rely on appropriate conditionality, including compliance with state aid rules, which should be institution-specific, sector-specific or economy-wide and would be formalised in a Memorandum of Understanding. The Eurogroup will examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme. Similar cases will be treated equally.

We urge the rapid conclusion of the Memorandum of Understanding attached to the financial support to Spain for recapitalisation of its banking sector. We reaffirm that the financial assistance will be provided by the EFSF until the ESM becomes available, and that it will then be transferred to the ESM, without gaining seniority status.

We affirm our strong commitment to do what is necessary to ensure the financial stability of the euro area, in particular by using the existing EFSF/ESM instruments in a flexible and efficient manner in order to stabilise markets for Member States respecting their Country Specific Recommendations and their other commitments including their respective timelines, under the European Semester, the Stability and Growth Pact and the Macroeconomic Imbalances Procedure. These conditions should be reflected in a Memorandum of Understanding. We welcome that the ECB has agreed to serve as an agent to EFSF/ESM in conducting market operations in an effective and efficient manner.

We task the Eurogroup to implement these decisions by 9 July 2012."

What They Really Said: Key Soundbites From Last Night's Eurosummit

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Much has been speculated about who promised what at last night's summit, and who guaranteed that the ESM would do this, that and the other, as once again, just like last summer, the ESM is becoming the most universal Swiss army knife ever conceived (just pray it never has to be actually used). Here, courtesy of Reuters, are excerpts of what they all really said.
"We have taken important decisions last night. First we agreed that if countries need the instruments to buy bonds on the primary or secondary market from the EFSF or ESM then the conditionality will be agreed as follows:
"The country report will be presented to the Commission on which basis we will agree a memorandum of understanding in which there will be a time-frame. The EU/IMF 'troika' will then supervise, as it is always usual in the EFSF and ESM, whether the conditions are met.
"That would be the case if Spain or Italy, with regards to their interest burden, make use of such instruments. Then this conditionality would apply, which we have agreed on precisely, according to the rules we have."
"Secondly, regarding the banking recapitalisation which Spain has requested, a request will be made with the EFSF. Once the ESM becomes available, then the application will be transferred to the ESM. The seniority of the bonds will not be changed. For Spain we won't do what is otherwise applicable in the ESM regarding the preferred creditor status because the request was made through the EFSF, where such details do not apply."
"It showed the long-term commitment to the euro by all member states of the euro area, and also it reached tangible results in the shorter term. The waiver of the preferred creditor status of the ESM (permanent bailout fund) for Spain is one of the results.
"The future possibility of using the ESM for direct recapitalisation of the banks which was something that the ECB had advocated for some time is also another good result.
"But we have to keep in mind that all these things should be, to be credible, should be accompanied by strict conditionality. This is essential, otherwise they will not be credible.
"Also, the Commission will present a proposal based on Article 127.6 of the Treaty for the creation of a single supervisory mechanism and within which the ECB will take up supervisory tasks for the banks of the euro zone."
Following are earlier comments by EU leaders before Friday's discussions:
"There were three advances. The first is on the recapitalisation of the banks with banking supervision and with a calendar. The second is to allow easier solutions for Spain, which can be put into effect rapidly. And finally, there will be full use of the (bailout) instruments, the EFSF and the ESM, to give states that have made efforts the necessary protection in relation to interest rates."
"It is very important that we put into motion procedures for immediate action - something that was much hoped for. Bank supervision for a recapitalisation of the banks will take a bit more time, but this will be a lasting move in the right direction.
"We defined a vision for the euro - for economic and monetary union - saying what we will do together, and there will be greater solidarity at each step in integration. The banking union was the first illustration of this."
"We are heading for a future where we will need very general supervisory bodies to look more carefully, more strictly, and (which are) more responsible for the financial sector and banking sector, and that's where we are heading.
"I hope that in a very few weeks, the euro zone leaders will be able to find a concrete mechanism for how to control the not-very-well-behaving banks and to help them."

Juncker 'Hoped For More' As Italy And Spain (Oh, And Ireland Now) Get (To Share Same-Size) 'Band-Aid'

Tyler Durden's picture

So To Clarify: Dropped seniority and overseeing of ESM (unratified) and EFSF rescue funds (which will not be boosted in size) to fund not just Italy and Spain but Ireland too...conditioned on agreeing to EU banking oversight
UPDATE2: The Irish are all-in:
Early morning (drunk-dialing/texting) headlines from the EU Summit that there has been some short-term measures approved in terms of the removal of the seniority preference for ESM/EFSF rescue fund recaps of Italian and Spanish banks(though no details of the levels of dilution, cram-downs, or amounts have been discussed). The market, being as thin as it can be, is ripping higher on this realistically 'not much' news - though clearly someone 'blinked' a little. Headlines via Bloomberg:
But it's not all free-money and unicorn tears:
We await news from Germany's 'governing bodies' on ESM ratification.

S&P 500 e-mini futures jumped 15pts or so on the news and EURUSD tore almost 200pips straight up. Both are leaking back notably as reality sinks in (but all those stops are gone now). Gold, Silver, Oil, and Copper all soaring higher as for now only 5Y Treasury yields are really moving higher.
EURUSD less than 1 week highs though...

and ES back to 'pre-Spain bailout close' and 'post-Greek election open levels'...

Charts: Bloomberg

And the most important critical phrase:  "NO EXTRA BAILOUT FUNDS".
This is like feeding a teaspoonful of water to an elephant.  They sovereigns and banks need
trillions for their rescue. Again where will the rescue funds come from? Pay close attention to the Bridgewater chart that was provided to us a few weeks ago.


Last Night's Critical Phrase "No Extra Bailout Funds"

Tyler Durden's picture

There was just one relevant phrase uttered in all of last night's bluster, and ironically it came from Italy's own Mario Monti who said that there are "no plans for boosting bailout funds." This really is all that matters. Why? The Bridgewater chart that we presented before once again explains it all.
We have at best kicked the can down the road for a few days.

Spanish bonds instead of lowering by 60 basis points only had a slight downward movement in yield as did the Italian 10 yr bond.  Here are the salient points to bring to your attention:
1. the ESM will probably be scrapped as it needs to be re- ratified by all 17 nations as the seniority section has been stripped.
2. Thus we will see something like the crammed down PSI in Greece where the private sector gets beaned by a fastball and the official sector does not. Thus the English law written Spanish and Portuguese bonds are now so important and they will trade higher in price than the locally written bonds.
3.  We do not know what conditions Germany will ask for and the German parliament decides on the new ESM/EFSF terms.
4.  There is going to be one supervisory body overseeing this and with 17 nations all with different thoughts on the matter, I would say that this is next to impossible.
5. The agreement is nothing but a Memorandum of Understanding, the weakest form of a non binding agreement.
Thus in essence, we have a plan to implement a plan which will be impossible to supervise and the total sums of money necessary will not be coming forth...and then

6.  The Einhorn circle of despair  (see below) 

(courtesy zero hedge)

Latest "E-TARP" MOU Sends Spanish Bonds Back To Monday Levels

Tyler Durden's picture

In the aftermath of last night's bombastic European announcement coming in the late night hours, in which Europe has virtually promised the kitchen sink, one would imagine that the response for the biggest beneficiary, Spanish bonds, would be far more dramatic. Instead after ripping 60 bps tighter in a kneejerk move, the yoyo reaction has seen bonds slide wider ever since, and the result being a SPGB level last seen... on Monday. Why is the market not more enthusiastic? Because what happened last night is nothing short of the second Greek bailout announcement from October, which followed a similar pattern: a late night announcement by Europe that Greece is saved, followed by a brief rip of a rally, only to give it all back, and to require global central bank intervention one month later. Because what really happened last night? Merely promises. We will not dwell much on the fact that the ESM has yet to be ratified by the paying countries, that the ESM will now have to be scrapped in its current format, and resigned by all 17 member countries since the seniority provision is somehow scrapped: an event that amounts to a cramdown exchange offer, that while everyone is talking about the uses of funds, nobody has uttered a peep about the sources, that Germany has yet to say what the German conditions will be or whether the revised deal will even pass the Bundestag, that the deal is contingent on the formation of a "effective single supervisory mechanism is established, involving the ECB" which in Europe is next to impossible, and that finally the whole "arrangement" is nothing but an Memorandum of Understanding - the weakest form of non-binding agreement possible. Which is why we are just a little skeptical and that today's E-Tarp is merely the latest catalyst to be faded.
Spanish bonds responding and going back toMonday levels.
And again, the key part from last night's actual announcement:
"We affirm that it is imperative to break the vicious circle between banks and sovereigns. The Commission will present Proposals on the basis of Article 127(6) for a single supervisory mechanism shortly. We ask the Council to consider these Proposals as a matter of urgency by the end of 2012. When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly. This would rely on appropriate conditionality, including compliance with state aid rules, which should be institution-specific, sector-specific or economy-wide and would be formalised in a Memorandum of Understanding. The Eurogroup will examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme. Similar cases will be treated equally."
Finally, as usual, Einhorn will be right:

Here is the opening Spanish 10 yr bond yield ( 7 am)


Add to Portfolio


6.588000.35300 5.09%

and now the opening Italian 10 yr bond yield;

Italy Govt Bonds 10 Year Gross Yield

 Add to Portfolio


5.932000.26300 4.25%


Here are the key salient points from Mark Grant on the European rescue attempt:

1.the 120 billion euro growth pkg is not new money but old money re-routed. Both Italy and Spain were going to veto this announcement unless they got concessions on other matters which they eventually got as Merkel blinked a bit.

2. They will attempt to use the ESM and it must be re- ratified as new loans will not have seniority.
They will need all 17 nations to sign on and this may be difficult especially with Finland, Austria and Holland and Denmark.

3. They are trying to cut the vicious circle between the sovereigns and the banks.  The new ESM or EFSF can loan directly to the banks but on conditions laid out.  Also there is going to be one supervisory body headquartered in Brussels and I doubt if a sovereign nation will give up on its own sovereignty. This is to start at the end of 2012. 

Because of this, all funding for Spain will be done with the sovereign Spain receiving the money and then issuing the funds to the banks.  Then when ratified the rescue funds will be removed from the sovereign and placed under the entire EU.  This is when Merkel blinked.  We are not sure if all parliaments from the core will approve this as it is generally these guys that need to fund the entire bailout of the PIIGS.

4. The new buying of bonds will be done by the ECB but only with the current amount of funding agreements, passed by the EU. There will be no new funding .

5. Ireland for the first time will be included in this rescue which is certainly good news for them as the sovereign state has taken the full blunt of the rescue of the banks.  Ireland is now thanking Germany and other core nations for their generosity.

6.  The troika is to visit Greece and then the decision to pony over more euros or let these guys default.

(a must read.... courtesy Mark Grant)

Hardball In Brussels

Tyler Durden's picture

From Mark Grant, author of Out of the Box
Hardball in Brussels
In the last hour yesterday the equity markets rallied significantly on the basis of a 120 billion growth package for Europe that had been announced. The EU put out the headline like it was all new money but further investigation revealed that it was not. The growth package was mostly the amalgamation of schemes already in existence with the addition of some new money but not a significant amount. As the news behind the headlines was assessed the markets traded back down some in the after hour’s session. Then Europe’s leaders met and the evening got more interesting. The following is the basis of their decisions.
"We affirm that it is imperative to break the vicious circle between banks and sovereigns. The Commission will present Proposals on the basis of Article 127(6) for a single supervisory mechanism shortly. We ask the Council to consider these Proposals as a matter of urgency by the end of 2012. When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly. This would rely on appropriate conditionality, including compliance with state aid rules, which should be institution-specific, sector-specific or economy-wide and would be formalized in a Memorandum of Understanding. The Eurogroup will examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment program. Similar cases will be treated equally.

We urge the rapid conclusion of the Memorandum of Understanding attached to the financial support to Spain for recapitalization of its banking sector. We reaffirm that the financial assistance will be provided by the EFSF until the ESM becomes available, and that it will then be transferred to the ESM, without gaining seniority status.

We affirm our strong commitment to do what is necessary to ensure the financial stability of the euro area, in particular by using the existing EFSF/ESM instruments in a flexible and efficient manner in order to stabilize markets for Member States respecting their Country Specific Recommendations and their other commitments including their respective timelines, under the European Semester, the Stability and Growth Pact and the Macroeconomic Imbalances Procedure. These conditions should be reflected in a Memorandum of Understanding. We welcome that the ECB has agreed to serve as an agent to EFSF/ESM in conducting market operations in an effective and efficient manner.”
Behind the Headlines
Apparently Mr. Rompuy had jumped the gun in making the announcement about the growth package late yesterday afternoon as Italy and Spain had not yet agreed to it. No matter, the markets took Mr. Rompuy at his word and rallied away and it was not until after the close that the truth came out. In fact, in the evening negotiations, Italy and Spain threatened to veto the growth measures if certain other measures were not agreed to which were to their benefit. From all indications it was here that Ms. Merkel blinked and was willing to make certain adjustments that are significant. For us the most important change is that the loans from the new ESM fund will not be senior to private debt holders. That is definitely good news for bond investors and a decision that I can applaud.
The other news on that front was that the funds for the EFSF and the ESM were not increased and that while some firewall is a deception of sorts as it does nothing for the troubled nations at all it is indicative, though a contingent and unfunded commitment, of the size of the capital available should further needs arrive for the troubled nations, including Spain and perhaps Italy. If there was one eyes wide open part of the negotiations and discussion it was that Italy may also need some assistance soon because this was hinted at time and again. The ECB will be handling the distribution of bond buying in the secondary and perhaps primary markets for sovereign debt but, unlike the Fed, the printing presses are NOT available as the money allocated to the EFSF and the potential ESM is all of the money that can be used for any bond buying programs. This, then, is a significant negative for the program as there is not enough money to really help out Spain, much less Italy, if it is needed.
Another change is that money can be lent directly to the banks and does not have to go through the sovereign but this change will not take place until the end of 2012 when some sort of European banking supervisory authority is established and there are no details on what that will mean except that it will be located in Brussels. The statements seem to indicate that the money for the Spanish banks will now go the nation of Spain and then its banks and then the money will be transferred off of the Spanish books at a later date when the new banking authority is established.
Now all of this has to go back to various Parliaments, including Germanys, which may cause some consternation as the “seniority” of the ESM has been relinquished which may cause some problems in Finland, Austria, the Netherlands and perhaps even in Germany. It is interesting to note that all of the dictums that have been announced deal with funding and that none addressed the structural or solvency problems of a Europe that is mired in recession.
There is also some good news in today’s release for Ireland which indicates that troubled banks in various nations may now be funded by the EFSF/ESM and not just the nation in which the banks are domiciled. Europe is going to consider EU wide funding which is good for nations such as Ireland and Spain of course but it is bad then for the nations that must provide the bulk of the funding indicating more debt that has to be taken on by Germany, Austria, the Netherlands, Finland et al. It is not exactly Eurobonds because it is limited in scope but it is a definite blink by Germany as hardball was played by both Spain and Italy and Ms. Merkel was outflanked in the end.
The final point that I would make today is that nothing is yet in place and is not even envisioned to be in place until the end of this year. In some sense it is a lot like discussing the ESM which is not yet in place either. All of the talk concerning removing the aid to the Spanish banks from the sovereign obligations of Spain will not happen unless this new banking authority is approved by the nations in Europe and there may well be some that don’t wish to turn over their sovereign banking powers to Brussels. What has been announced then is a plan, a scheme, that is some six months away from actualization if actualized at all. I would point out that there is a lot of risk between now and then and that Europe is quite good with coming up with all sorts of grand plans that somehow do not work out. In the meantime Ireland will still pay for her banks, Spain is going to get money but money lent to the country and not her banks, Greece now awaits the Troika and their report and then the decisions of the IMF and the EU on what if any changes might be made in their agreements and if any new money will be handed to Greece or if the funding will stop.
The EU has done a something I would say, made some progress, but what this something means is yet to be determined and it is one-half year away from implementation under the best case scenario and there will be plenty of challenges ahead in Europe during this timeline. The markets are rallying but the realization that nothing really was accomplished, meaning implemented, will drive the markets the other way soon I fear.
In Existence Now
In the final analysis Europe is quite exposed at this moment and may be for quite some time. The ESM, after the change in seniority status, must be re-affirmed in at least two countries that are the Netherlands and Finland and Germany has not yet approved it yet either. The EFSF has already spent $450 of its capacity on Greece, Ireland, Portugal and now $125 billion for Spain. The balance left in the fund is tissue paper thin and that is all that is in existence presently for any more problems in Europe.  Plans and schemes aside, the amount of money that could actually be used today is a drop in the proverbial bucket.

Epic EUR Short Squeeze Sends Risk Soaring, Gold Over 1600

Tyler Durden's picture

The squeeze is on. EURUSD is probably the most extreme example of the squeeze-factor potential of what is at its heart a lot more talk and lot less action. Up almost 250 pips from its pre-summit-statement levels, EURUSD is just under 1.2700 - which in context is only back to 6/21 levels. As we noted on June 3the epic level of CFTC non-commercial EUR spec shorts were ripe for a squeeze-fest, while on the other hand we specifically said "the pain trade will be any appeasing announcement from Europe." Sure enough we got just that (supposedly) and EURUSD is now up well over 300 pips from those levels as the clear pain trade plays out. The USD weakness has driven commodities higher with Gold reaching $1600 once again (6/21 levels). European sovereigns are (somewhat expectedly given the euphoria - though just how much has actually changed is unclear) also rallying hard on the day but while they have compressed spreads markedly, they have stalled at unchanged on the week (though Portugal remains notably wide on the week). Credit and equity markets in Europe are in sync and have snapped higher to 6/21 levels also (with financials outperforming modestly). Europe's equity markets are all soaring - up 3 to 4.5% - as DAX is now outperforming the S&P 500 on the year once again. Big moves (multiple sigma in bond and FX markets) and yet we can't help but think they were hoping for more than just a retracement of one week's price action.
EURUSD's impressive squeeze strength has torn the USD back to unchanged from 6/21...
Commodities surging on USD weakness, with Gold touching $1600 (at 6/21 levels)...

but while sovereigns are clearly improving; on the week they remain wider (with Portugal notably so)...
and European credit and equity markets are in sync but only at one-week highs...

Charts: Bloomberg

And now Graham Summers on his take on the situation.
Basically, the same as all of the other authors.  He emphasizes that Europe does not have a liquidity problem but a solvency problem and as such these announcements will be short lived and I agree with him:

(courtesy Graham Summers/Phoenix Research Capital)

The EU Summit: Europe Needs Capital, NOT Political Posturing

Phoenix Capital Research's picture


They are not.

One facet of the deal is that ESM/ EFSF loans to troubled countries will not subordinate private bondholders holdings. While this does serve the purpose of allowing private bondholders to feel that should a country default, they might get their money back sooner (as opposed to what happened in Greece)… it doesn’t change the more critical issue of stoppingdefaults from happening.

Indeed, if Spain were to default, the fact that I as a potential private bondholder would be further up the line to collect my funds doesn’t do me a whole lot of good, does it? My money’s gone, at least most of it. So the benefits of this move are of borderline significance.

Moreover, none of the measures address the most critical issue pertaining to Europe: where is the money going to come from?

As I have noted before, the European Stability Mechanism, which everyone sees as the ultimate savior for the EU, does NOT exist yetOnly four out of the required 17 countries have ratified its legislation.

And the due date for ratification? July 9th.

So we have less than two weeks for 14 EU members to ratify the ESM.

Another interesting fact about the ESM… Spain and Italy will contribute 30% of its funding. So… the mega-bailout fund which is going to save Spain and Italy is receiving nearly one third of its funds from the very same countries it’s going to bail out!?!

You couldn’t make this stuff up if you tried.

Another topic worth discussing is the fact that EU leaders didn’t agree to increase the EFSF or the ESM. The simple and obvious reason for this is no one has the funds to do this.

I’ve been saying this for months. No one seems to be listening: Europe is out of buyers. End of story. There simply isn’t €500 billion lying around to be put to use. That’s why the ESM and EFSF aren’t being increased in size. They couldn’t be.

Another point, and perhaps the most key one is that the ECB will now be using bailout funds to help recapitalize EU banks. This move will ultimately end up hurting the banks that seek funding from the ECB much as those firms which drew on the ECB’s LTRO1 and LTRO 2 schemes found themselves severely punished in the credit and bond markets.

After all, requesting aid is essentially a public admission that one’s bank is in major trouble. In this end this hurts the bank seeking aid as everyone now knows that it’s on the ropes.

Indeed, as we saw with LTRO 2 (which provided over €500 billion to EU banks), those banks that drew on the ECB saw, at most, one month’s worth of gains before they were right back to where they started in terms of share price and funding needs.

Oh, and none of this will go into effect until December. Let’s hope Spain and Italy and others don’t need the funds beforethen!

My take on this whole mess?

  1. The benefits of the announcements (lower yields on sovereign bonds and higher share prices in EU banks) will be short-lived.
  2. None of these decisions address the core issues facing the EU banking system: namely, insolvency and excessive leverage.
  3. No one in the EU actually has the money to make these measures work (again, Spain and Italy will provide 30% of the ESM’s funding).

Markets will stage a knee jerk reaction to these measures. That reaction will see bank shares rise and yields fall, temporarily. But this move will be short-lived, just as moves following LTRO1 and LTRO 2 were. After all, these announcements are just more political measures than anything else. And Europe needs capitalNOT politics at this point.
So I would expect this rally and the drop in bonds to be short-lived. EU leaders may have put off the Crisis by a few weeks (or perhaps even a month). But they still haven’t addressed the core issues causing the Crisis: excess leverage courtesy of hundreds of billions of Euros’ worth of garbage debt.

Good Investing!

Graham Summers


Art Cashin of UBS on the latest European rescue:

(same as above)

Art Cashin On The Latest Eurozone "Remedy"

Tyler Durden's picture

As always, the most pragmatic read thru of what are now day to day rescue efforts out of Europe, which in its own words has effectively given up on seeking a long-term remedy, comes from UBS' Art Cashin who as usual cuts right to the bone of the deluge of essentially hollow endless chatter out of Europe whose sole purpose is to once again baffle all the algos with binary bullshit.
From UBS Financial Services
The Eurozone “Remedy” - Stocks on both sides of the pond are having a dizzying rally as first light hits New York.
Details of the “agreement” are still a bit sketchy and are beginning to vary slightly, depending on which leader is outlining them.
In broad terms, a few things seem consistent. New loans to Spanish and Italian banks would get no priority standing. The loans would go straight to the banks and not through the sovereigns. Banks would not have to be in a “program” to get such a loan.
It seems that some of these loans would require unanimous approval. That would give everyone a veto and could become cumbersome. Further, the program may hinge on the appointment of a European bank supervisor. That’s not due till yearend.
Also, as our astute London associate, Paul Donovan, wonders, what about retroactivity. Could a country like Ireland, which took on the debt of its banks deconstruct the process to take advantage of the new plan?
So far, there is little comment in Frankfurt and Berlin. How it plays there may be critical…..very critical. end.

Ladies and Gentlemen: the true definition of a bank run!

Greek Bank Deposits Have Biggest One Month Outflow Ever In May

Tyler Durden's picture

It's official: all those rumors of unprecedented deposit withdrawals in May as Greece was heading into one then another parliamentary election were true. According to just released NBG data, May deposit outflows were €8.5 billion, or the highest on record, bringing the local banks' total private sector deposit base to just €157 billion, the lowest since January 2006, and represents a massive 5% outflow of the entire deposit base as of the end of April. And keep in mind rumors of epic bank jogs and trots did not really pick up until weeks into the second Greek election two weeks ago. At this rate of outflows the entire Greek banking system will have zero deposit cash left in under two years. So aside from the 'details', Europe is all fixed and stuff.

And now for news from the  USA.

First of all Goldman Sachs lowers 2nd quarter GDP to 1.6% due to lower consumer spending:

Goldman Lowers Q2 GDP Forecast One Day After Raising It

Tyler Durden's picture

High frequency economics is truly living up to its name, as now GDP forecasts are adjusted not weekly but daily. After Goldman yesterday hiked its Q2 GDP forecast to 1.7% on better than expected Q1 GDP composition, today's weak consumer spending data pushed it right back down.
From Goldman:
Soft Consumer Spending:

BOTTOM LINE: Consumer spending was unchanged in May and earlier months revised down. Q2 GDP now tracking +1.6%. Core PCE inflation lower than expected for the month.

1.    Nominal personal consumption expenditures (PCE) were unchanged in May. Real PCE was up 0.1% (month-over-month). Although results for May were close to consensus expectations, earlier months were revised lower. In particular, monthly growth in real PCE for both March and April was revised down by 0.2 percentage points. Due to the downward revisions to March and April PCE, we revised down our estimate for Q2 PCE to +1.8% (annualized) from +2.0% previously. This lowered our tracking estimate of Q2 GDP growth to +1.6% from +1.7%.

2.    Nominal personal income increased by 0.2% in May, as expected. Real disposable income increased by 0.3%, and has accelerated modestly to +1.1% year-over-year (from a low of +0.2% yoy in February). The PCE price index declined by 0.2%, as expected. The core PCE price index increased by +0.12%, less than the consensus had forecast. However, because of upward revisions to earlier months, the year-over-year growth rate in the core PCE price index was in line with the consensus expectation at +1.8%.

Chicago PMI Beats Modestly As Respondents Get More Despondent

Tyler Durden's picture

While it is unclear today if good news is bad, bad news is good, or if economic news even matters when all that matters is how much money central planners are willing to release into the market, the just released Chicago PMI did post a modest rebound after the near record May plunge. Printing at 52.9, the number was modestly better than May's 52.7, and higher than expectations of 52.3. The question then is whether this is good or bad for hopes of more NEW QE?With 8 of 11 respondents clearly noting that business is slowing down as inventories are rising, those who are concerned no more easing will come this year can likely breathe a sigh of relief. And while most of the indices were more or less in line, the forward looking spread between backlogs and inventories (indicative of future business demand) is the highest it has been since December 2008. What happens when one has too much inventory that can not be sold? Ask NKE longs this morning.
Backlogs less Inventories:
Finally, the respondents are getting quite bearish:
  • Have reached a steady plateau of order intake and order shipments. Projections for growth this year are pretty much out the window.
  • Business seems to be a little slower in the past 2 months.
  • Definite dry patch. Hopefully, it's the Summer soft spot versus an indication of an overall downturn.
  • Business is still sluggish going into June. Total opposite of last year at this time. 30% less over the same time period as last year.
  • Order intake continues slower than it has been, but sales is still optimistic about future orders.
  • Quoting is still busy.
  • Business is slowing down to a degree.
  • With oil coming back down costs have eased a bit...The reality is prices are decreasing now. The price outlook is relatively stable; the only thing we need is some business to support our favorable position.
  • Our orders have slowed a bit, but they normally do this time of year, fuel prices even though they have dropped some lately is causing a lot of our commodities to go up in price that we purchase.
  • Raw materials keep rising as well.
  • .
  • Our inventories are beginning to increase. 
I have got to go now.

I will have my son join me and he will help me on my
next commentaries.  My son will also help me retrieve the COT report and the premiums on the central fund of canada and sprott funds.  I .will get this for you Saturday night

Have a great weekend


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