Saturday, July 4, 2015

4/7/15: Russia Services and Manufacturing PMIs: June 2015

  • "Operating conditions in Russia’s manufacturing sector continued to deteriorate modestly during June as output, new orders and employment all fell."
  • "Price levels continued to rise, albeit at historically muted rates, while shortages of working capital and input inventories meant firms continued to meet their orders directly from stock wherever possible."
  • Manufacturing PMI posted 48.7 in June, still in contracting mode, but a slight improvement on 47.6 in May. 
  • June marked 7th consecutive month of Manufacturing PMIs below 50.0
  • 3mo average through June was 48.4 against 3mo average through March at 48.5 and 3mo average through June 2014 at 48.8. In other words, the rate of contraction remained broadly the same in 3mo through June 2015 as in previous 3mo period.

  • Slight fall in service sector business activity during June as activity declined in spite of ongoing growth in new work
  • Extra capacity signalled in service sector as backlogs and employment both continue to fall
  • Service providers retain some optimism of pickup in activity in coming year
  • "Activity levels in Russia’s service sector were down marginally in June as ongoing growth in new business proved insufficiently strong relative to capacity levels. …Capacity was cut in response through to another marked fall in staffing levels."
  • Services PMI fell to 49.5 in June from 52.8 in May, reversing two months of above 50.0 readings in April-May.
  • 3mo MA through June 2015 was 51.0 against 3mo average through March 2015 at 43.8 - a marked improvement for the 2Q 2015. 3mo average through June 2014 was 47.6, which means that 2Q 2015 saw, on average, positive, but weak growth against sharp contraction in 1Q 2015 and moderate contraction in 2Q 2014.

  • Markit Russia Composite PMI Index recorded a level of 49.5 in June, down from 51.6 in May and a three-month low. 
  • Composite PMI 3mo average through June 2015 was 50.6, well ahead of 45.7 average through 1Q 1015 and 48.3 average for 2Q 2014. Again, in quarterly terms, 2Q 2015 was stronger, signalling growth, compared to contractionary dynamics in 2Q 2014 and 1Q 2015.

Note: most recent trend (downward shift in overall activity across all two sectors) set in around October 2012 and run through February 2015. Since February 2015, we are seeing some improvements in the series, but no new trend, yet.

4/7/15: Another Nama Story That Won't Go Away...

While everyone is obsessed with Greece, our little island is quietly slipping into yet another Nama-linked scandal. Here we go - some links on that, without a comment by me (for legal reasons, of course):
  1. "Nama property sale: Mick Wallace claims Belfast firm had £7m in bank after deal"
  2. "Secret tapes stored on £7m Nama deal"
  3. "Nama adviser had concerns over property sale 'wall of silence'"
  4. "Ian Coulter named over disputed fees linked to Nama sale"
  5. "Mick Wallace’s claims prompts calls for thorough PSNI inquiry"
  6. "Profile: Who are Nama NI appointees named by Wallace?"
  7. "Northern venture controversial from the outset: Nama's activity in the North has been plagued by questions"
  8. "Cerberus denies improper payments or fees linked to Nama deal: Private equity firm ‘deeply troubled’ over allegations made in Dáil by Mick Wallace"
  9. 2006 report on the Cerberus links to a senior US politician: "The congressman & the hedge fund"
  10. And while some of Irish mainstream media is talking about Mick Wallace facing a 'grilling' in the Northern Ireland (e.g., much of the Northern Irish media is talking about investigating his claims: Which is sort of a big difference in interpreting what is happening: grilling someone suggests they are the wrong-doer, investigating someone's claims suggests looking into the wrongdoing alleged by someone. Get the 'angle'? Back to no comment promise...

4/7/15: Timeline for Greece and Some Anchoring

Greece timeline for the weekend:

Greece has missed the IMF and ECB payments this week with both non-payments having potential for triggering a mother of all defaults for Greece: the ESM/EFSF loans call-in (EUR145bn worth of debt).

The EFSF/ESM decision so far has been to 'ignore' the arrears, noting that non-payment to IMF qualifies as "an event of default":

"The Board of Directors of the European Financial Stability Facility (EFSF) decided today to opt for a Reservation of Rights on EFSF loans to Greece, after the non-payment of Greece to the International Monetary Fund (IMF). Following the IMF Managing Director's notification of the IMF Executive Board, this non-payment results in an Event of Default by Greece, according to EFSF financial agreements with Greece."

Greece owes the EFSF EUR109.1bn in "Master Financial Assistance Facility Agreement" loans, plus EUR5.5bn in "Bond Interest Facility Agreement" loans and EUR30bn more in "Private Sector Involvement Facility Agreement" loans.

For now, EFSF decided not to call in loans, preferring to wait for Sunday vote outcome. Per EFSF statement: "In line with a recommendation by the EFSF's CEO Klaus Regling, the EFSF Board of Directors decided not to request immediate repayment of its loans nor to waive its right to action – the other two possible options. By issuing a Reservation of Rights, the EFSF keeps all its options open as a creditor as events in Greece evolve. The situation will be continuously monitored and the EFSF will consider its position regularly."

A 'No' vote in the Sunday referendum can change that overnight.

This adds pressure on Greece to pass a 'Yes' vote - a pressure that is most publicly crystallised in the form of ECB refusal to lift ELA to Greek banks. Athens imposition of capital controls (limiting severely cash withdrawals from the banks) has meant that the current level of ELA (CHART below) is still sufficient to hold the bank run, but the ELA cushion remaining in Greek banks was estimated at EUR500mln at the start of this week. Even with capital controls in place, this would have dwindled to around EUR250-300mln by the week end.

Again, a 'No' vote in the referendum risks crashing Greek banks as ECB will be unlikely to lift ELA any more. In an indirect sign of this, the ECB appears to be setting up swap lines and euro credit lines for EU member states outside the euro area. For example, as reported by Bloomberg, "European Central Bank is set to extend a backstop facility to Bulgaria and is ready to assist other nations in the region to ward off contagion from Greece, according to people familiar with the situation". Such a move is a clear precautionary measure to put into place firewalls around Greek system.

Meanwhile, here is a report suggesting that Greek banks are preparing for an aggressive bail-in of deposits in the case of a 'No' vote (assuming ELA cut off):

The Government denied the reports of preparations of bail-ins, and continues to insist that the banks will reopen on Tuesday, a day after the referendum results are published, but it is hard to imagine how this can be done (unless the banks start trading in drachma) without ECB hiking ELA, and it is even harder to imagine how ECB can hike ELA in current conditions.

Source: TheodoreZ

So far, public opinion polls in Greece show very tight vote for Sunday. The latest GPO poll has the "Yes" vote at 44.1% and "No" at 43.7%. Alco poll puts the “Yes” figure at 41.7% against 41.1% for “No”. All together, four opinion polls published yesterday put the 'Yes' vote marginally ahead, another poll fifth put the 'No' camp 0.5 percent in front. All polls results were well within the margin of error. At the same time, majority of polls also show Greeks favouring remaining in the euro by a roughly 75 percent margin.

Sunday 5th July:
Polls open – 0500BST/0000EDT
Polls close – 1700BST/1200EDT

First exit poll – Shortly after 1700BST/1200EDT

~20% of votes counted – 1900BST/1300EDT
~50% of votes counted – 2100BST/1600EDT
~70% of votes counted – 2200BST/1700EDT (markets open)
~90% of votes counted – 0000BST/1900EDT

Timeline source: Trading Signal Labs

The build up of tension ahead of the Sunday poll has been immense. Even international bodies are being convulsed by the potential for a 'No' vote. So much so, that, as reported by a number of media outlets, there was a major cat fight between European members of the IMF and other IMF board members.

As reported by Reuters at Wednesday board meeting of the IMF, European members of the board attempted to block IMF from publishing its analysis of debt sustainability for Greece.

Quoting from the report: ""It wasn't an easy decision," an IMF source involved in the debate over publication said. "We are not living in an ivory tower here. But the EU has to understand that not everything can be decided based on their own imperatives." The board had considered all arguments, including the risk that the document would be politicized, but the prevailing view was that all the evidence and figures should be laid out transparently before the referendum. "Facts are stubborn. You can't hide the facts because they may be exploited," the IMF source said."

If only European members of the IMF Board were as concerned with the reality of the Greek crisis on the ground as they are concerned with the appearances and public disclosures of that reality.

A neat reminder of how bad things are in Greece today, via @RBS_Economics

Source: @RBS_Economics

As numbers tell, Greece has posted one of the worst collapses in economy for any advanced economy since 1870, fourth worst for periods outside WW1 and WW2.

So what to expect?

  • In the event of a 'Yes' we are likely to see a significant bounce in the markets from the current levels, with euro strengthening on the news in the short run. But real re-pricing will only take place when there is more clarity on post-referendum bailout agreement. The key risk to that outlook is that a 'Yes' vote can trigger early elections - which will (1) extend the current mess for at least another 1-2 months, and (2) put new sources of uncertainty forward - as outcome of such elections will be highly unpredictable. I do not expect the EU to re-start new deal negotiations until after the elections, which means that there will be mounting, not abating pressures on the Greek voters to vote in 'the right' Government, acceptable to the Troika.
  • In the event of a 'No' we are likely to see serious run on the markets in Greece and some 'peripheral' states, especially Italy. Greek capital controls will have to be stepped up significantly. Euro is likely to weaken in the short run, especially if ECB aggressively moves to monetise risks via both accelerated QE purchases and lending to non-euro banks.

Beyond these two possible scenarios, everything else is in the realm of wild speculation.

Friday, July 3, 2015

3/7/15: Add ECB to IMF and Greek arrears can get ugly...

Ah, remember Brodsky's "Urania is old than sister Clio" bit? Well, not in finance. Apparently, or allegedly, as reported in press, Greece is now in arrears (err... default, or not or whatever) not only on IMF, but also on ECB. See this.

Which relates to 1993 loans, last repayment of which was due in June this year and amounted to EUR470mln. And which were not paid.

The gyrations of Greek and Troika positions are out of the league of the ordinary.

We had a threat to take EU to court over threats of forcing Grexit (see here). Which is quite bizarre (on the EU side), given the Institutions have already said that the very subject of the referendum is non-sensical as no deal exists to carry out referendum over (see here), though such statements did not preclude the EU leaders from calling for a 'Yes' vote in the referendum (see here).

And the EU and some internal Greek concerns about constitutionality of the Greek referendum (see here).

In simple terms, we have a mash of contradictions: a referendum that has no grounds in terms of its outcome is nonetheless of questionable constitutionality, though the voters should vote 'yes' regardless, because, presumably, an outcome that is not an outcome is preferred to a different outcome that is not a outcome... [someone should stop spinning the world around us]...

We also have IMF that was forced (by a leak) to release its (preliminary - aka... "we say so, but we don't say so") analysis of Greek debt sustainability (see simplified version here and full version from the source here). Surprise, surprise... those of us not paid lavish salaries by the IMF turned out to be right: Greek debt sustainability thesis is nonsense, a pipe dream made up of flour, feathers and water...

Meanwhile, the ECB - not to be outdone by the fellow jostlers or jousters - is entering a probabilistic game of guessing Greek banks solvency (condition for accessing ELA is solvency of the banks, which, until today was a concept of 0=insolvent, 1=solvent and is now 0.1%=solvent 49.9%='something of sorts' and the rest... err... well, we await holding our breath for a technical paper from the ECB staff on that one) on the basis of referendum outcome (see here).

Next turn will be for the EU or may be ESM/EFSF as ECB (rumoured above) default trigger for EFSF default is "Very Likely" and can only be 'corrected' for via a new deal agreement (see here).

Have fun deciphering the torrent of news, views and leaks that the Greek crisis has unleashed. In the mean time, the only conclusive statement to be made is that we are in a situation where headless chickens are trying to round up legless lambs... all performed in a quicksand pit...

Monday, June 29, 2015

29/6/15: Greek Options & Default Contagion Mapping

Couple of interesting charts on Greece.

First up: what are the options?
Source: @MxSba

Interestingly Greece already has capital controls, but yet to miss (officially) and IMF payment. Now, even if there is a deal, Greece will still have to go into the arrears on IMF, unless they found that proverbial granny's couch from which they can squirrel away few bob (EUR1.6 billion that is). We also have an already scheduled referendum. Which, according to the chart is a dead-end. Which it is, because its outcome is either rejecting a non-valid deal or accepting a non-valid deal. Though, presumably, the non-valid deal can be revalidated by the Troika (Institutions) in a jiffy.

In short, the chart above doesn't help much.

Now, a default trigger table and a map:

Source: both via @jsphctrl

Non-payment to IMF can trigger (though does not have to) default on EFSF and holdout private sector bonds (pre 2004). Default on T-bills (short term bonds) triggers privately held bonds excluding holdouts and new bonds. Everything else is fairly simple. Now, per table above, we are in the 'Publicly Acknowledged' blue-shaded area (any delay on payment will be known at this stage and avoiding a public declaration will be hard, if not impossible, especially given political stalemate).

  • Non-payment to IMF triggers default on EFSF, and likely to trigger default on bilateral EU loans.
  • Non-payment of EFSF loans triggers nothing with any certainty.
  • The worst contagion is from PSI bonds default. 
Special note to CDS triggers: basically, bigger risks are from SMP (ECB) bonds, PSI (private) bonds, and post-PSI (private) bonds. EU loans and holdouts from PSI bonds are dodos. 

Enjoy playing with the above...

29/6/15: Greece & Grexit: In Europe, what the bank does, the kings say

Couple of interesting items on on Greek crisis:

Bloomberg prints an exercise in extrapolating Greek devaluation to Mexico peso crisis. It is an interesting exercise in so far as it does indicate (imperfectly) one side of the 'pain coin' currently spinning in the air. But it does not provide for any realistic comparatives to the other side of the same coin: the side of Greece not opting out of the euro area. Suppose the estimated path in the Bloomberg chart is correct and Greece, exiting the euro does face a devaluation 'bill' of some 300 percent-odd. As Bloomberg article says, there will be pain. Huge pain. Now, suppose Greece does not opt for direct devaluation. Then what? Then - exactly the same adjustment will have to happen via internal devaluation. Absent inflation (of any significance) in the euro area (and even given the ECB target inflation), this means all of this adjustment will be carried by Greek people. Except, with devaluation and exit, Greece will still retain internal markets for adjustment: with reforms (not guaranteed by any means), and with some pain taken on the side of capital / funding, it might ameliorate the period of post-default devaluation (the 'jump' stage in the chart below). Staying in the euro clearly implies zero adjustment on capital side, with all adjustment on households' side (employment, earnings, pensions etc). In addition, staying with euro implies no imports substitution (no price effects), exiting implies devaluation-driven imports substitution. Finally, staying with the euro implies no exports boost from devalued currency.

Source: Bloomberg

So the Bloomberg exercise is fine and interesting, but one-sided ad extremum.

Which rounds us to the latest news from the ECB. With Greeks requesting EUR6 billion increase in ELA and ECB rejecting it, Reuters reports a comment from a source on the situation:
"Commenting on the expected extension of existing emergency funding, one person said: "It doesn't make sense to stop it now. The banks are not able to pay it back anyway. So if you froze it for another two or three days, it wouldn't make any difference."" Except, of course, it does make perfect sense: if the ECB were to extend ELA, there would not have been capital controls (note: I am not suggesting the ECB should have done so - that's a different matter). However, without ECB support for ELA uplift, we have capital controls. Which sends a clear message from Frankfurt to Greek voters: this is what you will have to live with if you go against us. 

And this neatly dovetails with what Jean Claude Juncker said to the Greek voters earlier: "You should say ‘yes’ regardless of what the question is.” 

Because whether Reuters wants it or not, in Europe, what the bank does, the banks' kings say.

29/6/15: Juncker to Greece: "say ‘yes’ regardless of what the question is"

Ok, folks. I never was a fan of Jean Claude Juncker, the [one of oh so many] European President.

But, honestly, where does one go from this:

Jean-Claude Juncker, the [EU] commission’s president: “I love you deeply - You shouldn’t commit suicide because you’re afraid of dying. You should say ‘yes’ regardless of what the question is.” A “no” vote in the referendum “will mean that Greece is saying no to Europe,” Mr. Juncker said.

Does anyone in Europe believe this to be a reasonable or functional basis for attempting to resolve the crisis? Irrespective of whether you take Greek side or creditors side (I can spot reasonable points on both ends of the argument), how can the above be construed as anything but a wholesale insult by a hopelessly out-of-touch-with-reality apparatchik?

There is really nothing one can add to this, other than convey a deep sense of basic, human, natural sense of horror...

Sunday, June 28, 2015

28/6/15: Grexit with Help: Hans Werner Sinn

My favourite Bad Dude of German Economics, Hans Werner Sinn on Greek crisis:

Orderly Grexit is, in my view, still more disruptive and costly to all sides than a facilitated debt writedown and restructuring, while allowing Greece more time and fiscal room for implementing real reforms (as opposed to the currently proposed reforms, which are aimed solely on addressing short term fiscal imbalances).

Truth is - Europe has the means to meaningfully help Greece, as well as other 'peripheral' states, to get back onto growth path consistent with long term sustainability (in Greek case, we are talking about 3.5-4 percent annual growth averaging over a good decade). What Europe lacks is the will.

28/6/15: IMF Gun, Greek Voters

Just as the Greek Parliament engaged in a vote to hold or not to hold a referendum on Troika proposals, the IMF has decided to end any hope for any referendum to have any basis for validity. As noted by ZeroHedge (, the IMF chief told BBC that Greece can vote as much as it wants, but by the time the referendum is held next Sunday, there won't be any proposals standing that a vote can address in any shape or form. The reasons is that the current 'bailout' offer is only good if accepted before July 1st when the current programme expires.

Christine Lagarde also seemed to have been implying in her statement that the creditors have zero interest in working with Greece unless Greece accepts their demands in full prior to the referendum or unless the voters support the (by-then unavailable) 'bailout' in a referendum. In other words, Madame Lagarde had just issued an ultimatum directly to Greek people (if you do vote, vote as we want you to) and to the Greek Parliament (as you vote on referendum, vote as we want you to).

Funny thing, European democracy... as Italian voters should know...

Saturday, June 27, 2015

27/6/15: Greek Political Outlook: June 2015

As Greece is set for a referendum on the bailout, here is the latest opinion poll:


In short, if there is an election called now, it appears Syriza-led Left will win with a stronger mandate (187 total seats against January outrun of 162 seats).

You can see more detailed polls results here: Greek referendum polls are covered here:

Meanwhile, the dreaded Plan B (forced default and, associated Grexit) now appears to be Plan A for the euro area: All the while, EU 'leaders' continue to spin various versions of their objectives and intentions, as evidenced by the European Council President, Donald Tusk's most recent statement that "Greece is & should remain euro area member. In contact with leaders to ensure integrity of euro area of 19 countries". Whatever this means, anyone's guess, but referendum is the most democratic form of governance one can imagine in modern setting and the 'bailout' deal faced by the Greek Government is such a significant alteration of the structural conditions to be endured by the Greek people that a referendum is de facto required in order to either accept or reject these conditions. The problem is as follows:

  1. A democratically elected government sees its electoral mandate fully contradicted by the 'bailout' offer;
  2. The Government has no option but either accept the 'bailout' terms (and thus violate its own electoral mandate) or reject it (and thus impose an outcome - default and Grexit - that is not supported by the majority of the electorate). 
Thus, like Syriza or not (I am with the latter camp), but it has no ethical choice to make other than conduct a referendum. Anyone claiming that in a representative democracy an elected Government has a mandate to violate in full its electoral mandate (thus accepting the 'bailout' offer as it stands) is simply anti-democratic. In a representative democracy, an elected Government has only one feasible mandate - to execute its electoral mandate.

Note: I am still barred from using my Twitter account.

27/6/15: Surreal World of Twitter...

The surreal nature of social media is that in failing to protect us from spam and bots, it actually blocks those of us who genuinely interact on social media without commercial interest.

Thus, I have now been blocked by Twitter for "suspicious automated activity" despite the fact that there is no evidence on my timeline of any activity that fits their own definition of the said 'suspicious automated activity'.

My request to the Twitter Help team to identify the said 'suspicious activity' went unanswered, despite the team attempting to answer my other queries.

I have no recourse on the matter. Twitter has only one default option for correcting for their own abuse of their rules: they offer to send one an SMS message with a code that unlocks one's account. As it happens I have no mobile coverage where I am over this weekend.

Logic implies, Twitter team might just send the said code to my personal email. They have my email, as they used to communicate with me their useless replies. But no, the drones of Twitter Help are incapable of generating anything as creative as offering a code via the only channel of communication open to me.

And so we have it: false accusation of suspicious 'automated activity' generates actual 'automated activity', dumb and irresponsive to actual needs of the Twitter account holders, inflicting the very harm that Twitter purports to minimise.

Well done, Twitter!

Friday, June 26, 2015

26/6/15: Russian Economy: Domestic Demand Still Weak in May

Some latest Russian stats to scare the pants off everyone:

  • Investment is down 7.5% y/y in May and in January-May cumulative drop in Investment is 5% y/y. 
  • Retail sales are down 9% y/y in May and down 7.5% y/y in January-May 2015. January-May seasonally-adjusted sales, however are down primarily due to January drop.
  • Real disposable incomes are down 5% y/y in both April and May.
  • Industrial production is down 8% y/y in May, January-May decline is 4%.
  • Estimated GDP is down 3.2% y/y in January-May 2015 based on Economy Ministry estimates and 3.4% y/y based on Vnesheconombank estimates. This suggests acceleration in contraction compared to 1Q 2015 when the economy shrunk 2.2% based on first revision of the earlier estimate. Latest consensus forecast is for full year real GDP decline of 2.7-3.5% on 2014.  Which is an improvement on past forecasts. 
Problem is, fifth month into the year, and the signs of stabilisation are still quite contradictory and major parameters on domestic demand size are still volatile.