Category: Market Action

Never mind Greece and Spain, here’s some commentary about an old friend:

Ireland may be forced into a second bailout by mounting loan losses in its banking system, according to Deutsche Bank AG.

Ireland’s bailed-out banks may need capital to cover as much as 4 billion euros ($5.1 billion) more bad-loan provisions than assumed in stress tests last year, Deutsche Bank analysts David Lock and Jason Napier said in a report published today.
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“Although resilient during 2009 and 2010, mortgage arrears have risen sharply over the past year, house prices are continuing to fall, market liquidity is limited, and over half of customers are now in negative equity,” the analysts said. “We fear the size of negative equity balances for some mortgage holders may greatly reduce their incentive to cooperate, pushing them towards default.”

Meanwhile, on the other side of the world:

Australia and New Zealand Banking Group said volatile conditions in global markets have caused the wholesale funding market for Australian banks to freeze again, a worrying echo of the global financial crisis.
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“Right now, markets are closed again, and this is what happens in this sort of situation,” ANZ Chief Executive Mike Smith said after a speech to a business group.
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Australian banks raise about $100 billion annually from wholesale funding markets to bridge a gap between total loans and deposits.

Here’s a story you don’t see too often:

Investors Group Inc., which sells mutual funds through its own financial adviser network, plans to chop fees on many of its offerings in a bid to woo fee-conscious clients.

The move comes after the company saw net fund sales plunge to $175-million in the first quarter during the key registered retirement savings plan (RRSP) from $504-million a year earlier.

Reductions in management fees will range from .05-to 0.40-per-cent annually on the asset value of select funds, the Winnipeg-based firm said in a statement on Friday.

There’s some alarmist talk from S&P:

In a report last week, Standard & Poor’s said the world faces a mountain of roughly $46-trillion (U.S.) in corporate debt needs between now and the end of 2016. In addition to a $30-trillion “wall” of corporate debt that will come due and require refinancing, S&P estimated that corporations worldwide will need between $13-trillion and $16-trillion of new debt to meet their capital spending and working-capital needs – essentially, to finance growth.
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“This demand for funds will potentially compound the credit rationing that may occur as banks seek to restructure their balance sheets, and bond and equity investors reassess their risk-return thresholds. These factors, amid the current euro zone crisis, a soft U.S. economic recovery following the Great Recession, and the prospect of slowing Chinese growth, raise the downside risk of a perfect storm for credit markets, in our view,” S&P wrote.

The Canadian preferred share market got thumped today, with PerpetualPremiums off 10bp, FixedResets losing 45bp and DeemedRetractibles down 37bp. There is quite a lengthy list of Performance Highlights, all of them losers – the only pattern I see at first glance is that banks are relatively unscathed. Volume was below average.

Fitch downgraded Greece:

Greece’s credit rating was downgraded one level by Fitch Ratings on “heightened risk” that the country will not be able to sustain its membership of the euro area after inconclusive elections left the country without a stable government.

Greece was cut to CCC from B- by Fitch, according to an e- mailed statement today in London. The country’s ceiling was revised to B-, Fitch said in the statement.

“The strong showing of ‘anti-austerity’ parties in the May 6 parliamentary elections and subsequent failure to form a government underscores the lack of public and political support for” the country’s bailout from the European Union and the International Monetary Fund, Fitch said in the statement.

Moody’s downgraded a swathe of Spanish banks:

Banco Santander (SAN) SA and Banco Bilbao Vizcaya Argentaria SA, Spain’s biggest lenders, were cut three levels by Moody’s Investors Service, which cited a recession and mounting loan losses in downgrading 16 of the nation’s banks.

Nine firms were cut three notches and seven were kept on review for further reductions, Moody’s said yesterday in a statement. Santander’s U.K.-based subsidiary also was cut.

The moves followed Moody’s May 14 downgrade of 26 Italian banks and its Feb. 13 cut of Spain’s sovereign debt. The main drivers for the Spanish bank downgrades were a surge in soured loans, the recession, restricted funding access and the reduced ability of the government to support lenders as its own creditworthiness diminishes, Moody’s said.

Nexen, proud issuer of NXY.PR.A was confirmed at Pfd-3 by DBRS:

DBRS has today confirmed the ratings of Nexen Inc.’s (Nexen or the Company) Long-Term Unsecured Debt at BBB, Subordinated Unsecured Notes at BBB (low) and Preferred Shares at Pfd-3, all with Stable trends. The rating confirmations reflect the Company’s adequate credit metrics and potential future reserve and production growth profile.

Nexen’s financial profile continued to improve in 2011 and Q1 2012, mainly attributable to top-of-cycle oil prices and execution on its aggressive debt reduction strategy. Nexen has used proceeds of asset sales to reduce its debt-to-capital ratio to 33% at March 31, 2012, down from 49% at year-end 2009. Nexen’s debt-to-cash flow ratios have decreased substantially, from 2.64 times (x) in 2010 to 1.93x in the 12 months ending March 31, 2012. Continued improvement will depend largely on Nexen’s ability to successfully ramp-up production at Long Lake, and to ensure reliability of production at Buzzard. Going forward, DBRS expects Nexen to continue to manage its debt levels in a manner consistent with its BBB rating category.

It was an uneventful day for the Canadian preferred share market,with PerpetualPremiums down 1bp, FixedResets up 4bp and DeemedRetractibles gaining 2bp. Lots of volatility, heavily skewed to the downside. Volume was average.

There are fears the Greek bank run is accellerating:

Greek President Karolos Papoulias was told by the nation’s central bank chief that financial institutions are worried about their survival as Greeks pull out euros amid a deepening political crisis.

Central bank head George Provopoulos told Papoulias that Greeks have withdrawn as much as 700 million euros ($891 million) and the situation could worsen, according to the transcript of the president’s meeting with party leaders on May 14 that was published yesterday.
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Banks in downtown in Athens were open as normal today with no signs of unusual activity. Deposits by businesses and households held in Greek banks stood at 165.4 billion euros in March, according to the last available data from the Bank of Greece. (TELL) In 2011, deposits declined 35.4 billion euros, or 17 percent.

The report of the Office of the Independent Police Review Director regarding police conduct during the G-20 has been released. In a nutshell (nut’s hell?) the police acted like maniacs. Unfortunately, Blair and his thugs still have jobs.

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums gaining 4bp, FixedResets losing 6bp and DeemedRetractibles down 2bp. Volatility was minor. Volume was well above average.

There will be new elections in Greece:

Greece will hold new elections after President Karolos Papoulias failed to broker a governing coalition following an inconclusive May 6 vote, raising concern it may exit the euro. The currency and euro-area stocks fell.

“The country is once again headed to elections in a few days under adverse conditions,” Evangelos Venizelos, the leader of the socialist Pasok party said. “The Greek people told us they didn’t want elections but a coalition government, that they want Greece in the euro.”
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Greece’s political impasse means the new vote will have to be held as early as next month, with polls showing that could boost the anti-bailout Syriza party to the top spot. The country may run out of money by early July.

If the Greeks are playing good cop bad cop, it’s working:

German Chancellor Angela Merkel and French President Francois Hollande said they would consider measures to spur economic growth in Greece as long as voters there committed to the austerity demanded to stay in the euro.

Requests for measures to bolster growth will be “considered” and the European Union may also “approach Greece with proposals,” Merkel said late yesterday at a joint press conference with Hollande during his first official visit to Berlin. “Greece can stay in the euro area,” and “Greek citizens will be voting on exactly that.”

Smoke and mirrors? I wouldn’t be surprised.

All the fuss about Greece has me thinking … much the same sort of thing applies to Canadian provinces. They, too, can borrow cheaply with a generally narrow spread off Canadas; they, too, do not have the ability to devalue their currency. What would happen if Quebec – just to pick a provincial name at random – were to start to drown under its own debt? What then?

It was a negative day for the Canadian preferred share market, with PerpetualPremiums down 5bp and both FixedResets and DeemedRetractibles losing 9bp. Volatility was muted. It was Enbridge Day as far as blocks were concerned, but otherwise volume was below average.

Having destroyed Europe, the politicians are working on banking:

Banks may face tougher bonus curbs including a ban on awards stemming from carry-trade profits on cheap European Central Bank loans under proposed changes to a law on Basel capital rules endorsed by European Union lawmakers.

Lenders should also be forbidden from giving staff bonus awards that exceed fixed salaries, in the proposals approved by members of the European Parliament’s economic and monetary affairs committee in Brussels today. The amendments will be part of the EU assembly’s negotiation position in talks with governments on the legislation.

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums losing 11bp, FixedResets off 8bp and DeemedRetractibles gaining 2bp. Volatility was good, with no clear trend. Volume was extremely low.

It looks like there are lots of jobs in Canada!

Canadian employment rose almost six times faster than economists forecast in April, led by private- sector and full-time positions, creating the largest two-month increase in more than 30 years and leading investors to raise bets on higher interest rates.

Employment rose by 58,200 following a March jump of 82,300 that was the biggest since September 2008, Statistics Canada said today in Ottawa. The labor force grew by 72,500, lifting the jobless rate to 7.3 percent from 7.2 percent. Economists surveyed by Bloomberg News projected a 10,000 gain in jobs and 7.3 percent unemployment, according to the median forecasts.
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The construction industry posted the largest increase with 24,600 new jobs. Manufacturing added 23,800 positions and education rose by 16,800.

In an opinion piece published by the Financial Times (not in a Canadian paper, or on the bank’s website, where any two-bit Canadian scumbag could access it conveniently) Lapdog Carney says his boss makes wonderful decisions:

This provides a goal – an inflation target – that is both immutable and credible, while allowing for changes in the time horizon over which it is achieved. In short, flexible inflation targeting allows central banks to deliver what is expected while dealing with the unexpected.

An inflation target makes it easier, not harder, to take aggressive and pre-emptive policy action. The clarity and credibility of the Bank of Canada’s flexible framework guided our rapid easing during the crisis. By providing forward policy guidance conditional on the outlook for inflation, we were able to reinforce the stimulative effect of our policy and to normalise policy smoothly when conditions improved.

Central banks at the centre of the crisis have responded even more radically. Inflation targeting is allowing the Bank of England to look through short-term deviations in inflation. The adoption by the US Federal Reserve and the Bank of Japan of more explicit inflation objectives improves the effectiveness of their unconventional policies, and will be essential to manage their exit from those policies.
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Flexible inflation targeting is that framework, a policy for all seasons.

Kevin Carmichael of the Globe comments:

Yet when the time came to renew the Bank of Canada’s mandate last fall, the Harper government opted against trying something new in the immediate aftermath of a recession. Mr. Carney’s comments in the Financial Times give reason to doubt that price-level targeting ever will be tried. Canada’s economic leaders appear to believe they have found the monetary policy equivalent of nirvana.

It’s too bad. Price Level Targetting would reduce (somewhat!) the risk of long-term fixed-income investing and assist (somewhat!) in retirement planning.

Greek politics continues to fascinate:

Alexis Tsipras, the leader of Greece’s biggest anti-bailout party Syriza, turned down an appeal by political leaders to join a unity government that would avert a new election amid mounting concern of a euro exit.

“I want to underline that the refusal of this proposal isn’t coming from Syriza, but from the Greek people themselves,” Tsipras said in Athens today, in comments televised live on state-run NET TV. “The people have already rejected the bailout so no government has the right to implement it.”

Tsipras’s refusal to participate in a government that would group two pro-bailout parties with his own and the smaller Democratic Left party dims hopes of avoiding another round at the ballot-box, which polls show may catapault Syriza into first place. The onus is now on President Karolos Papoulias to try and broker a government of national unity.
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The unity government proposal by Democratic Left leader Fotis Kouvelis had received backing from Venizelos and New Democracy leader Antonis Samaras, underpinned by the two main principles of keeping the country in the euro region and renegotiating bailout conditions to boost growth.
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Kouvelis, whose party holds 19 seats in the 300-seat parliament, said the unity government would last until 2014 and would have a specific agenda to negotiate a gradual “disengagement” from bailout austerity measures. He said that a condition for Democratic Left joining the government was the participation of Syriza.

There is the usual amount of fear and bravado:

[German Finance Minister Wolfgang] Schaeuble told today’s Rheinische Post newspaper that the euro area could handle a Greek departure as “the risks of contagion for other countries of the euro zone have been reduced.”
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The risk is if Greece leaves and the save-the-euro response flops the world economy could face a sovereign-version of Lehman Brothers Holdings Inc.’s collapse. That makes Schaeuble’s confidence sound all too similar to former U.S. Treasury Secretary Henry M. Paulson’s optimism that the U.S. financial system could withstand the 2008 loss of Lehman Brothers, only to witness the deepest global recession since World War II and a 40 percent slide in the Standard & Poor’s 500 Index in six months.

I don’t know if comparisons to Lehman hold up. Is there anybody in the world who hasn’t realized a Greek default and exit hasn’t been possible, if not likely, for the past year? Lehman collapsed in the course of a week. Of course, it’s always possible that we’re in the middle of an extended train wreck that everybody can see happening and nobody can do anything about.

Groupe Aeroplan Inc., proud issuer of AIM.PR.A, has changed its name to Aimia Inc..

It was a mildly positive day for the Canadian preferred share market, with PerpetualPremiums up 4bp, FixedResets winning 10bp and DeemedRetractibles gaining 7bp. Volatility was almost non-existent. Volume was also almost non-existent.

There’s trouble in North Korea:

North Korea leader Kim Jong Un publicly rebuked officials for the “pathetic” management of an amusement park in Pyongyang in an effort to bolster his image five months after taking power in the totalitarian state.

Kim toured the Mangyongdae Funfair in the capital and pointed out a broken pavement and chipped paint on rides while plucking weeds, the official Korean Central New Agency said yesterday. Improving the facility should be “an opportunity to remove outdated ideological views from officials’ heads and end their old work-style,” KCNA quoted him as saying.

However, I understand that the Hall of Head Squeezing is considered a leader in its field!

It must be a lot of fun reading Greek newspapers!

Greece’s political leaders go into a fifth day of talks today to carve out a government with Evangelos Venizelos, the socialist Pasok leader, set to press counterparts on a proposal for a unity government that would avert a new election.

Venizelos, who received the mandate to form a government yesterday, said there was a first “good omen” since the inconclusive May 6 election, after Democratic Left leader Fotis Kouvelis outlined a proposal designed to keep the country in the euro area.

“Our views are very close,” Venizelos said to reporters in Athens after meeting with Kouvelis. “I will continue the effort, preparing the ground for the phase of negotiation that will be coordinated by the president of the republic.”
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Kouvelis, whose party holds 19 seats in the 300-seat parliament, said the unity government would last until 2014 and would have a specific agenda to negotiate a gradual “disengagement” from bailout austerity measures. He called on all parties to support his proposal.

The first opinion poll since Greeks voted showed anti- bailout party Syriza, which placed second in the election, would boost its showing if new elections were held.
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Kouvelis’s Democratic Left party criticized Syriza yesterday, saying Tsipras was pushing the country toward another election and that his insistence on cancelling the bailout agreement “constitutes a break with the euro.”

Will there be a revulsion towards reusable grocery bags?

A nasty stomach bug likely spread to a girls’ soccer team from a reusable shopping bag that was kept in a hotel washroom, say U.S. disease detectives who tracked down the source of the outbreak.
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Researchers said the virus aerosolized in the bathroom used by an infected girl settled onto a grocery bag and its contents. That served as the source of illness for seven team members aged 13 to 14 who were attending a soccer tournament in King County, Wash. in 2010.

I wonder how many nickels that cost!

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums and FixedResets both gaining 5bp, while DeemedRetractibles were off 3bp. Volatility was minimal. Volume was well below average.

European politicians are talking about a Greek exit:

From the monetary fortress of the European Central Bank to the pro-European duchy of Luxembourg, policy makers are beginning to air their doubts that Greece can stay in the euro.

Post-election tumult in Athens has put the once-taboo subject of an exit from the 17-country currency union on the agenda, lifting the veil on possible scenario planning afoot behind the scenes.

“If Greece decides not to stay in the euro zone, we cannot force Greece,” German Finance Minister Wolfgang Schaeuble said at a conference sponsored by German broadcaster WDR in Brussels today. “They will decide whether to stay in the euro zone or not.”

But until that happens, they’re happy to throw good money after bad:

The European Financial Stability Facility’s Board of Directors confirmed the release of 5.2 billion euros ($6.7 billion) from a first installment of 39.4 billion euros by the end of June, the EFSF said in an e-mailed statement today.

An amount of 4.2 billion euros will be disbursed May 10 and the remaining 1 billion euros aren’t needed before June and will be disbursed depending on Greece’s financing needs, according to the statement.

However, this attitude is not shared globally:

China Investment Corp. has stopped buying European government debt because of an economic crisis on the continent, though it continues to look for new investments there, said CIC President Gao Xiqing.

“What is happening in Europe right now is of course of concern,” Gao said yesterday in an interview in Addis Ababa, Ethiopia, during the World Economic Forum on Africa. “We still have our people looking at opportunities in Europe, even though we don’t want to buy any government bonds.”

There has been a victory for shareholder rights:

Telus Corp. … has withdrawn its share-consolidation proposal, conceding its plan faces certain defeat due to the staunch opposition of an activist U.S. hedge fund.

The Vancouver-based telecommunications giant announced that it was nixing its proposal well after midnight (ET) on Wednesday, just hours before it was scheduled to be put to a shareholder vote at the company’s annual general meeting in Edmonton.

This is all the more noteworthy because the Telus proposal was so beloved of the Precious Purveyors of Pusillanimous Punditry.

Julie Dickson, Superintendent of OSFI, gave a speech today titled Being Lulled into a False Sense of Security filled with the usual platitudes. I was, however, interested in the mention of centralized clearing:

Work is underway to achieve centralized derivatives clearing.
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Many parties advocate that new measures have fixed the problems that led to the global financial crisis. The false sense of security that such a position signifies does not take into account the new vulnerabilities that are likely to arise as a result of the changes we are making to the system today. We must constantly be on our guard to identify these vulnerabilities. An example: Centralized derivatives clearing, which I referenced at the start of my remarks. This is a critical initiative, but also one that poses risks if central counterparties are not appropriately risk proofed. Thus, risk-proofing will be a focus of efforts on all fronts. Another risk is the shadow banking sector. If our focus is only on banks, if we, as regulators, are smug and believe we have everything covered off, we might overlook risks associated with shadow banking. Thus, the Financial Stability Board is also focusing on this important sector.

Canadian banks have an enviable position. It is important we all continue to work hard to maintain that position, recognize the risks to stability in Canada, avoid complacency and not allow ourselves to be lulled into a false sense of security.

I am very pleased that Canadian regulators have discovered a method whereby risk can be eliminated. Hurrah!

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums gaining 5bp, FixedResets off 3bp and DeemedRetractibles up 1bp. The Performance Highlights table is comprised entirely of Floaters, which got nailed. Volume was well below average.

PerpetualDiscounts now yield 5.04%, equivalent to 6.55% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.45%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now 210bp, a slight widening from the 200bp reported April 30.

The CMHC Annual Report is out. Of particular interest is the table of 5-year financial highlights on page 98 of the PDF … in 2007, there was $345-billion of insurance in force; at the end of fiscal 2011, there is $567-billion. Thanks for inflating the bubble and subsidizing your pals at the banks, guys! To put the figure in perspective, consider this factoid from the Canadian Housing Observer 2011, Chapter 4:

With a contribution of about $330 billion to the Canadian economy, housing-related spending accounted for 20.3% of GDP in 2010, up from 20.1% in 2009.

Gee, it sure is a good thing we’re so much better regulated than those dumb old Americans, eh?

Meanwhile an unfootnoted citation by the G&M states:

CMHC estimates that roughly 25 per cent of condominiums in the Greater Toronto Area are sold but sitting vacant — shades of Miami at the height of its collapsed condo bubble in 2007. Other analysts say the 25 per cent figure may be too low.

Nope, no bubble at all, no sir! Not with Spend-Every-Penny keeping a firm hand at the tiller! For anecdotal support for the phenomenon, try driving along the Gardiner and looking at all the see-through condominiums that now line it. However, if you are driving, DO NOT make notes while discussing your findings on your cell ‘phone! Remember, Smokey the Bear says “Only you can prevent forest fires!”

Meanwhile, the political theatre in Greece continues:

Greece’s Syriza party leader Alexis Tsipras, charged with forming a government, told his pro-bailout counterparts they must renounce support for the European Union- led rescue if there is to be any chance of forging a coalition.

Tsipras said he expected Antonis Samaras of New Democracy and Evangelos Venizelos, the former finance minister who leads the Pasok party, to send a letter to the EU revoking their pledges to implement austerity measures by the time he meets with them tomorrow to discuss forming a coalition. Samaras said he would not do so, and would support a minority government if necessary.
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If Tsipras fails to build a working majority, the onus on forming a government will pass to Pasok. Each mandate can last for three days. If the process still fails to yield a coalition, President Papoulias must try to broker a government of national unity, the constitution says. If that fails, new elections will be held.

“A Greek return to the polls in mid-June looks increasingly likely,” Malcolm Barr, an economist at JPMorgan Chase & Co, wrote in a note. “There is little doubt that the drop in support for New Democracy, Pasok has raised the probability of an eventual euro exit.”

Venizelos has also refused to sign:

Venizelos said Pasok’s proposal for a national unity government with the participation of all parties with a pro- European orientation was the only solution. Greece must remain “safely” within the euro while pursuing changes to the bailout accord to boost growth, he said.

The movement of talent from the banks to hedge funds continues:

The rest, earned by betting on companies from American International Group Inc. to MBIA Inc., was locked up in deferred stock and euros, according to people familiar with the matter, who asked not to be identified because they aren’t authorized to discuss compensation. In September, Silvetz, 37, jumped to hedge fund BlueCrest Capital Management LLP. He was the last of a trio of New York debt traders who departed after making $1 billion for the German lender in two years, the people said.

Wall Street’s biggest banks have lost almost two dozen of their most-profitable credit traders in the past 13 months as regulators limit the kind of risk-taking that amplified the housing crisis four years ago. As banks slash or defer pay and reduce the amount they’re willing to wager, the traders are seeing better opportunities at hedge funds and investment firms that seek to profit in markets lenders are retreating from.

Note that by “talent”, I mean the ability to make deals, which is not the same thing as asset management. Different business. This trend may be a good thing … it may be a bad thing. Nobody knows, nobody cares. The world’s regulators have decided to encourage the change without getting too fussed by details.

The downside? Hedge funds are intrinsically less stable than banks – investors are a lot more willing to redeem. The implication is that it may become easier for a market panic to lead to a lock-up in trading.

Husky Energy, proud issuer of HSE.PR.A, was confirmed at Pfd-2(low) by DBRS:

DBRS has today confirmed the Senior Unsecured Notes and Debentures and the Preferred Shares of Husky Energy Inc. (Husky or the Company) at A (low) and Pfd-2 (low), respectively, both with Stable trends. The rating actions are based on DBRS’s review of Husky’s progress to date on its long-term plans, which incorporate its major strategic growth initiatives, upstream operational targets and financial targets through 2015.
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Husky maintains a conservative financial profile. Its debt-to-capital and debt-to-cash flow ratios improved to 19% and 0.85 times, respectively, at March 31, 2012 from 22% and 1.39 times, respectively, at year-end 2010. Common and preferred share issuance totaling $2.2 billion (including dividends paid in shares) strengthened its key credit metrics and liquidity position, with $3.3 billion of bank facility availability and $2.7 billion of cash at March 31, 2012.

DBRS expects Husky to maintain its conservative financial profile, with only modest weakening of its key credit metrics relative to year-end 2010 levels during the high capex period through 2015, as well as making significant progress on its upstream operational targets over the period in order to maintain the current ratings.

There was a slight downdraft in the Canadian preferred share market today, with PerpetualPremiums losing 6bp, while both FixedResets and DeemedRetractibles were off 3bp. Volatility was very low. Volume was well below average.

France has a new president:

Francois Hollande defeated French President Nicolas Sarkozy as voters handed control of the second-biggest European economy to the Socialists for the first time in 17 years.

The 57-year-old Hollande got about 52 percent against about 48 percent for Sarkozy, according to estimates by four pollsters. The campaign isn’t over. France elects its lower house of parliament in five weeks, prompting calls from backers of both candidates to keep fighting.
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While Socialists stand ready to dominate policy making for the first time since 1993 — holding both the presidency and the Cabinet — bond yields suggest Hollande may maintain market confidence. Ten-year French debt yields 124 basis points more than comparable German securities. That’s down from 145 basis points after he won the first round April 22 and lower than the 133 basis points at the start of the year.

Concern of a Franco-German cleavage undermining economic policy making in the euro region is “exaggerated,” Morgan Stanley chief economist Joachim Fels wrote in a note today.

Greek politics is a Gordian knot – and that’s scary!

New Democracy leader Antonis Samaras began trying to put together a government after a Greek election that raised fresh questions about the country’s euro membership and triggered the biggest stock-market rout in four years.

Samaras was given three days from today to put together a coalition from an assembly split down the middle on whether to renege on the terms of bailout agreements negotiated since May 2010. New Democracy and the socialist Pasok party, rivals until the country’s crisis threw them into a national government together this year, are two seats short of the 151 seats needed for a parliamentary majority.
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New Democracy led in the election, receiving 19 percent of the vote and 108 seats in the 300-seat Parliament. Syriza got 17 percent to score 52 seats; Pasok came third with 13 percent and 41 seats.
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Should Samaras fail to get the necessary number of seats, the onus on forming a government will fall to bailout opponent Syriza, a coalition of left parties, which has vowed to cancel the bailout terms. After that, Pasok takes the baton.

If the nine-day process fails to yield a coalition, President Papoulias may then try to broker a government of national unity. Should that process fail, new elections may be a possibility.

And, in fact, there is now a report that the baton has passed to the anti-austerity Syriza party:

Greek political leaders will meet for a second day today in a bid to form a government, with the mandate for the task being handed to the second-biggest party after New Democracy leader Antonis Samaras said he failed to forge agreement after an election that raised questions about the country’s euro membership.

Samaras gave up his bid after nearly six hours of talks in Athens yesterday. The attempt to form a government will pass to Alexis Tsipras, the head of Syriza, the second biggest party, which has vowed to cancel the bailout terms. Tsipras will see President Karolos Papoulias today at 2 p.m. Athens time.
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As voters across Europe rebel against austerity measures imposed to stamp out the debt crisis, Citigroup Inc. said yesterday the risk of Greece leaving the euro by the end of 2013 has risen as high as 75 percent. The election on May 6 propelled into Parliament a party that wants to put land mines on the border with Turkey and another that wants Germany, the country’s biggest donor, to pay World War II reparations. The benchmark ASE Stock index plunged 6.7 percent in Athens yesterday, its biggest drop in six months.

YLO released its results a day early:

Yellow Media Inc. (YLO-T0.100.0111.11%) reported a first-quarter loss of $2.9-billion as the struggling directory publisher wrote down the value of its assets.

The company also cancelled its annual meeting planned for Tuesday in Montreal after it said the number of shareholder votes received would not be enough to reach quorum.

Farcical, but more to the point is that print revenues declined more than expected and digital substitution was lower than expected.

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums losing 12bp, FixedResets up 3bp and DeemedRetractibles gaining 6bp. Volatility was minimal, with no themes apparent. Volume was quite low.