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SNB Said To Be Buying EUR Crosses In Aftermath Of ECB's Greek Fiasco; Europe Boosts Its Own Growth Forecast

If yesterday's newsflow was bizarre, then today's market reaction has been outright surreal, and the day hasn't even really started.

First, weeks after the ECB's folded on Europe's deflationary specter and what is now seen by most as an all out triple-dip recession in the Eurozone, where only the endless adjustment of the definition of GDP has prevented this from flowing through to the bottom line, and hours after the ECB implicitly did everything in its power to create a banking panic in Greece, risking an all out Grexit and much worse down the line, the European Union decided that it was time perfect time to, drumroll, raise European growth forecasts!

According to the WSJ, "the European Union’s official economists said the sharp drop in global oil prices and a weaker euro should boost growth in the eurozone this year, raising their forecasts for the currency area’s largest economies."

The economists at the European Commission, the EU’s executive arm, said the eurozone should grow 1.3% this year and 1.9% in 2016. In November, they expected growth of 1.1% this year and 1.7% next. The commission raised its growth estimates for most of Europe’s largest economies, including Germany, France and Spain.


“Europe’s economic outlook is a little brighter today than when we presented our last forecasts,” said Pierre Moscovici, the European economics commissioner. “The fall in oil prices and the cheaper euro are providing a welcome shot in the arm for the EU economy.”

And then, as always in the case of Europe (whose central bank conducted a stress-test with a worst case that excluded deflation as a possible outcome when two months later the same ECB launched bond buying precisely to prevent deflation), it immediately shot itself in the foot, explaining just why these forecasts are already null and void:

The cutoff date for the forecasts is Jan. 23. The left-wing Syriza party was swept to victory in the Greek elections two days later on a platform of getting Greece’s official creditors to loosen austerity mandates on the country and restructure its debt. So far, Germany and others eurozone nations have refused. The commission did lower its forecasts of Greek growth, saying the decision to call early elections had hurt confidence.

Worse, the forecasts "don’t account for the threat that the crisis could return in full force now that the eurozone is again headed for a showdown with Greece, which is asking the bloc’s other members to rewrite the bailout plan they signed with Athens." The result: "The commission cut its estimates for the Greek economy. Growth is expected at 2.5% this year, down from a November estimate of 2.9%. “The growth momentum was fairly firm in the second half of 2014, although the early election has affected confidence and investment,” the commission said."

2.5% growth in Greece in 2015: remember that. Or rather, forget it.

In other words, just your usual run-of-the-mill propaganda by an artificial monetary and political block which has all but run out of "political capital."

However, the same block has not run out of printer ink. The reason being that just before Europe came in to start trading in the aftermath of yesterday's ECB shocker which has since seen Greek bank stocks and bonds tumble yet again, a day which absent some hail-mary from the central banks, would have been a total bloodbath, someone started buying EUR crosses particularly the EURCHF and EURUSD, and buying, and buying, and buying more...

... until finally that someone was rumored to have been revealed as the Swiss National Bank, the same bank which - as we wrote yesterday - had doubly lost the markets' confidence after not only did it end its hard CHF ceiling, but three weeks later, saw its "soft ceiling" in the form of the EURCHF 1.05-1.10 corridor breached as well.

In other words, one central banks shoots itself in the foot by trying to make a very explicit political statement to a rebelious Greece, and another central bank is supposed to bail it out, a central bank that has become a hedge fund with a nominal losing FX position that is fast approaching the entire GDP of Switzerland.

Call it unintended consequences of "style drift."

So what else is going on? A quick recap courtesy of RanSquawk:


Asian equities trade mixed with outperformance seen across Chinese stocks, after the PBoC cut its RRR rate for the first time in over 2yrs. Shanghai Comp (-1.18%) and Hang Seng (+0.35%) were earlier led by financials, however have now pared its gains. ASX 200 (+0.58%) traded in the green, gaining for an 11th consecutive day, equalling the all-time record set in 2003. Nikkei 225 (-0.98%) fell amid dampened risk-appetite fuelled by the ECB stance to restrict financing to Greece.\


Yesterday’s aftermarket announcement from the ECB stating that they are removing its current waiver for the minimum credit-requirement for Greek collateral took focus this morning, with Greek asset classes feeling the consequences. Greek banks opened lower with the banking index down 22.8%, while the Athens Stock Exchange fell 8.9% and the GR/GE 10y spread widened by over 100 bps at the open of the Greek stock exchange.

All major European indices opened lower on the news, however have been paring some of the losses through the morning, while Bunds come off their best levels as the market factors in the significance of the move, which is less than first predicted, with the March contract now back to flat ahead of the N.A. open. Looking in greater detail, Greek banks will only have to convert ~EUR 30bln of financing into ELA financing which is not as severe as some had feared. However, one big concern that remains is that yesterday's decision by the ECB could lead to deposit flights and a possible run on Greek banks. Focus regarding Greece will now move to the meeting between the Greek and German finance ministers scheduled for 1130GMT/0530CST.

US earnings this afternoon see Phillip Morris and Teva report pre market, with Twitter scheduled to report after market, while yesterday saw Allergan report Q4 Adj. EPS USD 2.17 vs. Exp USD 1.83.


FX markets have seen EUR strengthen gradually to pare back the fast money move lower following the ECB announcement last night regarding Greek collateral. The EUR strength was supported by EU commission forecasts, estimating Euro area 2015 GDP at 1.3% (Prev. 1.1%) but with 2015 CPI at 0.1% (Prev. 0.8%). EUR strength was further supported by stops tripped in EUR/CHF, with RANsquawk sources reporting renewed talk that the SNB are active in the CHF. Elsewhere, GBP/USD trades near session highs with weakness in the greenback and on the back of better than expected UK Halifax house prices data (M/M 2.0% vs. Exp. 0.0%, Prev. 0.9%, Y/Y 8.5% vs. Exp. 7.7%, Prev. 7.8%), while commodity linked currencies are moderately stronger across the board. (CAD, AUD, MXN) following the trend higher in crude futures throughout the European morning.

Fed’s Rosengren (Non-voter, Dove) has also spoken during the European morning, stating that with inflation this low, patience is still required, however these comments saw no reaction in the USD as they are in line with Rosengren’s stance.

Looking ahead, the BoE rate decision (1200GMT/0600CST) is expected to be a non-event after last month’s decision saw the vote move back to 9-0 from 7-2 as a consequence of low inflation.


WTI crude futures trade higher into the North American session, back above USD 49.00, paring back some of the significant losses after falling approximately 10% from yesterday’s high to the overnight low. US traders will now look ahead to challenger job cuts and the weekly jobs data in the run up to this Friday’s nonfarm payrolls release. In addition we also await December Trade Balance data in US alongside the weekly EIA NatGas storage change, which is expected to show a drawdown of 119 (Prev. draw 94).