Caporegime says: These things gotta happen every five years or so, ten years.

The Caporegime (from Wikipedia)

The Godfather had many friends with loyalty.

Peter Clemenza:

These things gotta happen every five years or so,... ten years. Helps to get rid of the bad blood. Been ten years since the last one.

In contrast with the consecutive downfalls of global stock prices in last week, it has been on a bumpy ride this week in US market particularly, partially because of Fed rate cut which was unexpected and little explained and Super Tuesday's outcome.

Meanwhile, it is a time to back in reality, isn't it?  After Fed rate cut and Mr.Biden's revival on Super Tuesday, there is no pragmatic solution combating Coronavirus. What is a kind of solution is a vaccine development whose production is expected after months to more than a year. So far, it looks good news are lasting and shadow of bad news ahead.

Flybe, one of the largest regional airlines in Europe, is dragged into administration. Even before the Coronavirus outbreak, Flybe has 40 years of its history and had expected to have a rescue deal to manage the difficult situation. Its employees' jobs are at risk.

China is pushing their business back to normal as much as possible, but the recovery is not enough for global economy. Outbreaks in other parts of the world are spreading faster and faster.
After all, consumers' demands are fading day after day as Coronavirus spread, except for panic buying at some supermarkets. The new James Bond film, which was planned to be released on April, was postponed until November.

The atmosphere surrounding the world is becoming reminiscent of the financial crisis in 2007-2008. The financial crisis 2007-2008 stemmed from credit crunch. The recent financial uncertainty is caused by the fear of epidemic and its economic effects. But the epidemic could not only lead travel industries including Airline companies like Flybe into the dark, but also cause domino effects in other industries, including financial industries.
Airline operators are financed through Structured finance, so called Aviation finance or Aircraft finance. They rise funds in both equity and debt for multi-billion dollars to purchase their Aircrafts to operate. The expected revenue is a source of the repayment and is supposed stable without such pandemics or wars. Reduction of the scheduled flights leads to their revenue cuts. Apart from the basic measures, business insurance or collaterals to avoid delinquency, they may have to cut labor costs. It has started already. (See below)

Sky News: Virus turbulence could give airlines cover to make cuts
Lufthansa, Germany's largest airline and the third-largest in Europe by stock market value, unveiled a cost-saving programme in which it will suspend new hires and offer employees unpaid leave in an attempt to mitigate the financial impact of coronavirus.
...
And it was revealed that KLM, which is the Dutch arm of Air France-KLM, Europe's fifth-largest carrier by market value, is to delay all IT and property projects that have not yet got underway and will be suspending hiring in certain departments.

Even such big names like Lufthansa and KLM struggle due to the Coronavirus outbreak, needless to say that the smaller operators suffer badly. In case that cost cutting is not sufficient, the subordinated debt repayments are first affected and the operator maybe forced into insolvent when senior debt repayments are failed. The insurance companies have to recover the loss, but the pandemic bring such unfortunes for virtually all the airline operators and travel related industries as chain effects. It can be a global credit crunch that we don't know the exact figure yet.

The financial markets have experienced some sharp up and downs for the last 10 years, but they are nothing more than the financial crisis 2007-2008, aren't they?  The Caporegime knows what happens now, perhaps.

Brexit just made another market turbulence but see it in longer term

Brexit brought another turbulence into the financial market, GBP diving around 10% against JPY,  USD and massively down against other currencies.

This is absolutely massive scale, but is it so fresh? It is not. Nowadays, many people tend to forget something past so quickly as perhaps flood of information from the internet and media. Remembering just 1 year and a half ago, Swiss Franc (CHF) shot up around 15% against GBP, obviously whose scale is more than Brexit impact.

Lehman crisis had a clear message of credit market overestimated, and in fact that one biggest bank collapsed in public. So it is normal that people do not want Lehman's shares any more. 

Unlike insolvent, nothing will change from next Monday for British people's life drastically. To establish Brexit deal. it will take more than 2 years.

It is clear that British economy entered the unexplored zone meaning uncertainty. Detailed pros and cons are not on the main topic of referendum, but more or less driven by populism. Further research and publication make clear that economic effect at Brexit. Even a single sentence in EU constitute may clash GBP value.

It is understandable to sell GBP as its expected uncertainty, but why they buy JPY?  Looking at sovereign ratings or banking industry's ratings, there is no sign of strong-buy JPY. It had been traditionally always happened, but without economic reason, it is another sign of bended market.

As another trend, Gold price has started rising after years of downward trend.

By the way, keep eyes on Spanish election on Sunday

>> Brexit could influence Spanish election amid surge in support for hard-left party

British Pound remarkably low against major currencies 25-Feb-2016

Since the beginning of this month, GBP has sharply gone against major currencies such as USD, JPY, AUD or NZD though GBP peaked out in last Autumn of 2015.

Compared with the level at the end of 2015, GBPJPY got the sharpest decline more than 12.0% down, GBPUSD is following down at 6.0%, and even against AUD and NZD, GBP has gone down 5.0% and 3.6% respectively.

Due to the rate cut of AUD and NZD for a last few years, GBP and other currencies have been relatively stringer against AUD and NZD whose interest rates are more stable now than before.
However, even though their rates had been cut, the policy rate in

Australia is still 2.0% and it is 2.5% in New Zealand while the rate in England is only 0.50%. Also looking at the credit rating of sovereign debts of them, S&P rated AAA (stable) for Australia, AA (stable) for New Zealand and AAA (negative) for United Kingdom. Simply thinking, Australia has better credit rating and more interest rate, which of Australian or English debt do you want to invest?

We cannot miss out that global stock markets have been downward and volatile since the beginning of the year. The market shows

some symptoms of financial crisis, particularly strength of JPY and weakness of GBP. Remember Lehman crisis 2008, JPY had been the strongest currency in the market.
What happened in crisis probably happens now again, it is still a question from the view of investment because Japan has S&P rating only A+ (stable) and negative interest rate at -0.1%. Do you want to invest?

2015 was geopolitically unstable year, and 2016 will be economically and (geo)politically unstable due to the volatile market, US president election, Brexit, Spanish goverment, ...


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Bank of England will reveal Financial Stability Report+ on 1-Dec Tuesday 29-Nov-2015

Bank of England will release Financial Stability Report on Tuesday, which include stress tests for high-street banks such as HSBC, RBS or Barclays. Those high-street banks are expected to pass the stress tests without failing, according to the analysts.

the guardian >> Forget Black Friday. Forget Super Thursday. It’s Mark Carney’s Super Tuesday!
Super Tuesday, as some City analysts have decided to call it, brings together the Bank of England’s annual MOT of banks’ financial strength with its twice-yearly assessment of risks to the financial system. It’s not to be confused with Super Thursday – the Bank’s quarterly bombardment of economists with information on inflation and interest rates.

Central banking used to be rather a dull business, but the dry data releases and policy pronouncements are now treated almost like the announcement of Adele’s next tour. Mark Carney, the Bank’s governor, is supposedly either a rock star or a George Clooney lookalike, depending on who you talk to.

The so-called stress tests cover the high street banks – HSBC, Royal Bank of Scotland, Barclays and Lloyds – plus Santander UK, Standard Chartered and Nationwide building society.

Analysts don’t think any of the lenders will fail the main test. The real action could be a clampdown on consumer lending after the Bank’s chief economist, Andy Haldane, said the Bank was keeping an eye on rising household debt. Maybe Tuesday won’t be all that super for the banks.

Mentioned in the guardian's articles, household debt has to be kept on eye because mortgage loan is vulnerable to the interest rate rising. Once concerns raised about if rate rising will suffer household debt, Bank of England probably hesitate to increase the interest rate. Similar story was seen in Australian mortgage a year ago.
Anyway, if expectation for upside of the interest rate wiped off, GBP could decline for a while.

Credit Default Swap market signals another trend? 26-Sep-2015

Since the beginning of this year, global financial market have been volatile and chaotic in uncertainty of geopolitics and economics. You easily remember Chinese stock market crashed recently, but we have experienced several events from beginning of 2015, which have driven the market.

(Remarkable events in 2015)
 Jan 2015: Swiss Franc Jumped 30% - 40% against Euro, and massively gone up against other currencies.
 Jan 2015: Greek election. SYRIZA lead by Alexis Tsipras became a leading party in Greek government.
 May 2015: UK general election. Although the leading party is Conservative party lead by David Cameron, opposition parties are restructured in larger scale. Labour and Lib-Dem lost certain number of seats, but Scottish National Party (SNP) got more seats.
 Jun - Sep 2015: Chinese stock market have continued going down, and other market including in UK, US and Japan have declined.
 Aug 2015: Chinese yuan (CNY) has been devalued.
 Sep 2015: Refugee crisis got attention. Number of refugees in this year became record high in Germany.
 Sep 2015: Volkswagen's emissions scandal. German car industry could face slowdown.
 Long term trend 2015: Natural resources including crude oil and iron ore, the price continues going down.
 Long term trend 2015: Currency has been weak in emerging market, including BRL, ZAR, MXN, MYR or PHP.
 Long term trend 2015: Currencies of natural resources provider, such as AUD, NZD and CAD has been weak as the interest rate has been lowered.


By the way, today's subject is about Credit Default Swap (=CDS) market. While such events have been occurred since the beginning of 2015, CDS market indicates some sense of another trend.
CDS market might be unfamiliar with some of you, but it is basically measured in credit spread for each entity. When the spread is widen, the market expect the referenced entity is losing its credit. When the spread is tighten, the market expect the entity is getting credit.

Around 2010 - 2012, it was sovereign  bond crisis, particularly Greek bond yield has shot up record high. 10 year Greek bond yield has gone up 25% - 30% at the peak. Since then, the market has been calm down. Compared with that time, the credit market is still stable.

However, CDS spread have been widening in some economic zones since early 2015. For example, Spanish banking industry have been getting wider spread sharply. Spain is facing political uncertainty about discussion of Catalonian independence. A political party, Podemos, could add another shot into the market.
On the other side of the planet, Australian banking industry have been getting wider CDS spread, too. Australian economy highly depends on Chinese demand, and the demand has been slowing down since beginning of this year. Chinese stock market crisis may drive the Australian CDS market further.
American, British, German and Japanese banking industries are relatively tighten.

It may be too soon to say crisis about Chinese stock market crush. It could be just the beginning of chaos.

If you have confidence to change this uncertainty to profit, Forex Signal by QROSS X will help your forex trading.

Greek referendum, impact at EUR 4-Jul-2015

Back to 1 year ago, Jul-2014, EURGBP was 0.790 - 0.800. It is now 0.713 significantly down more than 10%. It is mainly because of intermittent quantitative easing by ECB and Greek election on Jan-2015 which resulted SYRIZA's win.

Greek referendum, Yes or No?
Greek people are voting for whether they accept the proposal from the creditors, European Commission, ECB and IMF.
The poll indicates "Yes" is slightly supported than "No". We won't have no idea of the result most likely. Leading party, SYRIZA, has basically support "No", particularly Greek finance minister Yanis Varoufakis.

Ref.
Greek referendum poll shows 'Yes' 41.7 percent, 'No' 41.1 percent
TV poll puts 'Yes' vote marginally ahead before Greek referendum
Greece debt: Varoufakis accuses creditors of 'terrorism'


What about EUR?
Some sources say result of the referendum will not change the situation as bail out program has been terminated on the end of last month, but it still may affect to FX market against EUR.
"Yes" means Greece will accept the proposal from the creditors. If it is agreeable for both sides, Grexit and its default are unlikely to happen soon.
If the result is "No", the worst scenario is Greece being default before or after Grexit. No matter which Greece exit from Eurozone, the related debt is default, which was denominated in EUR. It implies credit of EUR currency will be deteriorated, and it leads to EUR become weaken against other currencies.

Ref.
What might happen if Greeks vote ‘yes’ — or ‘no’ — on Sunday
Greece Referendum: What Happens If They Vote ‘No’


By the way, the trend & momentum on QROSSX.com indicates unclear signal whether EUR is go up or down...


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Bond market is still far away from last crisis level 7-Jun-2015

Since beginning of this month, Jun 2015, the bond price has gone down sharply, rising government bond yield. Media reacted to the market as if another crisis is coming.

[10 year government yield]

Considering the economic situation, such as potential collapse in financial aid for Greece where the leading party of government is rejecting proposals from other European countries, the debt market could be crashed once such crucial event is triggered.

[10 year government yield except Greece]

With in last two years, the government bond market has been hot in some major economic zones, including UK, US, Japan or Germany. Since the market trend was almost single direction, the yield going down, the trend reversal could be occurred in natural manner.

However, even the government yield has hiked recently, it is too early to see the market crisis. The  chart describes the yield of 10-year government bond. The most of them still stays around record low level of the last decade. Particularly in Greek, Spanish and Italian bonds, the yield is still far lower than those under the European debt crisis in 2011 - 2012.

(CNBC) Pay attention to the chaos in the bond market
(The Telegraph) Global bond market suffers from erratic swings amid liquidity drought

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Probability of Default for average person 12-Dec-2014

Probability of Default is shortly called PD, the probability that individuals or entities become insolvent.

Although the most of people earning average salary may not think of their becoming insolvent near future, mathematical analysis shows certain level of the probability of default for average people.

(Example 1)
 UK household
 Employee
 30 - 34 years old
 Savings: 5,000 [GBP]
 Salary: 30,000 / 1Y [GBP]

 Bonus: 5,000 / 1Y [GBP]

 Expense: 15,000 / 1Y [GBP] + Loan repayment

 Loan 15Y: Outstanding 150,000 [GBP], repayment: 900 / 1M [GBP]

Probability of Default is 72.0% for next 15 years. (35.0% for next 10 years.)

(Example 2)
 US household

An US household

 Employee
 30 - 34 years old
 Savings: 4,000 [USD]
 Salary: 45,000 / 1Y [USD]

 Bonus: 7,000 / 1Y [USD]

 Expense: 30,000 / 1Y [USD] + Loan repayment

 Loan 15Y: Outstanding 120,000 [USD], repayment: 750 / 1M [USD]

Probability of Default is 72.2% for next 15 years. (36.0% for next 10 years.)

The analysis is based on mathematical models. Future income, expense and employer's credit are modeled as uncertain factors. It does not take into account changing jobs or financial assets other than own savings.

You can quote your own Probability of Default at http://www.iamdefault.com/AnalysisInput.php.