"Armageddon Risk" Returns: North Korea Predicts "Catastrophe" As Massive U.S. War Games Begin Monday

Traders barely had time to enjoy the lull from the "Armageddon trade" - the rising possibility of a nuclear exchange between the US and North Korea, which peaked over the weekend when various US officials said a nuclear war is not imminent, echoed by a statement by N. Korea's state-run news agency KCNA, before a new set of worries promptly took over, chief among them the ongoing slow motion train wreck in Donald Trump's administration coupled with yesterday's double terrorist attacks in Spain. Alas, "nuclear war" risk is about to come back with a vengeance because on Monday US and South Korea are scheduled to begin joint military exercises, a massive show of force which every time in the past has infuriated North Korea, sometimes triggering a show of force.

Held every fall in South Korea, the Ulchi-Freedom Guardian war games are the world’s largest computerized command and control exercise. Some 30,000 U.S. soldiers and more than 50,000 South Korean troops usually take part, along with hundreds of thousands of first responders and civilians, some practicing for a potential chemical weapons attack.

Scheduled long before the recent diplomatic fallout between Washington and Pyongyang, the U.S. and South Korean militaries will simulate warfare with North Korea from Aug. 21 to 31, well aware that North Korea could respond with another missile test, according to McClatchy.

In light of this perceived provocation by North Korea, which will almost certainly prompt some reaction, Scott A. Snyder, a Korea specialist with the Council on Foreign Relations said “Over the course of the next two weeks I expect tensions to escalate. This is always a sensitive issue, but it is more hair-trigger as the North Koreans are very sensitive to the likely additional nuclear-capable aircraft flyovers.”

While the Pentagon has repeatedly stated that the biannual exercises are "defensive" in nature, both North Korea and China have long criticized them as a provocation and an affront to regional security. “There certainly will be some reaction,” said J.D. Williams, a retired Marine colonel and defense policy researcher at the RAND Corporation in California. He said he wouldn’t be surprised if North Korea conducted some kind of missile launch — not a test but a defiant demonstration of might.

As discussed earlier in the week, North Korea’s Kim backed off a threat to launch missiles at Guam, saying he’d watch “the foolish and stupid conduct of the Yankees” before deciding on the launch, a decision that Trump quickly tweeted was “very wise and well reasoned.” While the exchange suggested that cooler heads were prevailing in the latest U.S. standoff with North Korea. But next week’s war games could rekindle hostilities. On Thursday, North Korean state media declared that the military exercises will “further drive the situation on the Korean Peninsula into a catastrophe.”

It's not just North Korea: Beijing will likely be rather unhappy too.

The exercise, along with one in March, often triggers anti-war protests in South Korea and condemnation from China. While Chinese President Xi Jinping has been noticeably cool toward Kim Jong Un, and has been critical of North Korea’s development of nuclear weapons, China has long wanted the United States to shrink its military footprint in Asia, including some 12 bases in South Korea and Japan.

In an editorial Monday, China’s Global Times newspaper, an arm of the Communist Party’s People’s Daily, lambasted the decision by the United States and South Korea to go ahead with Monday’s exercises.

“The drill will definitely provoke Pyongyang more, and Pyongyang is expected to make a more radical response,” the newspaper said. “If South Korea really wants no war on the Korean Peninsula, it should try to stop this military exercise.”

In other words, China - which is largely expected to rein in North Korea - is already hedging in case North Korea does something impulsive, suggesting the exercise itself could be the provocation that sets Kim off. And set him off, it will: in the past North Korea has reacted strongly during the biannual war games. In 2014, the north fired off scud missiles during the March exercises held by the U.S.-South Korean command, called Foul Eagle.

During the 2015 Ulchi-Freedom Guardian exercises, North Korea and South Korea exchanged artillery and rocket fire over their border. That exchange came after two South Korean soldiers were maimed stepping on land mines in the Demilitarized Zone. South Korea accused North Korean soldiers of sneaking across the border and planting the land mines.

Last week, China and Russia urged the United States to consider a “freeze for freeze” agreement to reduce tensions. In such a deal, Pyongyang would agree to suspend its tests of missiles and nuclear weapons, and Washington and Seoul would agree to suspend large-scale military exercises. That, however, is not happening: U.S. military experts say such a deal would give a lopsided advantage to North Korea, which could continue its military training even as the U.S.-South Korea exercises were suspended. “It is hard to imagine why the United States would accept that, because of the vulnerability it would create,” said Bruce Bennett, a senior defense researcher at RAND.

In a media briefing on Tuesday, U.S. State Department spokeswoman Heather Nauert said the United States will continue to hold joint exercises with South Korea. And since North Korea will immediate see this "provocation" as a green light for a response, the respite that traders got from the "Armageddon trade" that sent the VIX soaring by one of its biggest and fastest intraday moves in history, may prove very short-lived. Perhaps the only silver lining is that the exercises don't begin until Monday, so traders don't have to do anything too crazy ahead of the weekend.

Fonte: qui

Italy's Monte Paschi Told To "Prepare For State Bailout"

On Sunday night, when we commented on the results of the Italian referendum, we said that while the Italian political limbo may or may not be an issue in the near term, a bigger problem for Italy will be the fate of Monte Paschi, whose 3rd bailout was likely doomed to failure after the failed referendum, which could unleash contagion upon the Italian banking sector at a very precarious time for Italy and Europe.

Overnight, we got confirmation of that from not one but two sources, with Italian Il Sole 24 reporting that the Italian treasury is considering “precautionary” direct state intervention to rescue the bank, a plan that has already been sketched out by Rome and Brussels. The lender’s executives are meeting with European Central Bank officials today and may ask for a delay to a non-performing loan sale that’s part of the bank’s capital increase plan, the newspaper said.

In an interview with Bloomberg TV, Marcello Messori, economics professor at Luiss University said that “the probability of finding a natural market solution is very very low currently, due to the fact that instability implies that international investors have a lot of difficulties to decide in the short term for a very important recapitalization" and added that the ECB may give more time “if there is a solution on the horizon.”

There may not be a solution, as both the company's stock price, which fell for the fourth consecutive day, down 2.5% and plunging 85% YTD, and as the FT adds. According to the Nikkei's subsidiary, "bankers are running out of private-sector solutions for Monte dei Paschi di Siena and have told the Italian lender to prepare for a state bailout this weekend after prime minister Matteo Renzi was felled by a referendum defeat.

While financial markets responded relatively calmly to the referendum result, people briefed on the situation said the political upheaval made it “more difficult” to secure a €1bn investment from Qatar on which Monte dei Paschi’s €5bn capital-raising plan hinges. Senior bankers fear that a failure to shore up the bank, which was the worst loser of this summer’s European bank healthcheck, could damage already jittery investor confidence about Italy’s overall banking sector, which is hobbled by €360bn of bad loans and weak profitability.

Ironically, the bad news comes just as there was finally some good news for the bank: on Monday, bondholders agreed to convert almost a quarter of the 4.3 billion euros of debt offered subject to the swap, in line with expectations according to final results released Tuesday. The problem is that this won't be enough.

The swap was “a very good result, but is just one part of the overall bank recap: what’s crucial for the success of the deal is the commitment from anchor investors,” Fabrizio Spagna, managing director at Axia Financial Research in Padua, Italy, said by phone. “I’m skeptical that there are subjects available to subscribe the equity, and the outcome of the referendum may add pressure.”

And it is the anchor investors who have gotten cold feet. According to the FT, JPMorgan and Mediobanca, advisers to Monte dei Paschi, have been working with Pier Carlo Padoan, Italy’s finance minister, to persuade the Qatar Investment Authority to pump money into Italy’s third-largest lender. But hope is fading that they can secure a deal by this week’s deadline.

Without the cornerstone investment from Qatar, the other parts of the complex plan to fill the bank’s €5bn capital shortfall are likely to collapse.

As a result, the FT cites a senior banker who said that if the private-sector solution proved impossible, the bank and its supervisors at the European Central Bank were likely to favour a “precautionary recapitalisation” — involving an injection of state funds and the conversion of subordinated debt into equity.

Which means another taxpayer-funded bailout is imminent.

The rest of the "Plan B" alternative is largely familiar: “Whatever solution is found for Monte dei Paschi, I believe there is a significant risk of contagion to other Italian banks in particular,” said Megan Greene, chief economist at Manulife Asset Management.

To avoid the politically unpalatable option of imposing losses on the €2bn of retail bondholders in Monte dei Paschi, a plan is being drawn up to guarantee full repayment of the first €100,000 to every junior bondholder, according to senior bankers.

Senior bonds and deposits would be left unscathed. The bank is also likely to press ahead with plans to hive off €28bn in soured loans to a securitisation vehicle supported by a government guarantee.

Should the worst case scenario play out, the biggest risk is not Monte Paschi, it is what happens at other Italian banks: “If Monte dei Paschi’s plan fails, then that spells bad news for the other Italian banks that need recapitalising,” said Patrick O’Donnell investment manager at Aberdeen Asset Management. “If Italy can’t sort out its banks, then they will be in a real mess. Once again Europe finds itself in a position where politics, the ECB and the banks are dangerously entwined.”

Finally, it's not just Italian banks who are on the hook. In a letter to employees Monday, Deutsche Bank CEO warned that events in Italy are "a harbinger of renewed turbulence that could spill over from the political arena to the economy – with Europe particulary endangered."  Not only Europe: Deutsche Bank too. Which is why when push comes to shove, Merkel and Schauble, who have both been vocal opponents of a state bailout will quickly close their eyes and ignore what is going on if the alternative means Italy's banking contagion jumping across the border and slamming Germany's largest bank which this summer saw its own stock price plunge to all time lows.

For now the rest of the Italian banking system is bid and as BMPS exits the halt, it is spiking higher.

But the credit market is crashing to near record lows.

Fonte: qui

P.S.: potete usare la funzione TRANSLATE di Google(sulla colonna di destra), selezionando prima un qualsiasi linguaggio e poi successivamente, l'italiano, per avere la traduzione automatica.