The markets were all waiting for a major statement regarding the European political situation and its effect on the financial system. It wound up being the most banal as it makes me wonder what leaders of the two dominant nations in the EU held back from the media and markets. The main point was the announcement about a financial transaction tax, but to say there were no specifics about the tax given would be hyperbole. The markets were expecting some statement about an increase of funds for the EFSF, but again, nothing. The EURO was initially sold but by day’s end the damage to the currency was less than minimal.
The biggest moves came in the BUNDS, which rallied, while the German DAX experienced a large drop in price. Based on the lack of substance to the post-meeting announcement the EURO SHOULD have been hammered. The euro did drop against the British POUND and some other currencies but did hold against the DOLLAR and the SWISS FRANC. How could the EURO have held? This question is relevant in the sense that it makes me think that more substantial policies were discussed but are being held back by the DYNAMIC DUO. So too have the ability to lay a surprise on the markets and punish those evil speculators that are undermining the hopes and dreams of the citizens of EUROPE.
Remember that so much of the policies of the EUROCRATS during the last two years have been directed at harming speculators and traders who have had the temerity to challenge the ECB and the DEBT-STRESSED PIIGS. The EURO at $1.44, with all the stress and buffoonery in EUROPE, leaves me scratching my head. Either there is more to Sarkozy/Merkel or the DOLLAR is getting ready for a steep fall. Certainly today’s action was a fine example of 2+2=5 as the operative view of the present state of financial markets.
The SWISS FRANC will be in the spotlight tomorrow as the SNB will provide insight in its plans to prevent the FRANC from appreciating and pushing the SWISS economy into a steep recession. There were several articles detailing the impact of a strong FRANC on SWISS CORPORATIONS, from Nestle to Swatch, sales have been negatively impacted by the haven status of the SWISSIE. The GOLD/SWISS–as was discussed in NOTES two weeks ago–has rallied as the GOLD is deemed to be the last haven that cannot be impacted by the political jawboning and the printing press. The time of the SNB and Swiss government’s release is not a hard time so those trading in the Swiss will have to be alert for sudden movements.
European QUICK HITTERS:
1. The 2/10 yield curve in IRELAND has done something interesting during the last week. While the IRISH curve had inverted before the increased activity by the ECB, it has now returned to a positive slope and is almost out to 200 basis points. Not sure what prompted this 400 basis point move but it certainly is a positive for the IRISH as the selling pressure on the 2-year note has subsided. If it is not just ECB intervention then it is a good development for Ireland.
2. It is not only the Germans that have hardened feelings about the PIIGS and their DEBT. The DUTCH are raising their voices in opposition to a EUROBOND and increased EFSF. The Dutch Premier, Mark Rutte, said, “We can’t have a transfer union, where money flows from north to south. Countries that don’t follow the rules need to be punished. I find all speculation about Eurobonds out of line, if you don’t handle this issue [of automatic sanctions] first.” Whatever Chancellor Merkel and President Sarkozy believe, Europe is more than just the French and Germans (and still the EURO stays firm).