This seems to be the question of the day as the markets awoke to the RUMORS of the ECB CAPPING RATES. As I wrote last night, the rumors were running wild about the ECB using different strategies to put a ceiling on short-term debt (90 days to 3 years for Spain and Italy). No genuine plan was offered just several possibilities as it seemed that President DRAGHI was floating trial balloons about ECB intervention via an unlimited ECB/ESM buying of “misaligned” sovereign debt. The EUROPEAN SOVEREIGN DEBT MARKETS responded to the weekend stories by initially rallying the ITALIAN DEBT FUTURES AND SELLING GERMAN BUNDS IN A MAJOR RELIEF RALLY.
Posts Tagged ‘Ambrose Evans-Pritchard’
All eyes are on Europe: And I am not talking about the wide, wide world of sports. It seems that the European financial situation has “worsened” as the Spanish yields exploded on Friday sending the Euro stock markets into a sizable selloff. Remember the outcome of the June 29-30 meeting of the Euro policymakers? All the EUROCRATS were celebrating the victory of PRIME MINISTERS RAJOY AND MONTI‘s victory over the IRON CHANCELLOR, Frau Merkel. It now seems that the victory was PYRRHIC as the markets are now testing the resolve of the ECB, EU FIN MINS and, ultimately, the IMF. As with any TROIKA, if all the horses are not pulling together the wagon is very unstable.
Almost 67 years ago, U.S. General McAuliffe told the German command that the U.S. forces at Bastogne would not surrender and actually said it in a one-word response: NUTS. In a parallel response to German/Franco demands that all European nations surrender their sovereignty by succumbing to a “FISCAL COMPACT”, British Prime Minister David Cameron basically said the same as the U.K. moved to cast a veto vote on the proposals that resulted from the European Summit.
Even as the rumors of a massive IMF intervention to support Italy faded into the New York close the equity were buoyed by the robust start to the HOLIDAY SHOPPING SEASON. Increased sales and no bad news from Europe left the risk on (deleveraging halted) for at least another day. The 2/10 Italian curve aided the rally as the curve MOVED 50 BASIS POINTS AND CLAWED BACK TO A POSITIVE SLOPE. IN YESTERDAY’S BLOG IT WAS NOTED THAT THE 2/10 CURVES OF THE SPANISH AND ITALIAN DEBT MARKETS WERE NOW AN IMPORTANT INDICATOR OF DEBT STRESS AND FEARS FOR THE ECONOMIES OF THOSE ON THE PRECIPICE OF CRISIS.
The news has been more than dismal for the last three months and the equity markets have certainly reflected fears of a renewed global recession. However, as interest rates are being held at historically low levels and growth continues to stall, the idea of a DEPRESSION is making its way onto the opinion pages of financial news.
As the sellers of snake oil and the creators of the corporate cult of personality take their “bows” for breaking the story about the European bailout that roiled the global equity markets, I had to step back and realize that the European Polity is not the U.S. While Geithner and others are held captive to the vagaries of the DOW JONES and S&P, it seems that the Europeans, and, especially the Germans, are not enthralled by markets going up and how many days of a winning streak exist. There are actually decision makers who are not captured by the price of Deutsche Bank or Siemens. In the U.S. it is only the stock market reactions that seem to dictate the decisions made in Washington. Some in Europe seem to want to effect policy for the longer term regardless the cost to certain financial entities. If forcing the issue on how large a hit private bondholders are to take means that markets dive … so be it.