The news out of Europe today was not favorable for Greece as it was reported in the German paper DIE WELT that German Finance Minister Wolfgang Schäuble suggested Greece would need to restructure. Schäuble’s comments led the cost of interest rate on the DEBT of the peripherals to rise. By day’s end, Greek 2-year rates climbed to 16.8 percent. Portugal rose 25 basis points to 8.87 percent and Ireland increased 25 basis points to 8.20 percent. Spain’s bonds were also priced higher as rates increased 10 basis points. All in all, not a very splendid day for the European debt-stressed nations, but yet again the DOLLAR could not gain ground against the EURO as an initial DOLLAR rally faded quickly. It appears that some central banks are recalibrating reserves as even a DOLLAR rally seems to be so short-lived. The EURO has performed well even though it has the cloud of uncertainty overhanging its economic and political situation.
Posts Tagged ‘Wolfgang Schauble’
Notes From Underground: Hey Mr.Bernanke and/FED–GOD GAVE YOU TWO EARS and ONE MOUTH SO LISTEN MORE AND SPEAK LESS!April 14, 2011
Notes From Underground: Obama pushes for huge export growth while Geithner favors a strong dollar mantra–somebody is singing from the wrong sheetNovember 7, 2010
Friday’s U.S. unemployment data showed that job growth was better than estimated. This is insignificant as long as the FED has signed on to a continued dose of quantitative easing. In the eyes of the FED and its dual mandate, the 9.6 percent unemployment rate is a problem. As the economy improves, the unemployment rate will be sticky to the high side as more people re-enter the job market. If the FED solely focuses on the rate, there is no question that the FED will remain aggressive in pumping up the volume of liquidity. The U.S. action is not being positively viewed and the Germans are voicing the loudest criticism. In an interview widely broadcast throughout the world, German Finance Minister Wolfgang Schauble called the U.S. policy “clueless.”
In Saturday’s New York Times, President Obama had an op-ed in which he cited the United States’s need to double exports by 2015. At the same time, Secretary Geithner maintained the mantra of a strong DOLLAR policy. What needs to be addressed is that if U.S. exports are to become more competitive to boost sales, either the DOLLAR must depreciate or wages must decrease on a relative global basis. The easiest path from a political perspective is for the DOLLAR to depreciate and Geithner better get with the program. Geithner’s constant repetition of his strong DOLLAR MANTRA is being ridiculed as it flies in the face of the road that the FED has walked down. Again, we criticize all of Washington for its inability to coordinate policy as the different policy makers seem to all be singing from a different song sheet.
While U.S. data was better, the German factory orders were much weaker than expected. Analysts were mixed as to why factory orders fell so dramatically. Some blamed the incipient austerity in the PIIGS while some Germans pointed to the recent strength in the EURO as the main culprit. During the weekend, the Greeks went to the election booth and the regional elections were mixed, but the Socialists appeared to poll strong enough to prevent the sitting government to have to call new national elections. Another important concern in the Euro arena is the Portuguese debt situation.
Last week the 10-year Portuguese/BUND spread went out to record highs. However, on Friday the Chinese leaders were in Lisbon and made noises about their desire to buy Portuguese debt. If this proves out then the BUND/PORTUGUESE spread should narrow. If not then we will know the Chinese statement is mere noise and we can look forward to greater stress in the European sovereign debt markets.
If favorable news cannot remove the recent stress in the European sovereigns it will be time to worry about the PIIGS again. This week brings the G-20 meeting and we advise all to pay attention to what evolves from the conclave of world leaders. Let the posturing begin.