The European debt news is getting stale as the accusations and denials from all the main actors in the drama are getting tiring, to say the least. The on-again, off-again political agreements are causing the markets to suffer vertigo. We caution Frauline Merkel that if she fails to achieve German control of the ECB, her government will suffer a tremendous decrease in authority even if the ECB does not fall. The contagion of the DEBT problem does seemed contained as the Spanish, Portuguese, Italian and Irish bonds all seem to be holding to their recent differentials versus the Germans. It may solely be due to threats leveled at hedge funds and other market players if they continue to pressure the European debt markets through the use of credit default swaps and other speculative instruments.
When U.S. markets were under similar assault back in the summer of 2008, then-Treasury Secretary Hank Paulson cautioned the markets that he had a bazooka he could utilize to halt the market ravages caused by speculative excesses. Today we read of threats from Luxembourg’s Prime and Financial Minister, Jean Claude Juncker, who said if the market contrives to speculate against Greece, “we have the torture equipment in the cellar, and we will show them if needed.” Can the difference between the Americans and the Europeans be more stark? If we were going to challenge a government, we would take our chances with the torture instruments–of course with our eyes wide shut. Mr. Juncker better understand that the market s will challenge his threats just as they did to Hank Paulson, only to find out that his bazooka was a water pistol.
We report that the RBA raised interest rates tonight, from 3.75% to 4.0%. Glenn Steven, RBA governor, cited the thaw in global credit conditions as well as the new found growth in the global economy. Stevens also noted that because Asian credit markets were not under stress, growth in Asia has been sustained to a much higher level then the rest of the world. The crux of the RBA statement deals with the strength in Asia and the need for the Aussies to get interest rates back to trend. The Aussie has sold off about 30 pips since the announcement, as the long AUSSIE trade is a very crowded arena. It will be important to see if the AUSSIE DOLLAR can hold its support levels even in what appears to be an overbought market.
On Tuesday morning, 8:00 CST, we will hear from the Bank of Canada on its rate decision. The market is anticipating a no-change from the current 25 basis points. We will pay attention to the BOC statement to see if its decision is motivated by the strength of the LOONIE. If the motivating force to stay on hold is the strength of the currency , we would look for the Canadian Dollar to be initially sold. Oh well, back to looking for a new leather outfit.
March 2, 2010 at 1:14 am |
Your hedge fund speculation is interesting…they have to know that if they get too greedy now, ‘set fire to the neighbors’ so-to-speak, the game could end quickly & ugly.
March 2, 2010 at 2:10 am |
whats your current take on the GBP YRA?
March 2, 2010 at 4:16 am |
The british pound to me is a very good example of the power ot the technicals —-they told the story very well.The politics are not as bad as some are portraying .The Brits and Mervyn King are happy the currency is weakening as they attain some short term competitive advantage in the trading arena.We should begin to see more foreign buying of british assets similar to the Cadbury deal as British aseets are deemed to be cheap.I am starting to see some divergence in that British listed equities in the U.S. are not slipping as much as the currency —which is unusual as most of the time the currency weakness is arbitraged away thru the stock price.
March 2, 2010 at 1:28 pm |
Thanks Yra for this… Really appreciate your insightful comments!