Another crazy day. SPX broke down from the channel, euro making new lows, curves flattening and yields and CDS prices at record levels. In US, the treasury bond yields moved to new lows in classic safe haven-type of a move. Troika's mission in Greece begins with statements like "nothing has been done for months" and "the debt have to be restructured again". Greece is really a lost case, but someone has to deal with Spain, now. No word on countermeasures as of yet, but the policy choices are very limited: full classic Troika bailout of Spain with haircuts and ECB printing.
Personally, kicking Greece out, unsterilized bond purchases with haircuts and higher inflation targeting might still save the day, especially if this would be combined with a partial/conditional (but not open for interpretation!) guarantee of Spain & Italy by Germany.
Quote of
the Day: EU Banks are able to source essentially unlimited liquidity from the
ECB. As a result, Euribor futures and the Euribor-Eonia basis are not a good
measure of market stress. Rather, the front end of EU sovereign yield curves,
which do not have ECB support, is a better measure of that. – Global
Macro Trading
Joke of the Day: As we have gotten into such a stable interest rate- and currency environment, we can now concentrate on the real tasks - Chief Editor Markku Huusko / Uusi Suomi (today!)
News –
Between The Hedges
Markets – Between
The Hedges
Recap – Global
Macro Trading
The Closer
– alphaville
/ FT
Market
Commentary – A View from My Screens
Tyler’s European Summary – ZH
Europe Smashes All Market Records On Its
Way To Total Insolvency
Tyler’s US Summary – ZH
Gold
Outperforms But Hilsenrath-Rally Fails, As VIXophrenic Equities Converge To
Bonds YTD
Debt
crisis: live – The
Telegraph
The Euro
Crisis Blog – WSJ
FX Options
Analytics – Saxo
Bank
European
10yr Yields and Spreads – MTS indices
EURO CRISIS
Josh Rosner: Eurozone Crisis – No More Safe
Havens – naked
capitalism
The longer it takes for political leaders to
offer their constituents full disclosure and transparency, the more costly any
solution will be.
As the pressures toward disintegration of the
euro increase and the deep social unrest in Spain, Italy, and other countries
erupts, the INET Council of the Euro zone members felt compelled to issue a brief report
that creates a vision of how the euro zone could be repaired and redesigned at
this desperate juncture.
Under the new regime, France is now cozying up to
its new anti-austerity, pro-money-printing allies, Italy and Spain. This makes sense
when one considers that France's economy is more
akin to that of its southern neighbors than it is to the German economy.
Strangely, the French bond market hasn’t figured this out just yet.
Dominoes – David Kotok / The Big
Picture
We are beyond worry about Spain… The biggest country
to worry about is Italy… France is the second largest
country in the eurozone… French wealth is leaving France.
The never-ending crisis – Buttonwood’s
/ The Economist
It has been
tempting, on many occasions, to feel that the end game must be in sight… The
temptation is strong now…
Under these circumstances, “ambitious muddling
through” is both the most likely and the most promising scenario. It will not
be easy, and it will not allow time for complacency, given that the EU is most
likely to remain in crisis mode for some time to come. But it is probably the
only way to keep Europe moving forward.
Who Warned About the Euro First? – The
Euro Crisis / WSJ
This is not a surprise, but the market is now
assigning a significantly higher probability of default to European investment
grade corporate credits than to US firms.
Germany in Recession: Private Sector Sees
Fastest Falls in Output and New Business Since June 2009; New Export Orders
Collapse – Mish’s
EURO CRISIS: SPAIN + OTHER PIIGS
UBS FX Strategy note and couple of lines from GS as well
his first trip to the country since the outbreak
of the financial crisis – “nothing special”
Only fools pay tax, Greek edition (encore) – alphaville
/ FT
FED
WSJ: Fed Moving Closer to more Accommodation – Calculated
Risk
A Missing Ingredient – Tim
Duy’s Fed Watch
the Federal Reserve made a huge policy error in
committing to an explicit 2% inflation target.
I think policymakers were under the impression that such a commitment
would give them more flexibility by removing concerns that QE would be
inflationary. In reality, I think
it had the opposite effect
The academics on QE… for now – alphaville
/ FT
The unconventional measures were generally seen
as effective in preventing deflation at the zero lower bound through the
signaling effect. However, economists do have contrasting opinions on the
magnitude of QE’s price impact.
ASIA
Of most concern for the Australian economy is
the pace of China’s imports. In China, while another rate
cut is possible, we believe more action will be focused on cuts to the reserve
ratio requirement.
Jokohan nyt uskottaisiin? – Hannu Visti
Jälleen on kokeiltu
yhtä laastariratkaisua ongelmaan, joka ei ole laastarilla korjattavissa.
Moody’s antoi
Suomelle AAA – mutta miksi ihmeessä Suomi parempi kuin Saksa? – Tyhmyri
Asiakkaamme eivät ole
Euroalueella mutta pahimpiin kuuluva kilpailija on – eurosta vain haittaa? –
Tyhmyri