View: Periphery debt tempting, short Bunds great risk reward at current levels
Gloom continues to dominate Eurozone investor’s thinking with the market reluctant to buy into the idea that there are now adequate backstops (ESM, OMT) available to finally stabilise the debt crisis, continuing to focus on the always distracting political noise. This seemingly forgets as to just how the Eurozone crisis has developed over the past three years or so, specifically just how long it takes for the numerous political factions forging those numerous ‘breakthrough’ agreements to find a consensus on the critical final details. Furthermore one can see from previous bailouts that the longer one generally stalls the easier conditions imposed eventually are, making foot dragging an essential component. Of course the Greek problem remains but even there there seems to be a realisation among the core that it is better to keep the patient’s heart beating than force the country out; at least immediately – which means this side of next year’s German federal elections. In fact senior politicians from both sides have been clear about this over the past couple of weeks.
Full report below…
View: Spain ‘worries’ totally predictable, PM Rajoy’s delaying tactics all part of the game
Watching the Eurozone crisis unfold is a bit like sitting down to watch a few Road Runner cartoons, we all know Wylie Coyote is going to run over a cliff at some point we just don’t know what sort of pain and suffering he’ll go through first and the particular shape he’ll form when he hits the bottom. In these terms one could well compare the market to a four year old, deriving endless surprise, dare we say enjoyment, from what is a tried and tested formula. And so we find ourselves with panicked headlines from Spain once again with the usual media tarts rolled out with a new damning indictment on why the project is doomed, a scenario as predictable as any of those classic cartoons.
Full report below…
View: Close Short Bono, short EUR/USD, tighten DAX stop. EUR/JPY longs appealing
The market moves of the past week have been interesting, particularly the performance of Eurozone assets which once again have proven rather resilient to local pressures even as global markets sold off on the back of these very drivers. We have a few positions looking for a worsening of things here but they are not really performing as expected, in fact Spanish 10-year bond yields are now off 17bps from the recent intra-day highs and spreads to bunds have tightened back to (a still stressed) 475bps. While mid-term the path is to higher yields, at this point taking profits on shorts might be prudent and we close our short recommendation from May 3rd accordingly at 6.19% (+37bps).
Full report below…
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