Currently viewing the tag: "ESM"
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: Bears should have much better levels to play from, 1.63% the key level for Bunds
Quite how far this risk on move can go is hard to say, much of the detail of the Draghi plan was leaked ahead of time but still there was a rush of new money into risk assets once the OMT was formally unveiled and this morning’s German constitutional court decision was equally unsurprising in its outcome, even the oversight the Court requested with regard to the level of German contributions to the ESM.
Full report below…
View: OMT helpful, but not unexpected. Should temper Fed doves demands for easing
While the crux of what the ECB was working on was well flagged in advance of Thursday’s policy meeting thanks to the usual ‘official’ leaks there seems to have been enough doubters to trigger a very positive market response to the official unveiling of its new bond purchasing plan. It is perhaps partly down to timing; we didn’t actually expect such explicit detail until the German Constitutional Court had dealt with the ESM issue and the fact that there was not any immediate pressure to finalise a strategy thanks to effective verbal support over the summer was another reason to pursue things in the usual Eurozone timeframe, i.e slowly. Furthermore the hostility of the Bundesbank to debt monetisation, as they see it, was (and still is) problematic. It appears Draghi just accepted that this wasn’t something that could be resolved with Weidmann clearly the sole dissenter when the board came round to voting. Another factor might be worth mentioning is the proximity to the FOMC meeting from which the market also expects support, admittedly aimed at addressing growth rather than solvency/survival of the Euro. We’d normally have expected some buck passing to the more proactive Fed, although in this instance the opposite might be true, more on that later.
Full report below…
View: Draghi’s comments should draw EUR/USD back to selling levels, m/t trend bearish
Reading some amusing comments reacting to Draghi yesterday, the best so far being ‘there won’t be a Euro short left once the ECB has finished’ (to paraphrase) which we’ll have to put down to heatstroke. Fundamentally the best adjustment mechanism to help peripheral realignment is a weaker currency. The other ideas such as the confidence the economies will receive from effective fiscal consolidation and the structural reforms that sit alongside this prescription sound nice but are rather ineffective in the shorter-term and overlook the recessionary pressures that are resulting from them, most evident in the Greek death spiral. ECB medicine is likely to be equally ineffective as we know that the central bank itself is one of the key proponents of the austerity model and German opposition to bond buying will continue to obstruct. We don’t think another LTRO would be a game changer or for that matter another rate cut, already justified by the inflation outlook. Perhaps the aim is just to buy time over the summer. Furthermore the kind of firepower needed to really rebuild confidence will continue to lag what is needed, evident in the sums the EFSF has and ESM has to work with.
Full report below…
View: Banking/Fiscal union something for a smaller Eurozone, we dislike French debt
Global markets response to the Spanish bank bailout is interesting, it appears that investors have become a little more confident they can compartmentalise the situation while at the same time seeing the package as insufficient, which is most clearly visible in the diverging paths of equity markets and Spanish bonds. The poor performance of this market is clearly understandable given the structure of the package will be detrimental to existing SPGB holders, effectively creating a €100bn tier of debt that sits above them on the creditors list (assuming it is channelled through the ESM), something we know from Greece is never good. Furthermore the actual sums involved look unlikely to be sufficient, even the Spanish government acknowledges that there are still significant downside risks in the property market. New guestimates from JP Morgan have suggested the sector might need €350bn in total, ouch. It doesn’t look particularly good for some of the other creditors, Italy for example will have to fund its contribution in the markets at 6% while lending to Spain at 3%.
Full report below…
