Currently viewing the tag: "Germany"
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: EUR bounce has frail foundations, sell rallies leaning on EUR/USD1.2727
EUR price action has looked more constructive in recent weeks, having bounced to the 1.2407 resistance line at the start of the month finally punching through this on Tuesday amid on-going hopes that European officials were ready to be more interventionist in tackling the debt crisis. This speculation had culminated in a Der Spiegel article suggesting the ECB was looking at a plan to cap periphery yields at specified levels which has proven so exciting to participants that even ECB and Buba downplaying has been shrugged off. Indeed, the market is so optimistic that German 2-year yields brushed back into positive territory this morning as EUR/USD itself trades in the 1.2450/60’s, shrugging off a weaker equity market performance on the back of more worrying data out of Asia, specifically the Japanese trade numbers which showed an alarming 8.1% y/y drop in exports with sales to China falling at 11.9% and to the EU down an alarming 25.1% from a year earlier.
Full report below…
View: Negative Schatz yields to become the norm, equity correction a selling opportunity
There seem to be two scenarios currently; the first being that European ‘can kicking’ will continue, and despite things looking like they might totally implode at any moment, they will somehow manage not to for the visible future. Quite what this can kicking achieves of course is beyond us, it’s a bit like that drunk who knows that tomorrow is going to be a write off, so might as well plough on with those Jaeger bombs regardless. If we had to nail down the date of tomorrow in this context we’d say between the start of September and end of October 2013, the probable dates of the next German election and Octoberfest. The alternate is that can kicking is actually no such thing, it merely reflects policy paralysis and that the core/periphery divide is unbridgeable. The steps that appear after EU summits are vague and tied to such extended timelines directly due to this. The hard line taken by both Finland and the Dutch is telling, neither seem willing to compromise on the austerity driven solution despite the fact that we’re way past the point where this is really a valid crisis response. Signs of German compromise seem to have hardened their stance if anything. The ECB meanwhile refuses to act, believing that it is the responsibility of politicians, oblivious to the fact that consensus politics can’t achieve much with such disparate agendas. Some might say there is a third scenario where a workable strategy that allows the Eurozone to rebalance and grow slowly emerges, we’d just say good luck with that.
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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…
View: Key EUR/USD1.1700/1.2000 long-term pivot zone now the draw
EUR/USD’s decline continues at a rather precipitous pace, the rally in the early part of the week snuffed out as soon as first resistance was hit at 1.2825, and following the weak German Ifo number on Thursday morning the pair slid to new multi-month lows sub 1.2520 before bouncing. And to make matters worse the flash PMI’s continue to point to an imploding regional economy, the Eurozone composite miss at 45.9 vs. 46.6 consensus the weakest read since June 2009, oh dear. It would be even worse were it not for a still resilient German services PMI number (52.2 from 52.0). At least this data moved with trend, the reversal in Ifo is more serious in that it shows that the resilient survey data which some have been clinging to is finally beginning to catch up with weak German real economy data, something we’ve discussed previously.
Full report below…
View: DAX bounce should be used to rotate to US equities
You have to admit the equity bulls have control when a batch of very dire European PMI releases are shrugged off when a modestly higher US equivalent turns up later in the afternoon as was the case on Monday. It is perhaps more surprising given that this was the manufacturing survey, when we all know that in the US services make up 70% of the economy and the (currently rather cold) boiler room of the European economy is those hyper-efficient German manufacturers. Of course the market had already had a heads up following the flash European numbers but it’s hardly as if US consumption is going to come to the rescue of Europe, in fact there has been debate on how weak European demand is dragging on growth in Asia.
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View: Tighten stops on DAX longs, start looking for a trigger to sell EUR/USD
Approving the Greek bailout failed to create that watershed moment that we had earlier hoped for, political bickering seeing to that. In the end, the whole process proved another example of how deep the divisions in the Eurozone are, to the point that opposing sides are happy to elevate what are effectively irrelevant points to the level of deal breaker. Indeed, it seems ridiculous to place so much weight on what Greece’s debt/GDP ratio might be in 2020 when the measures forced upon the country to get there will simply reinforce the downward spiral the economy is already in, ensuring the target is missed. The fact the Troika think 120% debt/GDP level is sustainable following what would amount to a decade of austerity is even further outside the box of rational thinking.
Full report below…
