Category: Countries & Regions

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Greece: Banks and Pols at Impasse

The debate over how to divide the costs of rescuing Greece is one of the central questions European officials hope to resolve at a weekend summit that comes almost two years to the day after a newly elected government in Athens admitted that the country’s finances were “off the rails.”

……On Wednesday evening, an unexpected gathering of top European officials and IMF Managing Director Christine Lagarde in Frankfurt failed to bridge a divide between Germany, which is footing much of Greek’s bill and supports larger private-sector losses, and France, which is more concerned about the impact of greater losses on its banks.

via Greece: Banks and Pols at Impasse.

My money is on Germany — and a bigger haircut for banks. Then the next headache is how to recapitalize the banks. The cause of the problem: Basel II allowed 50:1 leverage on government (including Greek) bonds.

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Draft Proposes Fast, Flexible Bailout Fund – WSJ.com

According to the draft guidelines, the EFSF would replace the European Central Bank in its role of intervening in sovereign-debt markets, but the EFSF’s scope for action would be more limited. The EFSF, for example, would only be allowed to purchase euro-denominated bonds in the open market that are issued by the public sector.

On primary market purchases—bonds bought directly from issuers—the EFSF purchases would be restricted to countries already receiving aid or precautionary credit and be limited to 50% of the total auction. Purchases of sovereign bonds in primary markets would require prior approval of European finance ministers.

The guidelines also…….. allows the fund to engage in limited leveraging of its assets.

via Draft Proposes Fast, Flexible Bailout Fund – WSJ.com.

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Forex overview

The euro is consolidating above $1.365; failure of support would re-test $1.315, warning of another primary decline. A 63-day Twiggs Momentum peak below the zero line would confirm a strong primary down-trend.

EURUSD

* Target calculation: 1.32 – ( 1.40 – 1.32 ) = 1.24

The pound retraced to test resistance at $1.59/1.60 on the weekly chart. Declining 63-day Twiggs Momentum, below zero, suggests a strong down-trend. Reversal below $1.53 would offer a target of $1.46*.

GBPUSD

* Target calculation: 1.53 – ( 1.60 – 1.53 ) = 1.46

Canada’s Loonie resembles the Aussie dollar: reversal below short-term support at $0.975 would test $0.94. Respect of the descending trendline would also warn of a decline to $0.88*.

CADUSD

* Target calculation: 0.94 – ( 1.00 – 0.94 ) = 0.88

The Aussie dollar is testing support at $1.28 against its Kiwi counterpart after completing a double bottom. Respect of support would confirm the target of $1.32*.

AUDNZD

* Target calculation: 1.28 + ( 1.28 – 1.24 ) = 1.32

The greenback is ranging in a narrow band above ¥76, supported by the Bank of Japan. 63-Day Twiggs Momentum holding below zero confirms the strong down-trend.

USDJPY

The greenback recovered above R8.00 on the weekly chart against the South African Rand. Expect another test of R8.50. Upward breakout would warn of an accelerating up-trend that is likely to lead to a blow-off.

USDZAR

* Target calculation: 8.50 + ( 8.50 – 7.70 ) = 9.30

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Aussie Dollar down-trend

Another monthly chart — this time of the Aussie dollar against the greenback. The decline of the last 3 months found support at $0.94 before rallying to a high of $1.04. Breach of the rising trendline indicates that the primary up-trend has ended; confirmed by bearish divergence on 63-day Twiggs Momentum and reversal below zero. Failure of support at $0.94 would signal a decline to $0.84.

AUDUSD

* Target calculation: 0.94 – ( 1.04 – 0.94 ) = 0.84

The daily chart shows consolidation between $1.01 and $1.04 over the last week. Failure of support at $1.01 is likely and would warn of a decline to $0.94. Breakout above $1.04 and the descending trendline is unlikely, but would indicate a rally to the July high of $1.10.

AUDUSD

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Tough Day For Our Calamity Economy | ZeroHedge

In other parts of the economy, early warning signs are also flashing. Capital One, one of the largest credit card issuers in the US, reported that 30-day delinquencies were rising—consumers are getting strung out again. Two days ago, the Empire State Manufacturing index came in at -8.5, in negative territory for the fifth straight month. On a very dark note, its future general business conditions sub-index, which measures expectations, fell to its lowest level since February 2009, the depth of the financial crisis. International business travel has fallen off a cliff at the end of August. And ominously, inbound port traffic is down, probably due to declining expectations for holiday sales.

via Tough Day For Our Calamity Economy | ZeroHedge.

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The Day the U.S. Treasury Doomed America :: The Market Oracle

Average Treasury bond maturities reached a low of 50 months in 2009. They’ve since been lengthened a bit to 62 months, but that still leaves the U.S. Treasury with a major refinancing risk. The Treasury will have to refinance some $2 trillion of outstanding debt in the next year – and that’s in addition to the $1.5 trillion of new debt it’s going to have to issue in that time.

That doesn’t leave much room to maneuver if markets get sticky. It also leaves a serious potential budget hole.

via The Day the U.S. Treasury Doomed America :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website.

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And Now The Bundestag Demands A Say | ZeroHedge

According to FAZ, the German parliament, which made it all too clear wants to be heard in all future European bailout instances courtesy of the constitutional court decision in early September, has just announced it wants to be heard, this time for real, and decide, on any EFSF expansion facility and specifically the usage of more leverage to fight already unbearable systemic leverage.

via And Now The Bundestag Demands A Say | ZeroHedge.

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Sarkozy says euro zone talks stuck, flies to Germany | Top News | Reuters

France has argued the most effective way of leveraging the European Financial Stability Facility is to turn it into a bank which could then access funding from the ECB, but both the central bank and the German government have opposed this.

“In Germany, the coalition is divided on this issue. It is not just Angela Merkel who we need to convince,” [French President Nicolas Sarkozy] told the parliamentarians at a lunch meeting, according to Charles de Courson, one of the legislators present.

His comments fueled doubts about whether euro zone leaders will be able to agree a clear and convincing plan when they meet on Sunday.

via Sarkozy says euro zone talks stuck, flies to Germany | Top News | Reuters.

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Jürgen Stark: Hearing at the Committee on Economic and Monetary Affairs of the European Parliament

“Given that one of the root causes of the current sovereign debt
crisis are unsustainable fiscal policies, I want to emphasise that this calls for a clear strengthening of incentives for prudent and sustainable fiscal policies. The introduction of common bonds in the euro area would, however, clearly weaken such incentives without
offering a long-term crisis resolution.”

via Jürgen Stark: Hearing at the Committee on Economic and Monetary Affairs of the European Parliament.

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