Category: UK & Europe

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The euro zone’s terrible mistake | Felix Salmon

The FT is reporting today that the new fiscal rules for the EU “include a commitment not to force private sector bondholders to take losses on any future eurozone bail-outs”……The immediate result of this plan is that everybody will rush into the highest-yielding bonds in Europe, which is exactly what seems to have happened today……In order for markets to work, lenders need to suffer when they make bad lending decisions. If the Europeans didn’t learn from Ireland, couldn’t they at least learn from the Fed’s much-criticized decision to pay off all AIG creditors at 100 cents on the dollar? Blanket guarantees at par are pretty much always a really bad idea — and this one, if it comes to pass, will be the biggest one yet.

via The euro zone’s terrible mistake | Felix Salmon.

Colin Twiggs: ~ More evidence of moral hazard: giving bond-holders an effective put against the EU. Perhaps a partial guarantee (e.g. 90 percent) would be more effective in containing moral hazard as the bond-holder still has some skin in the game.

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Footsie and Euro Stoxx 50 shows signs of resurgence

The FTSE 100 index is headed for resistance at 5700. Breakout would signal an advance to the 2011 highs at 6100. Rising 13-week Twiggs Money Flow indicates buying pressure.

FTSE 100 Index

* Target calculation: 5700 + ( 5700 – 5200 ) = 6200

The Dow Jones Euro Stoxx 50 also shows signs of recovery, heading for a test of the descending trendline and resistance at 2500. Breakout would signal a primary advance to 2900* and the end of the bear market. Momentum is rising but remains a long way below the zero line. Respect of 2500 would be a bear signal not only for the euro-zone, but for the global economy.

Euro Stoxx 50 Index

* Target calculation: 2500 + ( 2500 – 2100 ) = 2900

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Europe’s Debt Crisis: ECB Hints at Help Pending Euro-Zone Integration – SPIEGEL ONLINE

[ ECB chief Mario Draghi] seemed to hint at a possible way out of the downward spiral, saying that the ECB could be prepared to take additional steps to halt the crisis. First, however, Europe needed to move quickly toward greater economic integration.

“Other elements might follow,” he said, in reference to the coordinated central banks’ action taken on Wednesday. “But the sequencing matters.” He added that “a new fiscal compact would be the most important signal from euro-area governments for embarking on a path of comprehensive deepening of economic integration.”

via Europe’s Debt Crisis: ECB Hints at Help Pending Euro-Zone Integration – SPIEGEL ONLINE – News – International.

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Euro Sterling rally

The euro respected primary support at $1.32. Recovery above $1.36 would signal another attempt at $1.42. But the primary trend, as indicated by 63-day Twiggs Momentum below zero, is downward and breakout below $1.32 would signal a decline to $1.22*.

EURUSD

* Target calculation: 1.32 – ( 1.42 – 1.32 ) = 1.22

The Pound also rallied but again 63-day Twiggs Momentum is weak. Follow-through above $1.57 would suggest another attempt at $1.615. But the primary trend remains downward and failure of primary support at $1.53 is more likely, offering a target of $1.45*.

GBPUSD

* Target calculation: 1.53 – ( 1.61 – 1.53 ) = 1.45

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Europe’s big banks need a bailout

David Weidner, Marketwatch: “Give me a swap line on currency and I will bet the farm….I am shocked that the market is rallying this much today on this news [European markets up about 10pc in dollar terms].”

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David Weidner interviewed by Evan Newmark of Mean Street.

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Did A Large European Bank Almost Fail Last Night? | ZeroHedge

Need a reason to explain the massive central bank intervention from China, to Japan, Switzerland, the ECB, England and all the way to the US? Forbes may have one explanation: “It appears that a big European bank got close to failure last night. European banks, especially French banks, rely heavily on funding in the wholesale money markets. It appears that a major bank was having difficulty funding its immediate liquidity needs. The cavalry was called in and has come to the successful rescue.”

via Did A Large European Bank Almost Fail Last Night? | ZeroHedge.

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Central Banks Take Coordinated Action – WSJ.com

WASHINGTON — The world’s major central banks launched a joint action to provide cheap, emergency U.S. dollar loans to banks in Europe and elsewhere, a sign of growing alarm among policy makers about stresses in Europe and in the global financial system. The Fed, ECB and other central banks took coordinated action to support the global financial system as Europe’s rolling debt crisis continues to trouble markets. The coordinated action doesn’t directly address Europe’s government-debt and budget woes. Instead, it is aimed at alleviating the impact of those troubles on global markets. Moreover, it raises the prospect of other steps by central bankers to prevent a repeat of the 2008 financial crisis.

via Central Banks Take Coordinated Action – WSJ.com.

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China manufacturing exports shrink

The Harper Petersen Index shows a fall in container shipping rates in the last few months, reflecting a sharp decline in manufacturing exports.

Harper Petersen Index

Bloomberg (hat tip to macrobusiness.com.au) now reports that “the cost of hauling goods to Europe from China (its largest export market) is falling faster than rates for deliveries to the U.S. The price for shipments to Europe is down 39 percent to $511 per twenty-foot box since Aug. 31, according to figures from Clarkson Securities Ltd., a unit of the world’s largest shipbroker. That’s more than double the 18 percent slide in the cost to the U.S. West Coast, measured in 40-foot units.”

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Quick Overview

Looks like something positive is brewing in Europe, but I don’t want to jump the gun. China looks weak, US probably through its worst, Europe still faces plenty of pain even if fiscal reform and euro-bonds introduced. Game changer would be QE/asset purchases by Fed and ECB.

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