UK & Europe Archives - Page 76 of 89

October 27, 2011

BOE’s Monetary Gamble Nears Its Endgame – WSJ.com

So where once investors worried that it [the Bank of England] had got policy plain wrong, there’s now a chance they’ll start to fear that the bank has got things all too right, after all, and that the U.K. really does need policy settings appropriate for an economic ice age……

And a government focused on austerity measures is in no position to offer fiscal support even if it wanted to, and, according to the treasury’s pronouncements, it doesn’t. It’s sticking with the deficit-cutting plan A, come what may.

So this is clearly an economy with huge problems anywhere you might care to look. Its remaining cardinal virtue, perhaps, is that it isn’t in the euro zone, so the bloc’s more pressing concerns have shielded it from harsher scrutiny. It can’t rely on that shield for all time.

via BOE’s Monetary Gamble Nears Its Endgame – WSJ.com.

October 27, 2011

Eurozone debt deal tackles symptoms, not cause | Investing | Financial Post

Eurozone leaders are as far as ever from finding a lasting solution to the bloc’s underlying problem of economic divergence, despite their latest progress in managing the symptoms of its debt crisis……

“This is another step in the right direction, but it is not enough to get us to the end game,” said Stephane Deo, chief European economist at UBS. “It buys time but it does not address the fundamental problem of the sovereign debt crisis.”

via Eurozone debt deal tackles symptoms, not cause | Investing | Financial Post.

October 27, 2011

The Creeping Eurozone Credit Crunch | Credit Writedowns

During the 1997 Asian financial crisis, Japanese banks, getting killed with a falling Nikkei and their credit extended to Thailand and Indonesia, found that rolling off interbank lines to Korea the easiest way to shrink their balance sheets. American and European banks, not wanting to be the last out of Korea, panicked and followed the Japanese banks thus sucking in another country into the Asian crisis.

The Korean banks having to raise dollar liquidity sold their Brazilian and other emerging market bonds. Brazilian banks long their sovereign’s bonds that were declining in price had to raise liquidity and sold their Russian assets. The global margin call was on and fueled a full blown contagion and ended with the Russian debt default and LTCM crisis. Let’ hope it doesn’t come to this. Stay tuned and stay vigilant.

via The Creeping Eurozone Credit Crunch | Credit Writedowns.

October 27, 2011

Quantitative Easing!!! – Andy Lees, UBS | Credit Writedowns

The BoJ announced today that it will expand its asset purchase programme by JPY5trn (USD66bn), with all the purchases being directed at JGB’s. Add that to the GBP75bn (USD120bn) by the BoE, CHF50bn (USD57bn) by the SNB and the EUR341bn (USD477bn) expansion of the ECB balance sheet since the end of June, and it collectively adds up to USD720bn. Clearly this explains the market rally from the low.

via Quantitative Easing!!! | Credit Writedowns.

October 27, 2011

Europe’s Punishment Union – Ambrose Evans-Pritchard

As Sir John Major wrote this morning in the FT, this does not solve EMU’s fundamental problem, which is the 30pc gap in competitiveness between North and South, and Germany’s colossal intra-EMU trade surplus at the expense of Club Med deficit states.

It is therefore unlikely to succeed. It means that Italy, Spain, Portugal, et al must close the gap with Germany by austerity alone, risking a Fisherite debt deflation spiral. As I have written many times, this is a destructive and intellectually incoherent policy, akin to the 1930s Gold Standard. It risks conjuring the very demons that Mrs Merkel warns against.

Sir John is less categorical, but the message is the same. Europe will have to evolve into a fiscal union to make the system work….

via Europe’s Punishment Union – Telegraph Blogs.

October 27, 2011

Forex: Euro and the Aussie dollar strengthen

The euro is testing resistance at the former support level of $1.40, in the hope that the bailout out-lined today will rescue the euro-zone from its debt crisis. We will probably read fairly disparate views over the next few weeks before the varying viewpoints synthesize into a clear market direction. Reversal below $1.365 would warn of a decline to $.20*, while narrow consolidation below the resistance level would suggest a breakout and advance to the 2011 highs.

EURUSD

* Target calculation: 1.30 – ( 1.40 – 1.30 ) = 1.20

The Pound similarly rallied to $1.60. Respect would re-test primary support at $1.53, while breakout would target $1.67.

GBPUSD

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

The dollar broke support at ¥76, continuing its long-term (mega) down-trend against the Yen. Target for the breakout is ¥72*.

USDJPY

* Target calculation: 76 – ( 80 – 76 ) = 72

The Aussie benefited from the weaker greenback, recovering above $1.04 to signal an attempt at $1.08*. Penetration of the descending trendline indicates that the down-trend is weakening.

AUDUSD

* Target calculation: 1.04 + ( 1.04 – 1.00 ) = 1.08

The Aussie and Loonie both closely follow commodity prices. Respect of the upper trend channel on the CRB Index would warn of another down-swing.
CRB Commodities Index
Canda’s Loonie is testing resistance at $1.00 against the greenback. Reversal below $0.975 would warn of another down-swing, while breakout above parity would target $1.02*.

CADUSD

* Target calculation: 1.00 + ( 1.00 – 0.98 ) = 1.02

The Aussie dollar completed a double bottom against its Kiwi counterpart (probably due to lost man-hours after celebrating their Rugby World Cup win). Expect a test of $1.32* followed by retracement to confirm support at $1.28.

AUDNZD

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

The South Africans went home early (from the RWC) and a descending triangle on the USDZAR warns of downward breakout to test support at $7.20.

USDZAR

* Target calculation: 7.80 – ( 8.40 – 7.80 ) = 7.20

October 27, 2011

Barclays Explains Why A 50% Greek Haircut “Would Be Considered A Credit Event, Consequently Triggering CDS Contracts” | ZeroHedge

Finally someone dares to go ahead and say what is on everyone’s mind, namely that proclaiming a 60% “haircut” as voluntary is about the dumbest thing to ever come out of ISDA. As is well known, the ECB and the entire Eurozone are terrified of what may happen should Greek CDS be activated, and “contagion waterfall” ensue. The fear is not so much on what happens with Greece, where daily CDS variation margin has long since been satisfied so the only catalyst from a cash flow market perspective would be a formality. Where it won’t be a formality, however, is for the ECB which has been avoiding reality, and which will have to remark its entire array of Greek bonds from par to 40 cents on the dollar, which as Alex Gloy indicated earlier, will render the central bank immediately insolvent all else equal.

via Barclays Explains Why A 50% Greek Haircut “Would Be Considered A Credit Event, Consequently Triggering CDS Contracts” | ZeroHedge.

October 27, 2011

Thank you Germany – Ambrose Evans-Pritchard

The unpleasant truth is that the EFSF leverage proposals are idiotic, the worst sort of financial engineering, legerdemain, and trickery.

As countless economists have pointed out, it concentrates risk. Germany’s €211bn commitment to the fund is not technically breached but the risk of suffering large and perhaps total loss is vastly increased. Creditor states switch from protected senior status on Greek, Portuguese, or Italian debt to the bottom rung on new slabs of sub-prime structured credit. The bluff might well be called.

The consequence will be to bring forward the downgrade of France and other states. It will accelerate contagion to the core, not stop it.

via Thank you Germany – Telegraph Blogs.

October 26, 2011

EU Forges Greek Bond Deal – WSJ.com

French President Nicolas Sarkozy said after the marathon negotiating session that the leaders had reached agreement with private banks on a “voluntary” 50% reduction of Greece’s debt in the hands of private investors.

He also said they had agreed to expand the firepower of the European Financial Stability Facility, the euro zone’s bailout vehicle, four- or five-fold—suggesting it could provide guarantees for €800 billion to €1.3 trillion of bonds issued by countries such as Spain and Italy.

The leaders also agreed on a plan that would boost the capital buffers of the stragglers among the Continent’s 70 biggest banks by €106 billion—though they didn’t say where the money would come from.

via Euro-Zone Talks Hit Roadblocks – WSJ.com.

October 26, 2011

Euro-Zone Talks Hit Roadblocks – WSJ.com

BRUSSELS—Deep divisions between euro-zone governments and private banks over how much to cut Greece’s private debts threatened to undermine efforts by European leaders to agree to a broad package at a Brussels summit Wednesday night aimed at stemming the Continent’s intensifying debt crisis.

….Governments, led by Germany, have been seeking a real cut in the value of Greek government bonds held by private investors of as much as 60%. The banks, led in negotiations by Charles Dallara of the Institute of International Finance, a Washington-based international bank lobby group, offered a new proposal Tuesday night that officials said had fallen far short of that.

via Euro-Zone Talks Hit Roadblocks – WSJ.com.