Mr. Trichet said it would be inappropriate for the ECB to lend to Europe’s main bailout vehicle, the European Financial Stability Facility. A number of both U.S. and European politicians—not least the European Union’s Economic and Monetary Affairs Commissioner Olli Rehn—have urged that the EFSF be given a banking license, which would allow it to borrow from the central bank. However, a number of ECB officials have said this would break the terms of the EU treaty on monetary financing of governments. “We consider that governments have all capacity to leverage the EFSF themselves,” Mr. Trichet said. “We cannot substitute ourselves for governments.”
Pound joins Euro slide
Apologies. I messed up the links at the bottom of the Trading Diary newsletter. For the correct link click here. Correct links are also available on the Trading Diary web page and under Recent Posts in the right margin of this page.
The euro retraced to test resistance at $1.34 but is likely to continue in its downward trend channel. Reversal below $1.3150 would test our target of $1.30*. 63-Day Momentum declining below zero confirms the primary down-trend.
* Target calculation: 1.40 – ( 1.50 – 1.40 ) = 1.30
The pound has been dragged lower by the euro-zone crisis. Breach of support at $1.53 would offer a target of the 2010 low at $1.43.
Tesco’s UK sales slide as consumers cut non-essential spending | Business | guardian.co.uk
Apologies. I messed up the links at the bottom of the Trading Diary newsletter. For the correct link click here. Correct links are also available on the Trading Diary web page and under Recent Posts in the right margin of this page.
Tesco has reported its weakest six-monthly UK sales figures for 20 years as higher food and fuel costs contributed to stark decline in spending on non-essentials such as gadgets, CDs and games in its stores.
UK like-for-likes, excluding petrol and VAT, declined 0.5% in the six months to 27 August, with underlying sales down 0.9% in the final three months of the period.
via Tesco’s UK sales slide as consumers cut non-essential spending | Business | guardian.co.uk.
How did Europe’s bank stress tests give Dexia a clean bill of health? | Business | guardian.co.uk
It may seem like a lifetime away, but it is only in July that the European Banking Authority published the result of “stress tests” on 90 banks across 21 countries in the EU, covering around 65% of the banking industry.
Eight failed. Sixteen were border line with core tier one capital ratios – a key measure of financial strength – of between 5% and 6%.
So presumably, Dexia, the Franco-Belgian bank on which markets are currently fixated, was in one of the danger-zone categories?
Well no. Its statement issued on the day proclaimed “no need for Dexia to raise additional capital”.
…….The tests have proved to be meaningless even quicker than they were in 2010 when Ireland’s banks were given a clean bill of health, only to be bailed out four months later. In July, 2011 the EBA had been reckoning that the capital shortfall of the banks that failed was just €2.5bn. Now the markets reckon that the hole is more like €300bn.
via How did Europe’s bank stress tests give Dexia a clean bill of health? | Business | guardian.co.uk.
Europe Races to Stem Debt Crisis Amid Rescue Plan for Dexia – WSJ.com
Euro-zone governments suffered a blow Tuesday in their efforts to contain a deepening sovereign debt crisis as one of the Continent’s biggest banks, dogged by fears about its exposure to Greek and Italian debt, was on the verge of a government-backed breakup. Bank executives and government officials zeroed in on a drastic plan to break up Dexia SA, a Belgian-French bank that is one of Europe’s 20 largest in assets.
via Europe Races to Stem Debt Crisis Amid Rescue Plan for Dexia – WSJ.com.
Follow the Money: Behind Europe’s Debt Crisis Lurks Another Giant Bailout of Wall Street
A Greek (or Irish or Spanish or Italian or Portuguese) default would have roughly the same effect on our financial system as the implosion of Lehman Brothers in 2008. Financial chaos.
….The Street has lent only about $7 billion to Greece, as of the end of last year, according to the Bank for International Settlements. That’s no big deal.
But a default by Greece or any other of Europe’s debt-burdened nations could easily pummel German and French banks, which have lent Greece (and the other wobbly European countries) far more.
That’s where Wall Street comes in. Big Wall Street banks have lent German and French banks a bundle.
Beginning of the end is near for Greek drama | The Big Picture
After yesterday’s meeting with European Finance Ministers, they are finally facing the reality that the July 21st agreement where Greek bondholders would face just a 21% cut to the value of their bond holdings was just not enough. Said early this morning, Juncker, the European FM head, said “As far as PSI private sector involvement is concerned, we have to take into account that we have experienced changes since the decision we have taken on July 21. These are technical revisions we are discussing.” What he calls ‘technical revisions’ is a nice way of saying a bigger haircut is going to be demanded, something hopefully on the order of 50%+. While bondholders European banks included won’t like it because of a harsher mark, the bonds are already trading at distressed levels.
via Beginning of the end is near for Greek drama | The Big Picture.
Wall St rallies on Europe hopes | The Australian
US stocks rallied this morning, as a report European Union finance ministers are discussing ways to recapitalise European banks fuelled a fierce comeback in the final hour of trading.
The Swiss National Bank Is Taking A Very Big Risk
The bottom line is that in August Swiss reserves rose by CHF 115b. A monthly increasing of 50% (Staggering). Domestic liquidity (sight deposits) rose an (unbelievable) 390% (CHF 49b to CHF 191B). This information covers the period when SNB bet the farm in an effort to stabilize/weaken the CHF.
……So far, the actions by the SNB have been successful. The key EURCHF rate has been steadily above the 1.20 level. The folks in Zurich/Basel are touting the SNB action as a big success. It might be a bit early to celebrate
Footsie and DAX test support
The FTSE 100 is testing support at 5000. Failure would warn of a down-swing to 4400*, but long tails and rising 21-day Twiggs Money Flow indicate medium-term buying pressure. Respect of support is likely and would continue the line between 5000 and 5450.
* Target calculation: 5000 – ( 5600 – 5000 ) = 4400
Germany’s DAX index displays similar medium-term buying pressure on 21-day Twiggs Money Flow. Respect of support at 5000 is likely and recovery above 5700 would indicate another bear rally.
* Target calculation: 5000 – ( 6000 – 5000 ) = 4000