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| EURUSD view unchanged. |
Summary: Tomorrow the ECB meeting and SNB announces FX reserves at noon. So beware CHF and any risk on/off maniacs.
Views: Markets might get more frisky’n’risky, if Monsieur Trichet gives a dovish wink and smiles coyly, which could drive the rally a bit further, until the current “Europe finally gets it”-daydream ends. This reminds me of the previous ECB press conference. Markets really loved it when Trichet got angry. Every time he "hulked" - became more authoritative, gave the reporters that gunslinger’s cold look and raised his voice - EURUSD rallied 30 pips, and when he again transformed into the weakling Dr Jekyll eurocrat that he is, EURUSD dropped.
All the other politicians have for now been playing the game of denial and political correctness. Someone ought to try the bad cop routine. All the bankers really love to be dominated – or at least they are easily intimated. Go on, Trichet, go out with a bang. Give us your best Eastwood-impression and save the world. At least that would be more entertaining to watch than the endless promises of a Death Star to end the rebellion.
Elsewhere, shootings in Saudi Arabia, and Russia loans money to Cyprus. Remember what I told you after too much coffee in Eurovision and War in Middle East?
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Today's Headlines (from Wed) – Between The Hedges
FX options: Vols, Risk Reversals & Pin Risk – tradingfloor
Debt crisis: live – The Telegraph
Eurozone crisis: live blog – FT
EURO CRISIS
The crisis that was always coming – alphaville / FT
An excerpt from an essay written in 1992 “Maastricht and all that”. Nothing has changed.
An excerpt from an essay written in 1992 “Maastricht and all that”. Nothing has changed.
“The evolution of monetary union in Europe was an incompletely theorised agreement. For Germany, it was a means of extending the economic discipline of the Bundesbank to more profligate trading partners. For France, it was a way of putting European monetary policy under greater political, and particularly French, control.”
No rate cut, but more dovish rhetoric and longer-term funding facilities.
EFSF size limited, ECB needed. Perhaps policy makers understand this now.
More Sovereign Downgrades Likely as Euro Area Credit Pressures Yet to Peak – alacrastore.com
Moody’s: institutional obstacles constrain rapid changes, tension between options available and those that may be needed implies significant risk to euro-area financial markets. Expect severe market pressure for the foreseeable future.
Steen’s chronicle: “…the final chance to secure a solution for the tremendous challenge of Italy and its debt. The EU simply must show the market that Italy is the line in the sand.”
The IMF SPV [updated] – alphaville / FT
“Another day, another SPV proposal for Europe. This time an IMF-backed version.”
It was all unicorns, but something had to be said, because:
looks bad
and something needs to be done.
A Financier’s Farewell to Trichet – DealBook / NYT
“But wouldn’t a weak euro be preferable to no euro at all? – alphaville / FT
Full-page ad on Financial Times: “Farewell, you certainly won’t be missed!”
GREECE
Recaps of banks vs recoveries on sovereigns – alphaville / FT
GS: 60% haircut, 54bn losses on Greek banks and 22 bn to other banks. But who will pay?
Greek military spending is huge. Opinion article links a lot, so numbers are not made up.
Ahead Of The Curve: Goldman Cuts Dexia From Buy To Neutral On Imminent Restructuring And Winddown – ZH, scrib full report.
Dexia! – The Big Picture
Some bullet points what to watch: policy response, contagion,
Quantum leap: EuroTARP – alphaville / FT
Will Dexia be the catalyst to push leaders to recapitalize banks? Morgan Stanley’s view on amounts needed, timetable and the toxicity of Greece making all sovereigns and banks suspicious.
IMF Vows To Spend Some More Taxpayer Money – ZH
Peter Tchir comments after Borges: “the more involved you are in the markets, the more willing you are to believe that Europe can act as Europe. The more involved you are in European politics, the more concerned you are that European nations are becoming more nationalistic.”
Let the Banks Fail – The Source / WSJ
Policy makers are scared that letting one fail would make all the others prey: “defending one relatively narrow and typically wealthy set of interests at the cost of social fairness could yet rebound on them.”
European Banking Stress Tests Round 3: Greek Write-down – Also Sprach Analyst
FT calls EBA to conduct a third test with Greek debt write-down.
OTHER
High Noon at the Swiss National Bank – Lighthouse IM
SNB will report on Thursday noon FX reserves for Sep.
What makes a reserve currency? – alphaville / FT
HSBC’s views: most of the time it comes from countries with largest public debt (but not too much): Large number of appropriate securities denominated in the currency is needed.
Fine Print As Yet Unwritten, But the Gist is Clear for OTC Derivatives – allaboutalpha.com
From the current daily clearing to almost real-time?
Who Moved My Market Anomaly? – The Capital Spectator
General talk: alpha is zero sum, there are multiple betas to chase, but no guarantees.
HFT/Algo Trading Alert Systems – The Big Picture
Software warns if co-located algo servers are active.
Arab Spring Makes An Autumn Return: Saudi Police Open Fire On Protesting Civilians – ZH
Saudi reinforcements rushed to oil regions to quell machine-gun toting Shiites – DEBKA File
CHINA
SG estimates 14-15 trillion CNY in size, of which underground banking (loan sharks, pawnshops) is 3-4 tr. In all, expect a managed landing for the economy.
DIVERSION
OWS: A Manifesto – reason.com OWS, Another Futile Peasants’ Protest – EconoMonitor
The four habits of highly successful social movements – WP
What To Make Of OWS – Random Roger
Some interesting charts and stats and a link to the full report.
Why Jobs Is No Edison – The American
Drunken Ben Bernanke Tells Everyone At Neighborhood Bar How Screwed U.S. Economy Really Is – The Onion
Old but great