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| From the Pictet's report featured here. |
Monday was supposed to be a good day: Berlusconi had left and a technocrat government took over during the weekend, while Greece got a new government. ECB was supporting the Italian bond auction as an inauguration present. Meanwhile, Spanish bond yields were moving towards the 6% “level of death”. After the initial happy times, markets remembered that the problems have not changed even though the faces of some of the players changed. Spain is the next Italy, while Italy could become, well, more Italian. Iran is worth keeping an eye on, but I warned about that weeks ago. Follow MoreLiver's Daily on Twitter, Facebook or email me.
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| From of two minds. |
Trade on! – Moreliver
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| EFSF yield rising even faster than member yie |
News (Mon evening) – BTH
Morning Take-Out – DealBook / NYT
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| This October everyone googles for "bond yields" |
Morning Briefing – BNY Mellon
(comments from Sarkozy and Merkel)
FX option vols – Saxo
Markets Live – alphaville FT
Debt crisis: live – The Telegraph
EZ crisis Live blog – The World / FT
EUROCRISIS
Perspectives Nov 2011 – Pictet & Cie (pdf)
Europe: some respite from the debt crisis, Safe havens – chasing rainbows? etc.
Notice that there eight parts to this report.
Italy is on the verge of losing market access. Spain will be next, and the fire may reach France within a month. France has already all but lost its AAA rating, with S&P accidentally revealing last week that it is preparing to downgrade the country.
Merkel: Change European Constitution for greater fiscal integration by 2013 – Credit Writedowns
While Merkel has seemed to be more unilateralist than previous German Chancellors, she is still very much wedded to the European project. If the euro zone is to survive, as I indicated earlier this month, greater fiscal integration is the only direction that the EU can move.
The euro crisis: New faces, same problems – Free exchange / The Economist
A large fiscal commitment by core economies to a new bail-out fund could potentially work in combination with much more monetary stimulus from the ECB; a return to growth is crucial. But as the crisis grows in scope, the maths get worse; you have an ever larger pool of troubled economies relying on financing from an ever smaller pool of "safe" economies. A big French fiscal commitment, for instance, might well move it decisively from the "safe" to the "troubled" camp.
Peripheral exposures: mind the cash – alphaville / FT
DB on Friday asked what the impact would be if one of the peripheral countries experienced a “credit event” on credit default swaps that reference them, thereby triggering payouts on the derivatives.
2 Solutions For The Self-Induced Euro Financial Crisis – EconMatters
Reflational policy or break-up.
"Risk-On" Can't Lose? – Peter Tchir / ZH
So that seems to be the idea out there, be long risk because if Europe improves, you will win, and if Europe gets worse, it will print, and you will win. That just doesn't make sense to me, as I think Germany is further from capitulating on printing than the market seems to have priced in.
So that seems to be the idea out there, be long risk because if Europe improves, you will win, and if Europe gets worse, it will print, and you will win. That just doesn't make sense to me, as I think Germany is further from capitulating on printing than the market seems to have priced in.
99% Demand ECB Bond Purchases – Peter Tchir / ZH
Every time they have broken a rule to get a solution to a “temporary” problem, it has turned out that only the solution is temporary. These rules were designed for a reason. They were done when markets were calm in order to prevent a disaster.
Every time they have broken a rule to get a solution to a “temporary” problem, it has turned out that only the solution is temporary. These rules were designed for a reason. They were done when markets were calm in order to prevent a disaster.
Unfortunately, the history of the European Union is littered with compromises and half-measures that don't always achieve the original stated objective and have the potential to fail because of some fatal flaw… ECB was mandated to only fight inflation as a nod to German price-stability sensibilities. Today, the fatal flaws of the lack of a dual mandate and the prohibition to being the lender of last resort to sovereigns has pushed the eurozone to the edge of the abyss.
The new EFSF is (nearly) dead; long live the new ESM! – alphaville / FT
EFSF yield spread to bunds rising faster than EFSF members’ spreads.
EFSF yield spread to bunds rising faster than EFSF members’ spreads.
Some euro banknotes are more equal than others – alphaville / FT
But with continued Target2 credit access, Greece could theoretically continue to issue unrestricted amounts of euro banknotes — which could, logically, be used to settle cross-border payments, allowing it to continue running up eurosystems debts.
But with continued Target2 credit access, Greece could theoretically continue to issue unrestricted amounts of euro banknotes — which could, logically, be used to settle cross-border payments, allowing it to continue running up eurosystems debts.
The Euro’s Short-Lived Hurrah – The Source / WSJ
The events of the weekend have brought only a short respite to euro-zone worries. The same political and fiscal snarls remain, framed by the notion that countries can tax and cut their way out of debt.
Yes, we have no ECB bond-targeting – alphaville / FT
While the ECB states that it is not targeting interest rates as it would be against the EU treaty, what else the SMP program is?
While the ECB states that it is not targeting interest rates as it would be against the EU treaty, what else the SMP program is?
If the GDP growth rate is bigger than the interest rate, then the debt you owe, although growing, would still shrink as a percentage of GDP…
Slick Hope – Walter Molano / EconoMonitor
Therefore, the markets may rally on the hope that the new sorcerers of Europe will solve its ills, but the cold hard economic reality is such that an adjustment is impossible and people will soon despair.
ITALY
Italy’s Funding Challenges Reflect Credibility Problems at Home and Within the Euro Area – Research Recap
Excerpt from Moody’s weekly credit report (pdf)
Another day, another Italian bond auction – alphaville / FT
Small auction, with ECB support. Not as good news as the headlines say.
Small auction, with ECB support. Not as good news as the headlines say.
Italian Yields Spike Following Weak 5 Year Bond Auction, ECB Intervenes Again – ZH
With a roundup of initial comments from the desks.
With a roundup of initial comments from the desks.
Italy faces some serious structural problems that won’t go away with a new leader, Italy still needs to embark on a credible plan to earn a primary budget surplus, improve its long-term competitiveness
High Noon at the ECB – The Source / WSJ
Over the last few weeks, the bank’s support of Italian bonds has been half-hearted, enough to prevent contagion but not enough to stop Italian yields from rising over 7% and putting even greater pressure on Prime Minister Silvio Berlusconi to leave. Now that he has gone, the ECB will be left with the dilemma over how much support to provide now. Should it encourage the new technocrat administration under Mario Monti or keep on raising the pressure on politicians to resolve the fiscal issues themselves.
Dear Viceroy Rehn, here are our answers… – alphaville / FT
The official Italian government reply to Olli Rehn’s inquiry about reform:
The official Italian government reply to Olli Rehn’s inquiry about reform:
OTHER
Predicting the Small Stock Premium Over Different Horizons: What Do We Learn About its Source? – SSRN
Our findings suggest that the small stock premium appears mainly as the result of a delayed and strong reaction of small stocks to good news after a period of prolonged bad times.
On the Predictability of Stock Prices: a Case for High and Low Prices – SNB (pdf)
We show that high and low prices of equity shares are largely predictable. We propose to model them using a simple implementation of a fractional vector autoregressive model with error correction (FVECM). This model captures two fundamental patterns of high and low prices: their cointegrating relationship and the long memory of their difference (i.e. the range).
Earth: Time Lapse View from Space, Fly Over – NASA, ISS / vimeo