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Wednesday, December 21

21st Dec - Will TROLOLO save the world?

I plan to take a holiday break from posting, the LTRO reactions and a X-mas reading package are at least coming still. We will see if TROLOLO will save the world.


Then to the links:

News (Wed morning) – BTH
Danske Daily – Danske Bank (pdf)
  risk-on, €bond spreads narrow, waiting for LTRO
Morning Briefing – Saxo Bank
FX option vols – Saxo
Markets Live – alphaville / FT
Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ

Euro area: “What to watch” in the coming monthsDanske Bank (pdf)
ECB’s 36mo, Greece PSI, €bank recap, EU summit implementation, Ita/Spa auctions

LTRO countdownThe Trader
The results on Wednesday will be judged on the total amount allotted at the 3-year tender, net of the amount shifted from the 1-year liquidity (out of €57bn) and from the maturing 3-month liquidity (out of €140bn).

3yr LTRO: Breaking or strengthening the banking/sovereign feedback loop?economistmeg
Rather than parking sovereign debt at the 3-yr LTRO window, it seems banks may increasingly take advantage of the lower collateral requirements to draw liquidity from the ECB. Banks may begin to issue their own debt, receive a government guarantee for it for a small fee and repo it in the longer-term LTRO window for cheap financing.

Carry, LTRO, Data, And VIXTF Market Advisors
The bonds can have a 0% risk weighting, but that doesn't mean anyone, including the banks, believe it.  The road to hell is paved with carry.  That is an old adage and likely applies here.

Doubts increase over usefulness of new fiscal
The six-pack and not much more, a higher threshold for ratification

A short guide to the EBA’s recapitalisation
In a bid to restore stability and confidence in the markets, the European Banking Authority (EBA) has recommended a plan to raise the required capital buffers of major European banks by summer 2012. This column, by economists at the EBA, describes how the capital targets have been calculated and outlines the main drivers of bank shortfalls with respect to these targets.

From EUR-LIBOR and Euribor to Eurepo - the only viable market indexSober Look
On the other hand both Euribor or EUR LIBOR do not represent any actual market and therefore have little economic value or meaning.  Hopefully in the long term any instruments that currently use Euribor for settlement or rate calculations will shift to Eurepo.

Do What Feels Wrong, Citi's Credit Strategy For 2012ZH
For some time now, the best strategy for taking advantage of spread volatility has been to do what feels wrong. We continue to think abiding by this rule will prove profitable. Our range of 160bp-220bp argues for buying high grade bonds when the index is trading wide of 220bp – as it is now – and gradually selling as the index tightens toward 160bp.

Global Market Sentiment SurveyCFA Institute
Equities expected to underperform, BRICs are an island of optimism. (Conclusion: buy equities, sell bonds, short BRICs – MoreLiver)

Sectors To Watch In Big Four Emerging MarketsForbes
Mirae Asset Global Investments, one of the world’s largest emerging market investment companies with over $44 billion under management, recently published their 2012 outlook for the developing world.

Concerns Over China Slowdown "Overdone"Forbes
Fears that China will be the next shoe to drop on the heads of global investors are “overdone”, says Mirae

E-Mail Clues in Tracking MF Global Client FundsDealBook / NYT
Federal authorities investigating the collapse of MF Global have uncovered e-mails that detail the transfers of money in the firm’s last days, including transfers that contained customer money

Reform of the international monetary and financial
According to the architects, the latest financial regulations are designed to reduce the risks from large global capital flows – a key driver of the global crisis. But this column argues that such reforms do not go far enough and that the increasing risk of a second global financial crisis stemming from the Eurozone debacle re-emphasises the need for more changes.

The future of international capital
Will international capital flows play a lead role in the next global crisis? This column summarises a new Bank of England study that provides simulations of gross and net capital flows between now and 2050. It shows that however great the challenges policymakers may now face, there are many more to come.