Friday saw a quick rise in periphery’s bond prices – and it is probable the ECB was the customer. They probably wanted to end the week on a positive note and make it look like a positive reaction to the preliminary agreements on the enlargement of the European rescue vehicles. Again the commentary is hugely negative, with more unsolved (and unsolvable problems) than anyone can address.
Given the situation, the rhetoric coming out from the mouths of Draghi, Van Rompuy and Rehn is ridiculous. I had a word last week with an unnamed economic adviser and we wondered do they put something to the eurocrats' drinking water. Or what do you make of this:
Joke of The Day: Van Rompuy sees the eurozone in "calmer waters" as market and consumer confidence return, marking "the end of the sequence of 'summits of truth'," which have been held almost monthly. "The European Council, as the Union’s 'crisis body' takes a moment to rest," he said – euobserver.com
I will later post another Weekender-post filled with economics and off-topics – and probably include more commentary of my own. Until then, enjoy these very, very negative articles. If you crave for more, see Weekly Support and Best of The Week and keep in touch with me through Twitter, Facebook, email, paper.li.
EURO CRISIS
A little something for the finance ministers – alphaville / FT
The European Commission has published a short paper outlining three options for the eurozone rescue programme
The T Report: What would be the catalyst? – TF Market Advisors
Three ignored catalysts for the current positive sentiment to reverse, mostly ignored for now: 1) Weakness in China 2) Weakness in Europe and spread widening for sovereign debt 3) Less conviction that US economic data, housing market rebound, and earnings will save the day.
Balkanising bank bonds – alphaville / FT
The 17 national eurozone central banks have been given permission not to accept bank bonds guaranteed by governments as collateral…. where the governments are Ireland, Portugal or Greece, effectively… Not one of these central banks is going to refuse these bank bonds from now on thanks to this decision.
In the Eye of the Storm – economistmeg
Three time-buying muddle-through tools discussed: bailout programs, LTRO and firewall: The cycle of boom and bust is such that at some point the euro area will hit another economic and/or financial shock. But the troika’s current crisis-resolution approach of extend and pretend will have done nothing to position the Eurozone to survive such shocks any better in the future.
Economic forecasters have been too sanguine on Eurozone – Sober Look
All of a sudden economists and forecasters (such as this CS forecast) are realizing they've underestimated the level of the periphery recession. One can see the forecast mistakes coming through the latest Eurozone manufacturing PMI.
Unfree trade – The Economist
The European Commission is flirting dangerously with protectionism
Even Germany has constitutional worries about more European integration
The European Commission has tried to entice David Cameron into adopting the controversial financial transactions tax (FTT) by pledging to cut Britain's contributions to Brussels by €7.7bn (£6.4bn).
3 Charts On Why Eurosis Never Really Went Away – ZH
European banks too large, interest payments too large, governments’ debt-to-revenue too large. While yields have indeed dropped, the reflexive response that ergo - Europe is fixed - is simply nonsense as nothing has changed and in fact the concentration and contagion stress is worse than it ever was.
LTRO Stigma Reaches All-Time High – ZH
The spread between LTRO- and non-LTRO banks increasing: ECB margin calls and subordination effectively closing banks from issuing bonds
Euro zone week ahead – MacroScope / Reuters
Spain, having ripped up its 2012 deficit target, will present its full budget a day after a general strike and EU finance ministers gather in Copenhagen where the still unresolved issue of how to structure the euro zone’s permanent rescue fund will be structured.
Nice roundup of the big themes. The European crisis and the associated delusional rolls on.
Guess which central bank is going to copy the ECB and provide 3-year loans? – Credit Writedowns
The Danish central bank will borrow a page from the ECB’s playbook and provide 3-year loans to local banks next week (March 30)
EURO CRISIS: SPAIN
The firewalls of Europe are not high enough to drown out the din of alarm bells ringing in Madrid. The euro crisis is about to spread and this time delay tactics by the EU will not work.
Spanish economy: Gathering gloom – FT
“I think Spain is de facto ‘bailed out’, first by the ECB buying [sovereign] bonds in the summer, and then by the LTRO,” says Edward Hugh, a Barcelona-based economist. In return, he says, Spain must comply strictly with EU deficit reduction targets.
Spanish Bond Yields – Who is a “natural” buyer of 10 year – TF Market Advisors
I think the ECB will attempt to calm the markets, but the amount of money spent will be underwhelming at these levels, and the market reaction will be even more muted than prior ECB interventions. There are relatively few natural buyers of Spanish long dated bonds here.
EURO CRISIS: OTHER PIIGS
The government of Mario Monti is pressing ahead with labour reforms over union objections and threats of strikes
Building euro-zone competitiveness: Ports in the storm – The Economist
Portugal needs to privatise its ports to reap the full benefits of its location. The latest in our series on reforming Europe’s economies
Eurosis Is Back As "New" Greek Bonds Break 20%, Slide 14% In 2 Days – ZH
Well that didn't take long. New Greek bonds (GGB2) have dropped dramatically in the last 2 days.
Sudden drop in bond yields without much of a move in CDS prices – ECB?
Very Early Afternoon T: Fed and ECB – TF Market Advisors
…sooner or later the ECB would look at buying or at least the rumors that they were buying would start. Let’s see how those look on Monday afternoon, when it is harder to manipulate the price.
ASSET CLASS VIEWS
13 Questions - Lucky dip – Macro Man
Market views in the form of multiple questions
Interest rates: the market has it all wrong – Saxo Bank
Steen Jakobsen’s piece (the site is down but I remember this looked interesting)
Montier on Peak Earnings – The Big Picture
key takeaway is that “GMO are firm believers in mean reversion; such record elevation in profit margins causes us much consternation.”
Buttonwood: The cycle turns – The Economist
The developed world may have seen the low in bond yields
Now Companies Have to Earn Their Profits – MarketBeat / WSJ
Corporate profits the past few years have rebounded in no small part due to a big rebound in profit margins. But profit margins have likely peaked, for this cycle at least, and companies are going to have to get back to boosting earnings the old fashioned way: earning it, so to speak.
Commodities Forecast Update – Danske Bank (pdf)
Oil price forecast revised higher
PODCASTS
Barclays’s Knapp Remains ‘in the Bearish Camp’ – BB (mp3)
JPM’s Lee ‘Rethinks’ His 2012 Forecast for the S&P 500 – BB (mp3)
Investor Faber Sees Start of a ‘Meaningful Correction’ – BB (mp3)
Credit Ag’s Kowalczyk Says China Economy Is Slowing – BB (mp3)