Week's main event is approaching: Eurogroup meeting to agree on the rescue vehicle details. A 750bn widget is already priced in. The European bond markets have looked ugly going into the meeting - no signs of buying into the news. The markets are awash with news that the US earnings cycle is peaking, while positive economic surprises have already peaked, and soon slowly turning negative. Time for correction? I don't know.
But there's one thing I am sure of. During the next weekend more measures to expropriate tax payer resources to cover the banks' losses and coming haircuts will be made. They will make it sound like they are doing you a favor. The ultimate hustle - the mark is happy to be relieved of his funds.
Happy Hustles - MoreLiver
I will post a Fri morning update, and usual weekend posts during the weekend. Plenty of good readings in my earlier Roll over and play dead. Keep in touch with me through Twitter, Facebook, email, paper.li.
News – Between The Hedges
Markets – Between The Hedges
Recap – Global Macro Trading (on holiday)
The Closer – alphaville / FT
Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
FX Options Analytics – Saxo Bank
EURO CRISIS
Banking and sovereign risk: is it banks’ holding of government debt or banks’ location? – bruegel
The evidence suggests that government bond holdings of banks may not be the main reason for the strong correlation of risk. In fact, we show only a relatively weak correlation between the banks’ risk or stock market performance and their holdings of government debt… Thus, addressing this perceived country risk at euro area level requires the creation of a common guarantee mechanism for European banks
Eurozone Year-on-Year Sales Decline 10th Month – Mish’s
Conditions in Europe are deteriorating badly, and a general strike looms in Italy. Spain, Greece, and Portugal are basket cases. The odds that weakness does not spill over into Germany are near-zero.
President of the Deutsche Bundesbank, 28-Mar: Normally, exchange rate movements are an important channel through which unsustainable current account positions are corrected – eventually, deficit countries devalue, while surplus countries revalue their currencies. The reaction this triggers in imports and exports then helps to bring the current account closer to balance. In a monetary union, however, this is obviously no longer an option. Spain no longer has a peseta to devalue; Germany no longer has a deutsche mark to revalue. Other things must therefore give instead: prices, wages, employment and output.
Policies against a German CA surplus – Kantoos Economics
No, my opinion has always been that monetary policy needs to facilitate rebalancing, by allowing higher inflation so that German wages can grow faster, but without hurting the German economy. That would be the most effective, easiest and economically most sensible solution. And this is in quite a stark contrast to the official position of the German policy makers.
Euro Area Credit: Did the ECB Wait Too Long? – EconoMonitor
However, with the domestic drag in periphery credit markets already underway, and limited upside potential to global demand for exports, one questions whether or not the the ECB waited too long (given the long lags in monetary policy).
At the Eurogroup meeting, the euro area ministers of finance are expected to increase the overall rescue facilities. It has already been suggested that the EFSF will be combined with the ESM resulting in an aggregate firewall of EUR940bn. The additional topics that the euro area leaders are expected to discuss include who should be the new president of the Eurogroup and also the financial transaction tax.
Spain's central government is trying to pressure regional governments to contribute to the overall debt reduction. But the regions' local politicians are often not incentivized to comply. The tension between the regional and the national governments have been escalating.
European Stress Getting Progressively Worse As LTRO Boost A Distant Memory – ZH
European Weakness Spreads And Accelerates – ZH
Two chart overviews of the day’s market developments
ASSET CLASS VIEWS
This next quarter in US credit is different – alphaville / FT
BoAML: Whereas in 2009 we saw the tunnel before the light at the end of the tunnel, and in 2010 we saw the light at the end of the tunnel, it appears that we are now close to the actual end of the tunnel… the root of the financial crisis – declining home prices – appears to have been arrested… banks have recovered and built more than enough capital
On average since 1950, stocks have rebounded 6.8% following a year of peak margins, the firm said. But the returns have varied widely.
Morgan Stanley’s Stannard Says Yen Will Weaken – BB (mp3)
OTHER
Banks move to plug $2 trillion trading gap – Reuters
A select group of banks are hoping to cash in on new regulations by helping their clients find $2 trillion in guarantees they will need to carry on trading complex debt instruments.
Who Captured the Fed? – Economix / NYT
Daron Acemogly and Simon Johnson (my favourite): In recent decades the Fed has given way completely, at the highest level and with disastrous consequences, when the bankers bring their influence to bear
Daron Acemogly and Simon Johnson (my favourite): In recent decades the Fed has given way completely, at the highest level and with disastrous consequences, when the bankers bring their influence to bear
To QE or Not to QE – PIMCO
If the Fed does nothing, asset prices could fall, threatening America’s fragile economic recovery. But if the Fed decides to battle the forces of deleveraging, it could commit a classic error by acting during a turning point and thereby doing too much.
Lessons from the King of Blackjack – Mercenary Trader
Just a trading-related view on the story featured earlier.