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Wednesday, April 4

4th Apr - Range until Break

Almost all asset classes are at the extremes of their recent trading ranges or trend channels. PIIGS bond yields are now at the higher end of their trading range, as there are no special reasons to buy the bonds - yields might be ok, but haircut risk is there. Given the approaching holidays, I would guess there will be no breakouts  for now - interventions by the ECB or a round of announcement games (aliens are giving Chinese money to EFSF via IMF!) would be felt hard, so why take the risk at current levels?


After the holidays, something will soon happen to Spain. Maybe after the French elections there will be an official request for playtime with Troika, after the hugely successful and popular Greek experience. Maybe Sarkozy would actually be happy to have the crisis erupt during the first presidential election round, as uncertainties and perceived need for continuity and Trichet-like stabilité would increase his support.

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Markets – Between The Hedges
Recap – Global Macro Trading (on holiday)
The Closer – alphaville / FT

Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
Tracking Europe’s Debt Crisis – NYT
FX Options Analytics – Saxo Bank

EURO CRISIS: GENERAL
New Hope on Banking Regulation in EuropePIIE
A look at the firewalls, what and why the markets are hoping for and the need for single central political authority to avoid fears of moral hazard

A Centerless Euro Cannot HoldProject Syndicate
Rogoff: Europe may never be an “optimum” currency area by any standard. But, without further profound political and economic integration – which may not end up including all current eurozone members – the euro may not make it even to the end of this decade.

ECB cheap loans no substitute for reforms, Draghi warns - euobserver
Draghi admitted that all the "fiscal consolidation" measures are worsening the recession that has gripped the eurozone, but insisted that this was the only way to get back to "sustainable growth" in the longer term.

Eurozone Composite PMI® Signals Recession Says Markit; France in Renewed Decline, German Growth Weakens, Italy and Spain Contract FurtherMish’s

Austrian central bank follows BuBa in refusing some periphery collateralSober Look
The impact on current collateral is insignificant but it is sending a massage of an increasing rift within the Eurozone.

A German Europe?Project Syndicate
As the “big three” increasingly pursue their own narrowly defined national interests, however, other EU member states are emerging as leaders in key foreign-policy fields.

Arnab Das Says Markets Will Be Euro 'Divorce Judge'BB (mp3)

EURO CRISIS: SPAIN
Demand shocks, hysteria and forgetting the ECBPlace du Luxembourg
While countries might be under the illusion that they can pursue unilateral policies, the absence of an independent national central bank exposes them to the demands of the ECB, who will always win the ensuing games of chicken. In sum, there’s no need to worry because after some struggle the ECB will always come to the rescue.

Pain in Spain: It’s backFree exchange / The Economist
Asked what to read into rising Spanish and Italian yields, Mr Draghi said that the issue was less “a symptom of market uneasiness but rather market attention upon fundamentals”. Rough translation: get on with sorting out the public finances… The question now is whether anxiety turns to panic again. The problem is that it is hard to see obvious triggers that would greatly boost sentiment in the short term.

Spain: Como se dice “contagion”?MacroScope / Reuters
The euro zone’s fourth largest economy had to pay dearer to borrow through medium-term bonds… In contrast, Portugal’s 1 billion euros sale of 18-month treasury bills was a successful test of market appetite for the longest-dated debt since it took an international bailout.

The rain in Spain stays mainly in the plain...Saxo Bank
Quick three charts on Spain (bond yields, CDS, stock market)

EURO AREA: OTHER PIIGS
Euro-area imbalances before and after the crisisbruegel
Our data shows that the downward trend in competitiveness for peripheral countries has indeed stopped but has not yet been reversed despite several years of negative output gaps. Quite worryingly, the divergence in export patterns has, on the other hand, continued.

IMF Completes Third Review Under an EFF Arrangement with Portugal, Approves €5.17 Billion DisbursementIMF

ASSET CLASS VIEWS
"The Boredom Discount": Why Greater Risk Does Not Lead To Greater ReturnZH
SocGen looks at low- and high-beta stocks, and how high-beta has underperformed:  They are vehicles for trading with, not investing in… It shows the over-valuation of possibilities and the undervaluation of near-certainties.

High Yield Credit Fundamentals Starting To CrackZH
Revenues not catching up with costs, creating significant margin pressures. Technical supply pressure is building, while European High Yield remains joined at the hip with European Sovereign risks...

From Risk-Free Return To Return-Free Risk OvernightZH
Citi’s very good charts and analysis. 'risk-on risk-off' environment is here to stay… more likelihood of catastrophic loss when risk-goes-off (as liquidity spigots are closed however temporarily).

Stocks Have Second Biggest Plunge Of 2012ZH
Very nice roundup of the day’s action

Seven Observations about the EuroCredit Writedowns

JPMorgan's Kelly Likes Equities Over Fixed IncomeBB (mp3)

OTHER
Jon Hilsenrath Is Wrong: Why Operation Twist Will Not Be ExtendedZH
Bank of America: Extending Twist is a limited option, as the Fed will have only about $175 bn of short-dated Treasuries (3 months to 3 years) in its SOMA portfolio on June 30. That would allow two to perhaps three months of further twisting at the current pace — i.e., into September. That does buy some time, but the Bernanke Fed has not been one to go for half-measures or small steps since the crisis began. If the outlook warrants more easing, we still see QE3 as the most likely tool chosen.

Family Investment Funds Go Hunting for Wall St. ExpertiseDealBook / NYT
…promising big paydays without the sales and marketing responsibilities. They are also pooling their resources and making their own deals to buy companies or back start-ups.
                     
OFF-TOPIC
Note found on Syntagma suicide victimAthens News
State media has reported that Dimitris Christoulas, the man who took his own life using a pistol on Syntagma Square, in central Athens, on Wednesday morning, left a suicide note.

Living Like a Billionaire, If Only for a DayDealBook / NYT
But for the next 24 hours, my goal is to live like a billionaire. I want to experience a brief taste of luxury — the chauffeured cars, the private planes, the V.I.P. access and endless privilege — and then go back to my normal life.

How Investing Turns Nice People Into PsychopathsThe Atlantic
The evidence suggests that corporations might encourage people to think and act more anti-socially. What does owning stock do to our brains?