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Thursday, June 7

7th Jun - US Close: Nothing Is Something?

ECB did almost nothing. FED only said it could do something, maybe. Merkel said that she will definitely do something, surely, but all the pieces she is referring to are already there. The only clear positive measure was the interest rate cut from China and initial talk that the Spanish banks will be recapped. Also, Spanish auction that was the main talk beforehand went well, according to a lousy newspaper, and ok according to analysts. The blogs thought it went badly, and Sober Look suggests the Spanish auction was directly funded by the ECB.  So these are the news that the market has rallied on?

Either the market is very wrong, or this is very bullish. As the other instruments (credit, commodities) have not participated in the stock rally, I think it is the stock market that has been getting the message wrong and we could be in for another wild roller coaster Friday. One week to go before Greece's elections. Mind the announcement games - for every day there has been an European rumor of salvation that has not led anywhere. They will try to manage the markets until the big EU meetings. But by then they will have to have something concrete, or everything will be down to Draghi.

Markets – Between The Hedges
The Closer – alphaville / FT
Market Commentary – A View from My Screens
Tyler’s US Summary – ZH

  Late-Day Crumble As Stocks Join Gold's Stumble
Debt crisis: live – The Telegraph
The Euro Crisis Blog – WSJ
Tracking Europe’s Debt Crisis – NYT
FX Options Analytics – Saxo Bank
European 10yr Yields and Spreads – MTS indices

Living Europe’s Nightmare Project Syndicate
former Vice Chairman of Moody’s: The entire planet seems to be in denial about what is about to occur in the eurozone. Pundits keep expecting Germany to pull a rabbit out of the hat and flood the continent with Eurobonds, or that Mario Draghi will mount a coup at the ECB and buy up every deadbeat country’s bonds. Either could happen, but both are extremely unlikely.

The rise and fall of European bankingalphaville / FT
Banking in Europe boomed upon the creation of the euro and the global expansion of credit in the 2000s…Things have since changed.

Mario Draghi: The banker holding Europe hostageWonkblog / WP
He can print money. He can lower interest rates. He can fund banks. He can comfort investors. He is perhaps the only person on the planet who, with a few words, could mostly end the euro zone's crisis. But he refuses to say those words. And that's because he doesn't want to end the crisis.

The Accidental Empire / George SorosProject Syndicate
It is now clear that the main cause of the euro crisis is the member states’ surrender of their right to print money to the European Central Bank. They did not understand just what that surrender entailed – and neither did the European authorities.

Monnet’s GhostProject Syndicate
Technocracy, it seems, can work well as long as most people feel that they are benefiting materially, as was true in Europe for almost 50 years, and might still be true in China. But its legitimacy cracks as soon as a crisis erupts. Europe is feeling the consequences today. Who knows what might happen in China tomorrow.

Euro’s Rally Can’t LastThe Source / WSJ
However, both the Fed and the ECB are keen to preserve pressure on their governments to adopt further fiscal discipline and so are unlikely to rush into early monetary easing before either this fiscal discipline is adopted or they feel forced to move because of possible disruption in financial markets. Either way, this suggests that euro buyers could well be disappointed…

Cashin Conjures Thatcher's Prophetic 'Euro Folly' CallZH
Right back in 1990, Mrs. Thatcher foresaw with painful clarity the devastation it was bound to cause. Her autobiography records how she warned John Major, her euro-friendly chancellor of the exchequer, that the single currency could not accommodate both industrial powerhouses such as Germany and smaller countries such as Greece. Germany, forecast Thatcher, would be phobic about inflation, while the euro would prove fatal to the poorer countries because it would “devastate their inefficient economies”.

“Expect to be disappointed”: Crucial Dates For EuropeZH

The End of Germany's IllusionsSpiegel
Germany's booming economy and plummeting unemployment has long insulated the country from the euro crisis on Europe's periphery. Those times, however, are coming to an end. The German economy is now showing it is vulnerable after all, and Chancellor Merkel will now be forced to make sacrifices.

Merkel Lowers Expectations for Quick Euro FixSpiegel
Both Britain and the US want to see Europe move quickly toward a solution to the euro crisis. But Chancellor Merkel prefers a more methodical approach. In comments on Thursday morning, she sought to lower expectations ahead of the European Union summit in late June.

Latest on sovereign CDS activity; Germany makes the top fiveSober Look
Also German CDS price edging up – bailouts ahead…

Fitch Follows S&P, Slashes Spain By 3 Notches To BBB, Only Moody Is Left - Step 3 Collateral Downgrade ImminentZH

A three notch cut for Spain (and a deteriorating view of those banks…)alphaville / FT
Fitch estimated that the Spanish banking system will need require additional capital of between €50bn and €60bn to cover potential stress losses on their domestic loan portfolios. Under a more extreme scenario, based on what occurred in Ireland, these amounts rise to between €90bn and €100bn.

Spike in ECB's MRO facilitySober Look
Did ECB loan out 68bn to Spanish banks in the past couple of days, thus guaranteeing the success of today’s bond auction?

IMF report to show Spanish banks need 40 bln euros in aidReuters

Analysts' Kneejerk Response: "No New Easing Hints"ZH

Bernanke Says FED Ready to Take More Steps to Strengthen EconomyTIME

Bernanke Won’t Tip Hat on StimulusMarketBeat / WSJ
Bernanke’s testimonyalphaville / FT

"Nothing decided” is the main message from BernankeDanske Bank (pdf)

Jefferies’s McCarthy Says Fed Will Extend `Twist’BB (mp3)

The Swiss hill that may become a mountainalphaville / FT
such a mantle is expensive to wear… and getting more expensive. According to the Swiss National Bank their foreign exchange reserves increased from SFr238bn in April to a record high of SFr304bn in May:

Thoughts on Japanese and Swiss Reserve FiguresMarc to Market

How Long Until EURCHF Is Re-Pegged To 1.10?ZH
Tyler calculates with very unscientific methods the “equilibrium price”.

Flash Comment: China Rate Cut Danske Bank (pdf)
PBoC cuts rates by 25bp and embarks on interest rate liberalisation

Surprise Rate Cut in China; What's it Mean?Mish’s
The simple explanation is China is slowing far more than the soft-landing crowd expects. China wants to stimulate growth but it has already exhausted every economically viable infrastructure project. All that is left is malinvestment opportunities.

Eastern easingThe Economist
So nothing from the ECB, no change in Bank of England policy, and Ben Bernanke's testimony only reconfirmed the Fed's willingness to act if needed. But we did have a quarter point rate cut from the People's Bank of China, which illustrates that the emerging world has more scope to ease

PBOC, not leaning against the wind anymorealphaville / FT
ING confirming not only that the PBOC’s foreign reserves did indeed contract in April as the yuan depreciated against the dollar, but that a chronic trend of this sort would indicate that the yuan was now overvalued versus the dollar — until now, a very rare opinion indeed.

JPMorgan’s Belton Says China May Stabilize MarketsBB (mp3)

ISI’s Straszheim Sees `No Hard Landing Risk’ in ChinaBB (mp3)

Killing Vampires, Werewolves, and Zombie BanksTF Market Advisors
Good talk on how insolvent banks can go on for a long time, and a view on the latest central bank (in)action.

EMEA Weekly, Week 24Danske Bank (pdf)
ECB determines the direction of EMEA markets - CEE central banks to be more forward looking - Rouble slid on cheaper oil and eurozone anguish