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Tuesday, July 10

10th Jul - US Close: Sale!

Sell-off towards the close. Realization that the economy is tanking, QE is not around the corner and Europe is not fixed finally hit the markets. S&P futures have now reached the support areas and I stick to my view that it is time to go long. Tomorrow the minutes from the last FOMC meeting will be published, and they will be closely monitored for hints of possible QE triggers. I expect the market to gain some risk appetite before the event, but would be really surprised if the minutes would provide anything more than one or two happy trading sessions. 

In today's links, IMF wrote about Italy that "downside risks remain". Given the political and polite posturing of the IMF, this could be translated to English as: "things look bad". Spain's bailout memorandum of understanding gets a word or two, and the stock market price drivers get the attention they deserve.

Source: Thomson Reuters
Markets – Between The Hedges
The Closer – alphaville / FT
Market Commentary – A View From My Screens
Tyler’s US Summary – ZH
  Equities Smash Back To Risk-Asset Reality

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

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The Eurogroup provides a reality checkre-define
a good reality check for those who may have got carried away after the better than expected (only because expectations were managed so low) results from the European Council meeting in June.

Europe’s Divided VisionariesBarry Eichengreen / Project Syndicate
The 1992 crisis proved that the existing system was unstable. Not moving forward to the euro would have set up Europe for even more disruptive crises. That is why European leaders took the ambitious steps that they did. Not proceeding now with bank recapitalization and government bond purchases would similarly lead to disaster.

Whose recap is it anyway?alphaville / FT
the mystery of when direct recaps of banks by the ESM will kick in, what the ‘condition’ of having a single supervisor for banks really means, and what part the banks’ sovereign would play in recaps.

German Constitutional Court May Take 3 Months to Rule on ESM; Finance Minister Wolfgang Schäuble Warns of "Uncertainty"Mish’s
The "fast track" for constitutional review of the ESM in Germany just got a lot slower.

The bail-in Spainalphaville / FT
draft memorandum of understanding for Spain’s bailout…Featuring bank bail-ins for subordinated debt, notably

Spanish Financial Sector MOU - AnalysisTF Market Advisors

As Spain's 2012 funding requirements increase, it may need other buyersSober Look
Spanish periodic government auctions have been quite small in recent months - about €2bn each…Spain will need to step these up dramatically  (double or triple the amount) in order to raise the funds it needs for the rest of the year…And who is going to buy this incremental debt?

Spain vows to 'deep clean' financial sector after rescue deal The Telegraph
Under the deal to bailout Spain's stricken banks, the Government must come up with a roadmap of structural reforms by the end of July.

Finland’s got a seguridadalphaville / FT
Spain’s economic minister: The collateral will cover a “small percentage” of the loans guaranteed by Finland, and the agreement won’t necessarily be made with the Spanish government

IMF Executive Board Concludes 2012 Article IV Consultation with ItalyIMF
Executive Directors commended the Italian authorities for launching an ambitious policy agenda to secure fiscal sustainability and promote growth. The economic and financial situation nevertheless remains challenging, with downside risks to the outlook.

Reforms Key to Italy's Efforts to Outgrow CrisisIMF
Prompt and consistent implementation of wide-ranging reforms needed to revive growth. Outlook remains vulnerable, with key risks stemming from euro area crisis. Progress in creating more integrated euro area will be crucial for securing stability.

Italy: Staff Report for the 2012 Article IV ConsultationIMF
Italy: Selected IssuesIMF

Five Ominous Charts For Q2 EarningsZH
Q2 2012 EPS Growth expectations have fallen - Near record levels of negative pre-announcements - US Macro Data reports were dramatically worse throughout Q2 2012

The Bernanke Put 'Strike' Is Now At 1200 For The S&P 500ZH
It is the risk of deflation that will trigger a policy reaction. Current conditions are not even close to levels that have warranted additional stimulus in the past - which we estimate to be a 2% 5Y5Y forward inflation breakeven rate.

S&P 500 Consensus Expected EarningsDr. Ed’s Blog
Are we set up for lots of positive earnings surprises as a result of these downward revisions? That was the pattern since Q1-2009. My hunch is that the pattern will be broken this quarter as companies report results that are in line with downwardly revised forecasts.

Above the noise: Despite the multiples, banks aren't attractiveSaxo Bank
we're going through deleveraging, meaning asset prices are not growing as fast, the economy is growing below trend and there is a higher probability of setbacks in any recovery…Another major driver behind lower earnings power is the increase in regulatory requirements.

Totally Addicted To DebtThe Psy-Fi Blog
(Banks’) real problem, though, is that the world has changed.  Their debt fuelled addiction to old-style business models is under threat of extinction.  Those last century profit margins are gone for a generation or more: it’s time to go cold turkey, whether they want to or not.

What happens after the fallFree exchange / The Economist
the argument is not that when a country faces a balance-of-payments crisis and devalues it somehow gets off scot free. Rather, it's that adjustment is typically much faster and easier and carries less political economy risk (including the possibility that devaluation may ultimately be necessary anyway).

The negative fear bubblealphaville / FT
But financial repression is no accident. It is the deliberate objective of a policy designed to curb the demand for liquid assets and force greater willingness to commit to less liquid forms of investment.

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