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Tuesday, July 24

24th Jul - US Close: Just when I thought...

Another crazy day. SPX broke down from the channel, euro making new lows, curves flattening and yields and CDS prices at record levels. In US, the treasury bond yields moved to new lows in classic safe haven-type of a move. Troika's mission in Greece begins with statements like "nothing has been done for months" and "the debt have to be restructured again". Greece is really a lost case, but someone has to deal with Spain, now. No word on countermeasures as of yet, but the policy choices are very limited: full classic Troika bailout of Spain with haircuts and ECB printing.

Personally, kicking Greece out, unsterilized bond purchases with haircuts and higher inflation targeting might still save the day, especially if this would be combined with a partial/conditional (but not open for interpretation!) guarantee of Spain & Italy by Germany. 

Quote of the Day: EU Banks are able to source essentially unlimited liquidity from the ECB. As a result, Euribor futures and the Euribor-Eonia basis are not a good measure of market stress. Rather, the front end of EU sovereign yield curves, which do not have ECB support, is a better measure of that. – Global Macro Trading

Joke of the Day: As we have gotten into such a stable interest rate- and currency environment, we can now concentrate on the real tasks - Chief Editor Markku Huusko / Uusi Suomi (today!)
News – Between The Hedges
Markets – Between The Hedges
The Closer – alphaville / FT
Market Commentary – A View from My Screens
Tyler’s European Summary – ZH
  Europe Smashes All Market Records On Its Way To Total Insolvency
Tyler’s US Summary – ZH
  Gold Outperforms But Hilsenrath-Rally Fails, As VIXophrenic Equities Converge To Bonds YTD 

TV: Bloomberg, BBC
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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Josh Rosner: Eurozone Crisis – No More Safe Havensnaked capitalism
The longer it takes for political leaders to offer their constituents full disclosure and transparency, the more costly any solution will be.

The INET Council on the Euro Zone CrisisEconomist’s View
As the pressures toward disintegration of the euro increase and the deep social unrest in Spain, Italy, and other countries erupts, the INET Council of the Euro zone members felt compelled to issue a brief report that creates a vision of how the euro zone could be repaired and redesigned at this desperate juncture.

David Einhorn Throws France Under The Bond Vigilante BusZH
Under the new regime, France is now cozying up to its new anti-austerity, pro-money-printing allies, Italy and Spain. This makes sense when one considers that France's economy is more akin to that of its southern neighbors than it is to the German economy. Strangely, the French bond market hasn’t figured this out just yet.

We are beyond worry about Spain… The biggest country to worry about is ItalyFrance is the second largest country in the eurozone… French wealth is leaving France.

The never-ending crisisButtonwood’s / The Economist
It has been tempting, on many occasions, to feel that the end game must be in sight… The temptation is strong now…

Europe’s Ambitious Muddling ThroughProject Syndicate
Under these circumstances, “ambitious muddling through” is both the most likely and the most promising scenario. It will not be easy, and it will not allow time for complacency, given that the EU is most likely to remain in crisis mode for some time to come. But it is probably the only way to keep Europe moving forward.

Who Warned About the Euro First?The Euro Crisis / WSJ

Moody’s downgrades Germany, Holland and LuxembourgKiron Sarkar / The Big Picture

iTraxx - CDX spread blows out againSober Look
This is not a surprise, but the market is now assigning a significantly higher probability of default to European investment grade corporate credits than to US firms.

Germany in Recession: Private Sector Sees Fastest Falls in Output and New Business Since June 2009; New Export Orders CollapseMish’s

Eurozone Flash PMI At 46.5, Contracts 10 of Last 11 MonthsGlobal Macro Monitor

Six Reasons Why Spain Will Be Forced To Request A Sovereign BailoutZH
UBS FX Strategy note and couple of lines from GS as well

Spain's CDS spread moving toward Portugal'sSober Look

The Spain Curve Inversion In All Its Gravitational GloryZH

Barroso to visit Greece as turmoil continueseuobserver
his first trip to the country since the outbreak of the financial crisis – “nothing special”

Only fools pay tax, Greek edition (encore)alphaville / FT

WSJ: Fed Moving Closer to more AccommodationCalculated Risk

A Missing Ingredient Tim Duy’s Fed Watch
the Federal Reserve made a huge policy error in committing to an explicit 2% inflation target.  I think policymakers were under the impression that such a commitment would give them more flexibility by removing concerns that QE would be inflationary.  In reality, I think it had the opposite effect

The academics on QE… for nowalphaville / FT
The unconventional measures were generally seen as effective in preventing deflation at the zero lower bound through the signaling effect. However, economists do have contrasting opinions on the magnitude of QE’s price impact.

Q3 Asia Outlook: Will Australia or China ever reach denial stage?Saxo Bank
Of most concern for the Australian economy is the pace of China’s imports. In China, while another rate cut is possible, we believe more action will be focused on cuts to the reserve ratio requirement.

Three research groups' views of China's manufacturing PMI numberSober Look

 Jokohan nyt uskottaisiin?Hannu Visti
Jälleen on kokeiltu yhtä laastariratkaisua ongelmaan, joka ei ole laastarilla korjattavissa.

Moody’s antoi Suomelle AAA – mutta miksi ihmeessä Suomi parempi kuin Saksa?Tyhmyri

Asiakkaamme eivät ole Euroalueella mutta pahimpiin kuuluva kilpailija on – eurosta vain haittaa?Tyhmyri