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Monday, July 30

30th Jul - EU Open: Headlining

A new addition to the regular morning links: Nordea’s morning brief in Finnish. ECB's coming response seems to dominate the discussion, so expect headline-driven markets for the next couple of days.

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Quick reminder of what I posted during the weekend:


News roundup – Between The Hedges
The 6am Cut London – alphaville / FT
Emerging Markets Headlines – beyondbrics / FT
 
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

Asia today: Can the ECB really save the EUR? More clues this weekSaxo Bank
While the EURUSD retreated from its 3-week highs late in Friday’s NY session, it opened a tad higher at today’s Asian open following weekend press in Europe. The move lasted a brief period and soon reverted back to the 1.23 NY closing level.


Market Preview: EU business sentiment on tapSaxo Bank
European markets are expected to open in the green Monday amid rising hopes of further easing ahead of the meeting between Mario Draghi and Timothy Geithner. Markets are keeping an eye on the Eurozone business sentiment index scheduled later today.

Danske DailyDanske Bank (pdf)
The markets today will likely focus on any signs from ECB on when to expect some action. After apparently clear signals last week from ECB president Mario Draghi that the ECB was preparing something, the news over the weekend indicates  it may be too early to expect action already this week. Today we will also have Italian auctions of 3, 5 and 10 year paper.


Morning Briefing: Tokyo driftBNY Mellon
Japan's government is once more leaning on the BoJ to unleash more potent policy. Will it comply?

Aamukatsaus (Finnish)Nordea (pdf)
EKP:lta odotetaan uusia toimia velkamaiden tukemiseksi - Espanjan valtio tarvitsee ulkoista apua? - EUR/USD sahaili perjantaina ennen alkavan viikon korkopäätöksiä


EUROPE
Euro zone crisis heads for September crunchReuters
Over the past couple of years, Europe has muddled through a long series of crunch moments in its debt crisis, but this September is shaping up as a "make-or-break" month as policymakers run desperately short of options to save the common currency.

EUROPE: ECB
Dos and Don’ts for the ECBProject Syndicate
ECB officials’ recent statements may have reduced the pressure on governments to do those things, and, by reversing the decline of the euro’s value, may have blocked the market response that is needed to shrink current-account imbalances and boost GDP in the eurozone. Sooner or later, the ECB will have to clarify the limits of its policy.

Last week they spoke comforting words, but I saw only the frightening aspects of the euro-crisisFabius Maximus
Although entertaining as gallows humor, last week’s statement by ECB President Mario Draghi illustrates important but seldom discussed aspects of the euro-crisis. Here we read and annotate the text.

Welcome to the ECBVOXeu.org
Financial market once again pushed Eurozone leaders to act. European Central Bank President Draghi recently promised to “do whatever it takes”. This column argues that Draghi made an implicit commitment to act as lender of last resort to Eurozone governments. This means optimism may be justified – if only because it suggests that the Eurozone has a great central banker who is both a serious economist and an astute politician.

The Euromess ContinuesTim Duy’s Fed Watch
When I read Draghi's remarks, I see a policymaker in denial, not wanting to understand the root causes of the crisis.  Thus he sees the crisis in terms of simply lack of confidence rather than one with important fundamental factors.  Moreover, he is trapped by the austerity framework, not seeing that this is a failing strategy.  I don't think he sees the ECB's complicity in supporting the crisis.  And I think Draghi is representative of the average policymaker in Europe.

Here Bee DraghiKrugman / NYT
To keep the thing flying, you’d need something like a reverse play along the same lines: an inflationary boom in Germany, so that the periphery can regain competitiveness without devastating deflation…Nothing like that is happening.

Internal Devaluation, Inflation, and the Euro (Wonkish)Krugman / NYT
The difference between these two strategies demonstrates what a really bad idea it is for the ECB to have a mandate that only takes account of price stability, with no consideration for the real economy.

EUROPE: PIIGS
Saving the euro requires restoring Spain’s competitivenessVOXeu.org
The escalation of the crisis in the Eurozone calls for new measures to reduce yields on Spanish and Italian bonds. This column succinctly lays out the options and finds them wanting. It argues that sovereign bond purchases might not be sufficient to reassure investors. A credible solution will also require a coordinated strategy to address Spain’s competitiveness problem.

ECB could take haircut on Greek bonds in 'last chance' planThe Telegraph
Central banks across Europe are facing more huge losses under the terms of last-ditch efforts being made by EU authorities to keep Greece in the eurozone by slashing the country’s debt exposure.

A market-friendly debt buybackekathimerini
ECB can transfer its Greek bonds to the EFSF or the new permanent mechanism, ESM, at the average price bought by the EU central banks, allegedly between 70 and 80 percent of the nominal value. This way the ECB will not lose money on its Greek bond holdings. Moreover, the EFSF or the ESM can extend a long-term loan to Greece at a reasonable interest rate that will be used to buy the same bonds from them at the same price or lower. This way the country will be able to cut its debt by cancelling the bonds of a higher nominal value.

USA: FED
FOMC Preview: QE3 now or later? Calculated Risk
The data supports QE3 this week, but the data also supported QE3 in June. One of the reasons I thought QE3 was unlikely in June was the lack of foreshadowing from the Fed. There have been plenty of hints since then, so QE3 is very possible this week - but still uncertain.

USA: STOCKS
Stagnating Corporate Profits… PragCap
This earning’s season is starting to raise some red flags.  As expected, corporate profits are starting to show some serious signs of deterioration.  Q3 is expected to show a year over year decline in earnings now and Q4 is expected to show a sharp bounce back.

Biggest EPS Miss Since LehmanZH
Citigroup: earnings surprises have been about as bad as the third quarter of 2011, which were impacted by the Japanese earthquake and the debt ceiling debate.

Bad Guidance ContinuesBespoke
Roughly 1,000 companies have reported second quarter earnings so far this season, and while the earnings beat rate has been average relative to prior quarters, guidance has been negative to say the least. 

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