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Thursday, August 2

2nd Aug - US Close: Yo soy un hombre sincero

Spanish 10y yield, intraday
ECB came and went. I guess no-one was expecting unconditional “going nuclear” from Draghi – but after his speech expectations were very high. Strategy seems pretty clear and even makes some sense to me. ECB shall perform some SMP in shorter maturities while the ESM and EFSF shall purchase the longer maturities – but only after an official request for help has been sent. This is something Italy and Spain do not want to do. There are two explanations:

1) The politicians in Spataly are scared shitless of getting boatloads of Troika inspectors looking at the accounts of banks and local governments. This is because they have stolen billions over the years, and the organized crime syndicates in both countries are also not happy. Actually, the whole political elite in both countries is scared. It would be preferable for the other countries to simply subsidize Spataly by ECB funding, fiscal and banking unions. Just the money, and no hard questions.
Spanish 10y yield, one ye

2) Same as above, but the politicians are actually worried about their own voters – forced austerity is not an election-winning strategy. Also, as the countries think of themselves as too big to fail, they believe they can try to negotiate for a better deal. Every side is trying to get a better deal, all the time. The better deal is money from others. The “or else” is the introduction of national currencies and default on foreign debts. 

I try to collect my thoughts and read a lot. Then I'll write something.

For full coverage of the ECB meeting, see my continuously updated ECB WATCH and remember to scroll to the end for the latest updates.

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Markets – Between The Hedges
The Closer – alphaville / FT
Tyler’s European SummaryZH
  European Bonds Give Up ALL Draghi "Believe" Gains In Worst Day In Over A Decade
Tyler’s US Summary – ZH

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

The Thin Blue Line Between Hopium And RealityZH
consensus estimates for 2012 EPS growth have fallen from double digits at the end of last year to 0.7% currently."

Press release Monetary policy decisionsECB

Press conference Mario Draghi: Introductory statement to the press conferenceECB
Steen's Chronicle: Draghi did not have a Royal Flush...Saxo Bank
It looks like the ECB and FOMC again overpromised and underdelivered in terms of new action. We do not doubt Draghi will want to do something, but the Q&A indicated that the split between Draghi and Club Med vs. Germany/Finland is as big as ever.

Did Germany just stop Draghi from bailing out Europe?Wonkblog / WP
What’s the hold up? Germany, perhaps. During a press conference afterwards, ECB vice-president Vítor Constâncio noted that only one member of the ECB was adamantly opposed to bond purchases. This seems to be a reference to Germany’s Bundesbank

ECB will do whatever it takes… but it will take a while to figure out what it isASA
But even with lowered expectation, we didn’t quite expect that.

A Hint From Draghi on the Euro?Bruce Krasting
What is the one thing that Draghi could do that would cause energy prices within the Euro Zone to rise? The answer is he could cheapen the Euro versus the dollar

European Bonds Give Up ALL Draghi "Believe" Gains In Worst Day In Over A DecadeZH

BNP Furious That Draghi "Jumped The Gun"ZH
The lack of detail on all the above is a major problem. There were a few more details here and there in the press conference, including the ECB buying in short maturities, but it would have been far better for Mr Draghi to have kept quiet and deliver the "big splash" when there was sufficient agreement to allow the details, and the action, to follow in short order. Expectations should have been much better managed and Mr Draghi's credibility is taking a hit accordingly.

There be Draghisalphaville / FT
Given last week’s declaration that Draghi would do “whatever it takes” to restore the transmission mechanism and
Europe with it… what could possibly have led to Thursday’s disappointing ECB action?

The ECB gives a tiny glimmer of hope, not more!re-define
The promise of ECB measures announced today merely begins to address some of the symptoms of the serious economic and political dynamics at work in the EU so will only buy EU policy makers some time. Exactly how much, is hard to tell.

ECB meeting - Draghi opening the door for politiciansDanske Bank (pdf)

So that's what he meantFree exchange / The Economist
There are a number of potential pitfalls. First, the German constitutional court is currently considering whether the ESM is consistent with the German constitution…Second, a small creditor county in northern Europe…third, Mr Draghi has to reckon with opposition from the German Bundesbank,

Was Draghi really a disaster?alphaville / FT
It is simply extremely difficult to design asset purchases beyond the
SMP that work for the 17 eurozone states as whole. This isn’t the Fed we’re talking about here. How should the ECB get round the fact that super-low German yields are screaming a transmission problem just as much as high periphery rates?
Second Policy Failure of the WeekTim Duy’s Fed Watch
An epic policy failure by the ECB.  Not only is the ECB willing to let the Eurocrisis simmer for another month, but their communication strategy is abysmal.  Draghi very desperately needs to be more aware of the impact of his comments.  As for the ECB statement, I think it says that the ECB is a second line of defense, and they will act reluctantly only after the EFSF/ESM fund is activated.  This seems to imply a formal bailout request as a precondition to ECB action.

IMF Concludes 2012 Article IV Consultation with the United StatesIMF
United States: Selected IssuesIMF
United States: Staff Report for the 2012 Article IV ConsultationIMF

EMEA WeeklyDanske Bank (pdf)

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