With the EFSF obviously too light to save the Eurozone, the next take needs to be ECB getting involved by expanding the balance sheet aggressively. The ECB needs to get inspiration from the mighty Fed.
The sovereign crisis has spread throughout Europe, and both countries and banks will need to obtain funding. The “normal” market won’t be able to deal with this, so the next step needs to be the ECB getting involved. There is no other way to “fix” the funding of the European mess.
The ECB should provide bilateral loans to the IMF, which would be a part of the bail out package for some the ones who need it (Italy).
So, the IMF (with the help of the ECB, China seems rather silent for now) and the EFSF are to fix the “problem”. Don’t forget, Italy needs to refinance hundreds of billions over the coming few years.
How the credit risk is to be shared, is not clear. One should not expect too much from the EU summit on Friday, especially after S&P’s warning today. The EU leaders have problems solving minor details, and this is simply too big for them to solve by Friday.
The ECB is to announce further measures of how to support bank funding on Thursday. Probably all operations will be extended. With the EU governments not able to agree on much, the ECB’s app 650 billion Euros of liquidity to Banks needs to be increased drastically, short term.
S&P to put all 17 Euro Nations on Downgrade Watch
Goodbye EFSF and welcome a huge expansion of ECB’s Balance sheet, or who’s gonna bail out Europe now?
S&P warns the AAA countries of Downgrades (German among those countries)
The US ratings agency is poised to announce later on Monday that it is putting Germany, France, the Netherlands, Austria, Finland, and Luxembourg on “creditwatch negative”, meaning there is a one-in-two chance of a downgrade within 90 days.
As we suggested last week, this is a war between the central planners and the credit agencies.
The market is falling on these unconfirmed news, and the Euro collpasing once again, despite the pathetic meeting between Merkel and Sarkozy.
For our Essential Chartology posted earlier today, click here.
MERKEL SAYS CHANGES OPEN FOR 17 EURO STATES, OTHERS CAN JOIN IN.
SARKOZY SAYS `PERFECTLY READY’ TO HAVE TREATY FOR EURO NATIONS
MERKEL SAYS EURO AREA WILL MOVE AHEAD ALONE IF NEEDED – BBG
“Greece is the only exception into EMU”
etc…We only ask ourselves, if Greece is the only exception, what are Portugal, Spain, Ireland and the others? This could be the false break out attempt we have been waiting for. Let’s see the action develop.
Full translated conference, courtesy Al Jazeera.
Markets are still trading relatively dull, with a risk on preference (that should change soon). Volumes are depressed, as many traders and fund managers spend the days before Xmas eating long lunches. We have had a Eurozone focus for the past months, but what will be the new focus?
We seldomly hear about the oil price nowadays. With the increasing tension in the Middle East, oil has recently been nudging higher. Could the situation in Syria and Iran get out of hand, and oil starts breaking to the upside? Remember, the oil producing countries such as Saudi Arabia, have been putting a lot of investments into spending, in order to keep the Arab Spring riots from developing further. These countries do not want to see a lower oil price, as people need to be motivated from further riots.
That sure is not what the central planners hope for, but on the other hand, they will probably fix that problem easily….
At least not in China where the Shanghai market is trading weak, and flirting with important levels. GDP, property prices, services and manufacturing data all slowing down. What’s next, bail out of China? More on the detoriating Chinese Economy by Reuters.
Another extremely dull morning in Europe. Occasionally one needs to check whether the intraday charts are updating. Biggest “news” is that Italian yields are falling and the 10 year yield is trading at 6,31, after people “cheer” Monti’s budget cuts. Now we just need to get the growth going…
Meanwhile investors are practically paying to park their money in Berlin. The Buba bill bid to cover came in at 3,8. People are once again thinking of the return of their money.
Dynamics of trading in this mornings session is lacking both volume and liquidity. Let’s wait for the US open. Meanwhile find some important charts below. We are approaching short term resistance levels, everywhere.
Banks face paying more to raise finance in traditional bond markets – and some will continue to be locked out completely – as a growing demand for collateral from other lenders is undermining the strength of their balance sheets, http://ftalphaville.ft.com/thecut/2011/12/05/778711/uk-banks-face-higher-financing-costs/
Businesses breaching EU privacy rules will face fines of up to 5 per cent of their global turnover under sweeping proposals to be unveiled next month, says the FT. In the first significant update of data protection legislation since 1995, http://ftalphaville.ft.com/thecut/2011/12/05/778671/eu-eyes-big-fines-for-privacy-breaches/
French president Nicolas Sarkozy and German chancellor Angela Merkel meet in Paris on Monday under pressure to align their positions on eurozone budget co-ordination, reports Reuters, ahead of an EU leaders’ summit in Brussels on Thursday and Friday. http://ftalphaville.ft.com/thecut/2011/12/05/778691/little-expected-from-merkozys-monday-meeting/
Australian coal miners Whitehaven Coal and Aston Resources have confirmed they are in discussions over a potential $A4.65bn (US$4.76bn) merger, the WSJ reports. Such a deal would make the combined company one of the country’s biggest coal producers with a combined output comparable to Peabody Energy’s Australian operations. http://ftalphaville.ft.com/thecut/2011/12/05/778441/australian-coal-miners-in-talks-over-4-7bn-merger/