Merkel managed impressing investors on Friday. The question is, what is next? Spiegel on Merkel’s dilemma going forward.
Merkel launched her counterattack on Friday afternoon. In a post-summit press conference, she said one first has to sort things out after such a long night, and she tried to counter the impression that she had been out-maneuvered by Italian Prime Minister Mario Monti and Spanish Prime Minister Mariano Rajoy.
Merkel underscored that she had pressed to make sure that the rules of the ESM were adhered to. She said she had successfully defended the ESM’s preferred creditor status and that only a single exception would be made, for Spain. Likewise, she noted that, if at all, the ESM would only provide direct assistance to private banks after a long process of setting up a banking supervision mechanism, and that Germany would have several opportunities to exercise its veto during this process.
Guest post by Doug Short.
Markets around the world rallied last week, or to put it more precisely, rallied in overdrive mode on Friday. France’s CAC 40, the top performer with a weekly gain of 3.42%, had a four-day loss of 1.27% at Thursday’s close. But the outcome of the eurozone summit sent buyers into a frenzy (with some significant short covering, I would imagine), and the index rose an eye-popping 4.75%. The German index exhibited the same behavior — down 1.81% for the week at the outset of Friday’s 4.33% advance.
China’s Shanghai Composite was the odd man out. It lost 1.57% for the week despite its 1.35% gain on Friday. The index is down 35.89% from its interim high in 2009. The signs of slowing economic growth have taken a toll on the Shanghai, and the Chinese Manufacturing PMI, due out later today, will probably influence the Monday’s markets in the People’s Republic.
The table inset in the chart below shows that four of the eight markets are in bear territory — the traditional designation for a 20% decline from an interim high, down from five last week with the German index rising above the bear stigma. In our gang of eight, the S&P 500 remains the closest to an interim new high, down only 4.01% from its April 2nd peak.
Peter Tchir has been rather spot on regarding the markets lately. Here are some weekend thoughts worth reviewing.
You can read about Europe from a lot of other sources this weekend. I maintain that when a Grexit became a real possibility, they finally looked at what it would mean and became scared of the risk. Since then there has been a change of attitude. I saw it in the Spanish bailout, and I continue to see it. You can debate all day long about what Merkel says, or what the facilities can or can’t do, but if the EU has changed their approach, and has the will, they can find a way to give this one heck of a kick down the road.
High Yield is positive for the year no matter which day you bought it
Why would retail investors switch to equities when they have found a new and underinvested asset class that yields 7%? I’ve pulled up HYG here to show that there is now not a single purchase that would have a negative total return. Even if you top-ticked the market in February, the coupon income has saved you. This is true for the mutual funds I looked at as well.