Weekly review ………Deal or no deal, Greeks saga continues

Before we chew over events of last week this weekend is supposed once again to provide the final touches and agreement for Greece to get its next €130 billon ( although maybe €150 billion) bail out . According to press reports no such agreement has been made yet. The sticking point being the Greeks refusal to accept more budget cuts ( health and defence) but more importantly agreement on private sector wage cuts including a cut in the minimum wage. It seems the only agreement is that both sides feel they have done enough. The Greeks on austerity and the troika, but principally the Germans and other AAA countries who refuse to part with more taxpayers money unless the Greeks do more. I get the feeling that either way its not going to be a happy ending but that’s not to say markets still wont take a lift if and when an agreement is reached.
Generally risk markets ( bonds and equities) improved last week. Firstly in the euro zone bond markets in Italy and Spain have improved.Secondly the economic data has been either ok or as in the US on Friday,the January employment data much better. The US added 243,000 jobs ( expected 145,000) and headline unemployment was 8.3 % ( expected 8.5%). The upshot was equities edged up again adding between 1 and 2 % on Friday.
Things have not been so clear in forex markets although the Australian and Kiwi dollars were at the top of the pile. The US dollar was a smidge easier but the Euro did very little once again snuggling up to 1.3150. It seems that we need something extra or get us to EUR/USD 1.33 or 1.26, which brings us back to deal or no deal.
You would think that the likely conclusion will be a reluctant climb down from Greece but even that is not a certainty.
Purchasing Manager data now widely watched by markets was a little better in Europe although the gap between the still deteriorating Southern Med countries and the off the worst declining level Northern Europeans, still persists.In the US it was better still.
Latest information from the currency futures exchange still points to a hefty short in EUR/USD which bares consideration as it could yet point to a bigger squeeze on shorts. Fundamentally though little has changed and therefore still leaves the Euro vulnerable.The uncertainty persists and while equity markets are leading us to believe its all going to be ok, investors would be wise to keep an eye on the exit. Chinese data has thus far been in the ok camp but could yet rattle markets if it slides. The same could also be said of some geopolitical event.

Headlines

• US…. unemployment falls to 8.3% ( expected 8.5%)
• US ….adds 243,000 jobs in January ( expected 145,000)
• US…. ISM non manufacturing PMI 56.8, highest since Feb 20011
• Switzerland….. Central bank states 1.20 Euro peg is a minimum. EUR/CHF up 20 pips at 1.2070. Any ideas of raising the peg look fanciful.
• QE… The debate on quantative easing continues. Its likelihood at some stage remains a slight negative still on US dollar sentiment
• Central banks…. Talking of QE the ECBs balance sheet now (in US dollar terms) is 3.5 trillion against the Feds 2.9 trillion with lots more expansion likely at the next long term auction at the end of February.
• Currencies.. Mixed, Australian $ hit all time high against the Euro while the Japanese Yen weakened against all on intervention fears.

It appears that talk of Mr Berlusconi disappearing from politics may be premature if his own opinion of his popularity is anything to go by. He says, I still have strong popular backing, almost twice as much as my colleagues Merkel and Sarkozy,” he said. “In opinion polls, I personally have 36 per cent support. If I walk out in the street I stop the traffic. I am a public danger and I cannot go out to do the shopping!”
That’s probably akin to Russian support for communism, some habits just will not die off.

Weekly review… US Dollar weakness outweighs Euro zone reality for now.

Its not the being wrong that hurts its not understanding why.That is what it feels like seeing EUR/USD back at 1.3220 on Friday. The consolation is that I always felt it was a possibility and I have some ammunition left. The US dollar suffered because the Feds Bernanke chose to call interest rates at zero until 2014 and leave the door open for QE3. This sustained equity markets through the week and put pressure on the currency.and even a slightly disappointing GDP figure from the US ( 2.8% instead of hoped for 3% ) did not upset the trend. What is interesting is that the US Commodity and Futures Trading Commission data showed an increase of Euro shorts of 10% over the week to a record $28.1 billion. So there was no short covering from that crowd which means that a real shakeout is still possible. Or you can take it like me that if we go down we will all go down together, ha ha.
The Greek debt saga has carried on another week when it was supposed to be a whisker away from agreement even 2 weeks ago. Quite possibly an announcement of conclusion next week could give a knee jerk up move for the Euro but that will be a wonderful sell opportunity to my mind. By all accounts the Troika ( EU, ECB and IMF) are still insisting on more action from Greece on reforms and weekend press has speculated that the IMF in particular wish to take the reigns of management totally away from Greece, no autonomy what so ever. Well that will not work and with Portugal waiting in the wings to follow Greece in its downward economic spiral the problems are mounting. Spain’s unemployment data was appalling, up to nearly 23% at 5.3 million and likely to get worse.
In Davos, Switzerland at the world economic forum the Euro zone leaders were subjected to a tirade of negative comment but with little or nothing in the way of new ideas.The EU summit this week is expected to confirm the new fiscal pact and at least some kind of financial help for youth unemployment which is up near 50% in some areas. For sure if something is not done soon then social unrest will follow.
At this point I am not sure where I might panic on my negative EUR/USD view. We could go higher to 1.3400 even but I cannot see beyond that level. In any event I will add to shorts at these levels and more if we go higher.
I believe that Iran’s parliament is due to vote today ( Sunday ) on stopping EU oil exports immediately rather than the EU plan of June. This could definitely be an issue to unsettle risk markets if passed, pushing oil immediately higher and presumably equities lower and the US currency back up. One to watch anyway

Headlines

US.4th Qtr GDPup 2.8% just below 3% expectations
US..FOMC Bernanke signals low US interest rates until 2014 and leaves possibility of more QE
IMF Lagarde.. Says IMF would not risk its reputation by lending money without conditions ( aimed at Greece )
Spain. Unemployment surges more than 350,000 in 4th Qtr. Worse to come I am afraid
Germany.. A growing band of commentators and politicians consider Greek default and Euro zone exit likely. This apparently includes Angela Merkel
EUR/USD hits high of EUR/USD 1.3235. Technical resistance remains at 1.3245/55
UK… Prime minister and chancellor pull no punches in Euro zone criticism and are scathing of Financial transaction tax plans

I leave you with the comments of Nouriel Roubini. Dr Doom as he is known having predicted the financial meltdown of 2008 and a man who I assume is also short EUR/USD

“The eurozone is a slow-motion train wreck,” Mr Roubini said. “Countries – and not just Greece – are insolvent. I think Greece will leave the eurozone in the next 12 months, and Portugal after.”
The New York University professor of economics was speaking at one of the final sessions of the World Economic Forum annual meeting in Davos.

“There is a 50pc chance that the eurozone will break up in the next three to five years. This doesn’t look like a G20 world it looks like a G-Zero world because there is no agreement on global imbalances, how to change the international monetary system, international trade, banking regulation, on all the fundamental issues.”
 

Weekly review….. Euro fight back but jury out on next move as Greek talks stall

It seems the forex market is in a battle ground as far as EUR/USD goes. It is challenging the upper end of its recent channel but could not really manage a decisive break or close above the EUR/USD 1.2950 level. The price action since lasts weeks Standard & Poor’s downgrades has been Euro positive. Euro zone bond markets have been holding up well ( ECB money channelled through the banks mind you), equities have enjoyed a solid start to the New Year and US data at least continues to be supportive for risk.
As I said Friday EUR/USD bears may be tested further if we break higher, up near 1.3300 cannot be ruled out but I would be looking to sell there up to 100%, all in as you might say. There seems to have been good 2 way business from sovereigns but undoubtedly some profit taking from shorts,many of whom will have good profits.
One of the game changers last week was the new IMF initiative to raise more funds. It remains to be seen if the United States back it. There response so far has been pretty cool. Indeed the IMF is courting controversy. Ms Lagarde the French head of the IMF cannot in anyway be seen as a neutral in this. Having been a French minister she seems to be running a crusade to save the Euro, hardly what the IMF mandate is about. She has all the hallmarks of someone who will go on to stand in a French presidential election, presuming she does not self destruct like here predecessor. In any event its all a bit to Europe orientated. Their stance over Greece looks very strange, admitting things are ´dia´ with no real structural reforms and the downward spiral continuing but apparently happy to splash the cash still.
The Monti government in Italy will be unveiling its plans for structural reforms in the Labour market, which is finally to be applauded. The crucial points here are the response of unions. No Italian prime minister has been able to take them on but maybe this time it will be different baring in mind the economic situation. Of course the fruit from any changes will be years away, while the pain is immediate. Unions will want something on the growth side if they agree and its difficult to see what that might be.
Mr Sarkozy must be mighty relieved that the French downgrade has caused no wobble in bond markets and he too is talking of some major labour market reforms as he consults the unions. Brave man ahead of the election maybe, but perhaps it will be a master stroke. For sure the socialists might not look credible if they appose them much as in the UK where the Labour party have been forced to change tack on fiscal policy because of their policies lacked credibility.
So it may be that Euro bears will have to wait.The reality check for sure will be economic data from southern Mediterranean countries. As much as any individual can gauge anything the signs here in Spain point to some very poor economic figures. Starting from unemployment levels of 23% as they go into recession must be unheard of in this day and age

On to Greece where market participants will have been expecting an agreement on its debt swap deal this weekend.Latest reports suggest that representatives from private creditors have taken a time out and that the talks will not resume for a few days. While this may not be anything more sinister than last minute fine tuning of the interest paid and a deal will happen next week it could unsettle markets on Monday.

In currency markets one indicator seems still to be Euro bearish. The EUR/CHF has stayed unmoved under 1.2100 close to the 1.2000 peg and certainly no talk of raising it at the moment. It points to a continuing flow of funds away from European countries into the safety of Switzerland . Portugal which reached its 2012 targets not least by taking funds from its pension pot is thought to be next for a rescheduling quite possible followed by Ireland. And by the way just 2 weeks ago the Irish pm was on TV stating Ireland would not accept a financial transaction tax if the UK was not going too. Just another reason for them to clash with the French.

All this goes to show that despite completing austerity packages rubber stamped by everyone the upshot is failure.If more is prescribed how long before the stoic citizens cry enough. Ratings agency Fitch this week pronounced that a solution to Europe’s problems was technically and politically beyond reach, a conclusion it made after the December summit. That remains the key and as we have seen over the last 2 years the Euro zone problems may seem to come and go but in reality they are not being solved because it is 10 years too late. That the eurozone may be fixed in the next 10 years is going to be too long to wait.

Headlines

• Greece.Latest (Sunday) news points to suspension of talks without agreement. May unsettle markets on Monday but will happen next week.
• EUR/USD remains at crucial level 1.2945 at the top of its recent downtrend channel.
• European banks continue to support their domestic bond markets. All smoke and mirrors but ECB money is finding its way to fund governments
• Italian leader Monti to unveil the first real labour reforms. How will Italian unions react
• US housing data improves ( inventories of unsold homes falls to lowest since 2005)
• US Republican nomination just got interesting.Newt Gingrich wins South Carolina making it a 2 rather than 1 horse race

By the way how is your Iranian riyal position. Since October the US$/RIYAL has fallen to 18,000 from 10,500 . No change in the trend on that one either

Weekly review… Standard & Poor’s Friday 13th Part 1

As if it was some horror show Standard & Poor’s finally put markets out of the misery with numerous euro zone sovereign ratings cuts. France loses its hallowed triple A as does Austria ( France now AA+) .Perhaps of more significance was the group cut by 2 notches of which Italy ( now BBB) and Spain ( now A) are the largest borrowers.
Although the announcement came after the close of markets much had been leaked in trading time. While equities were lower and EUR/USD was back under 1.2700 it was no rout. Indeed it could be an error to expect a bigger sell -off on Monday certainly not on this news. Its been priced in already I would say.
What might be more worrying was the breakdown in Greek rescheduling talks. The rumblings there seem to point to perhaps the beginning of the end for Greece within the Euro.Provided enough of a back stop can be provided for them it may well happen sooner rather than later. Indeed prolonging it is now doing more harm than good.
The downgrade if Italy makes more of a splash I feel. There bond issuance program is an horrific spectre this year and a drop in status just adds to their troubles.
Anyway I have been looking at some of the euro zone countries so this fits in nicely

Italy
Earlier in the week ratings agency Fitch put off any cuts but was keen to point out that Italy remains the key problem within the euro zone. They noted that 1.5% growth and bond yields 1.5% above Germany would keep them solvent.Neither are within the remotest possibility with the spread against German bonds circulating around 5%
For all the austerity measures more than 20 billion will be eaten up in additional interest payments on new debt this year (€440 Billion) unless things change.
Italy lives beyond its means. A recent report into public sector wages, the Giovanni report was inconclusive but then again the very people who stand to lose most produced that report. Just look at Italian politicians who stand way at the top of Europe’s political pay league at €16,000 a month. France is 2nd on 13,500 and Spain way down at 4630 a month. Thus far cuts in expenditure while welcomed are not addressing the big problem of repealing labour laws. What’s more it seems that no one in Italy has the strength to take on the unions once and for all. This together with a tax collection system that is being exposed daily for letting citizens get away with murder when it comes to income tax contributions.So with the prospect of recession, falling tax revenues, higher interest payments, why should investors buy Italian bonds.
This weeks auction may have been ok but can Italian banks sustain buying all through the year and frankly at these levels of interest Italy cannot continue to be solvent.

Spain
Spain appears a little better off than Italy as bond yield near 5% show , purely on the amount of debt they have. They too had a better bond auction but once again this is Spanish banks buying Spanish government debt. What’s more the Spanish banks remain the real problem. Deleveraging is leaving no money for lending to the wider economy. Unemployment at 23% looks like its going to go up too. I am a great believer in seeing for yourself. When I arrived back at Barcelona airport on Monday the car parking company I use had gone bust ( Got my car but no keys so maybe I was lucky). All around where I live shops are closing. We wonder if in a few years we will just be left with the Chinese stores selling everything (Chinese) and they would appear to be the only buyers or renters of commercial property. Empty apartments are numerous as they are all over Spain. Every business you know of is complaining at the fall in spending. If it is a poor summer for tourists then this could be the last straw for many more businesses.

So we need a miracle to get back on track and that as we know seems unlikely from the ECB or Germans who now control the situation. The downgrades may well affect the ability of the EFSF (European Finance & Stability Fund) to raise funds respectable levels. They after all have Ireland Portugal and Greece to look after at the moment.
The Euro should probably not be sold next week. It is still a little oversold and as I said this could be a classic sell the rumour buy the fact job. Stock markets have started the year well and they will need to be watched. A general risk sell-off will not help the Euro but I still feel there is one good bounce left in it. Further down the road the US QE (Quantative easing) argument seems to be gaining momentum and you get the feeling the Federal Reserve will do it just because it shows they care.

One final thing. I do believe that the debt problem in the euro zone could be ended very quickly. As the citizens of Greece ,Italy and Spain have enjoyed so many years of their own false accounting paying in many cases derisory levels of tax I say let them, bail out their governments. Their pension money should be seized and used to fund debts. The IMF was designed to bail out the needy countries not poor governments from rich countries who’s residents paid inadequate taxes.Why should other EU countries whose residents pay their taxes subsidise those who don’t pay. Time to stand up Angela and tell them you pay not us. If the citizens of Italy thought they might lose their savings if they did not pay the correct taxes then that might spur them to do so. Bailouts for these are obscene and I do hope the Chinese or Indians do nothing to help.
On a political note I see Marie Le Pens National front lies just 2% behind Mr Sarkozy. and just 7% behind the socialists. OH what fun if she surges in the poles. It could be another Joan of Arc moment. Eric Cantona unfortunately has less chance of making the second round

Weekly review……….. Mrs H´s forex tips

News that Swiss Central Bank Chief Hildebrand’s wife Kaysha was making money trading the Swiss franc as the central bank intervened and introduced the peg is certainly an embarrassing revelation. However, it is not illegal. No you cannot be caught for insider trading in foreign exchange to my knowledge. So leave the women alone and find out what she thinks of the Euro I say.
It’s a sell of course as any ex forex dealer would say. The trend is down. Fine tune or finesse you’re selling. Take profits and intra day trade but don’t miss out. EUR/USD is going down, not in a straight line but it will be under 1.20 some day soon. I had hoped for a bounce to maybe sell some more but price action on Friday shows that there is big sellers out there and barring some freak about turn by Germany and the ECB its going South.
You can bet your last dollar or euro that the growth story is getting worse in Europe. If anyone can produce one instance in economic history where increasing taxes and reducing spending will somehow produce growth and not decline then please show me. Greece is the forerunner to any other Southern Mediterranean euro zone country. Do people spend if they don’t have money? Do people spend if they are worried they might not have a job or money? No.
Anyway that’s enough ranting and you know we are short EUR/USD and our target is near 1.20. We might lower that but we will see how things pan out. Quantative Easing (QE) by the Federal Reserve is still on the cards at some point but do not factor that in as some bearish dollar signal yet or for some time I would suggest. Right now why would you buy a Euro (and I don’t mean for some technical bounce as players are very short) all signs are for a weaker currency which will at least help out economies a small bit (the Germans even more ha ha)
China is also somewhere to watch closely together with other emerging countries. I am in the camp that thinks growth in these places could suffer more than is being factored in. The only real good news has come from the US where despite all the gloom the economy seems to be getting itself slowly better. What a pity it will be if as looks likely it is derailed from abroad.
Finally the stories from Italy and the tax police (Guardia di Finanza,) just have to get a mention. Having pounced on their exclusive ski resorts they are going to do more in other rich playgrounds in Italy
The description of Ferrari driving rich who claim to earn less than €20,000 a year is amusing but also sad. Tax evasion is endemic and what’s more presumably for the last 30 or 40 years those same tax police have ignored it or more likely benefitted from ignoring it. It’s too late to get quick fix as markets will not wait that long.

Headlines
 

• US Non Farm Payrolls (NFP).. Up 200,000 against expected 150,000.Unemployment falls to 8.5% from 8.7% expected. . US data continues better adding to the firmer US dollar tone
• ECB takes a record €455 billion on overnight deposit…. Now we know what happened to the €489 billion that 523 banks borrowed for 3 years…..Interbank lending remains virtually non-existent
• Italian Unicredit struggles to raise more capital and share price falls
• Sarkozy…France prepared to go it alone on transaction tax. Go on Sarky a few extra votes but not from Paris bankers we assume
• IMF Economist sees euro zone recession… What a guru thinks Greece still in trouble too… even more of a guru
• Euro zone retails sales down 0.8% (2.5% YOY) in November much weaker than expected………Recession
• German November industrial orders down 4.8% month on month (Expected –1.8%)…. Even German data disappoints
• IMF´s Lagarde… IMF to downgrade global growth forecasts. Confident Euro will survive 2012….. Was that a vote of confidence 2013
•  

No matter where you look Europe and particularly euro zone data is worse. The ECB continues to fend off weakness in peripheral bond markets with limited intervention.
The policy of muddling through continues and the EU summit scheduled for the month end and apparently to discuss and promote growth in the region could be a failure even by their high standards of underwhelming markets. Only one conclusion Euro lower. EUR/JPY hits all time lows but my preference is to stick with shorts against the dollar
 

Weekly Review…..2012 Unpredictable , uncertain, and more weak politics

Major events and predictions for 2012

2012 offers the possibility of enormous volatility in all markets. Forex markets should not disappoint and will therefore offer opportunities for traders new and old to make substantial profits or losses. While every pundit and economist will have a view on what might occur the mere uncertainty will be a driving force . Not only economic but geopolitical events could once again come in to play.

What to look out for in 2012, a country watch word and Forex predictions

Euro zone.
The Euro zone remains the focus for all markets in 2012. Italy´s ability to fund itself will be crucial in the first 3 months of the year with a large programme of bond sales. The credit crunch, particularly in southern Mediterranean countries remains acute and austerity drives look certain to make the growth outlook very poor

• Greece. Austerity burnout. Greece remains on a downward spiral as recession means budget targets cannot be met. Prediction… Greece will be forced out of the euro zone in 2012
•  
• Spain.. Banks… The banks in Spain remain a major headache for the new government. A large hit must still be taken on property which thus far has not been addressed . Like Italy , Spain must make some major changes in employment laws. Yesterday prime minister Rajoy announced a likely 8% budget deficit for 2011 from the previous 6% and a raft of austerity to keep markets at bay-
• Italy.. Bonds… The yield which Italy pays for its heavy bond programme next year will be crucial. Austerity and particularly labour reforms will need to be seen to be enacted not just promised . Prediction Italy will be the make or break for the Euro. Jury still out.
• France. . Election. The French election could be a major factor in the Euro zone politics. The Socialists (Favourites to win) have already talked of renegotiating commitments made at the last summit. Prediction bye bye Sarkozy
• Germany… A lower Euro will keep the German economy in positive territory.Divergence rather than convergence with weaker countries to continue
• ECB.. The ECB will be forced to support bond markets and maybe lower rates faster than inflation falls, as much of the euro zone sinks into recession. If they allow Italy to be shut out of international bond markets then they will have signalled game over for the Euro as we know it.
• Prediction EUR/USD Expect to see levels under EUR/USD 1.20 although the prospect of a complete collapse would see huge volatility and moves into the Yen and Swiss Franc ( The Swiss National Bank would be swamped in the event of Euro break-up)

Rest of the world

• United States.. Vital to the US remaining out of recession could be its own housing market. However, the economic wind that blows from China and Europe will also have a major impact The up and coming election makes any deficit package unlikely .More QE from the Fed could halt the US Dollar rally at some point
• United Kingdom. At Europe’s mercy. The UKs fortunes remain heavily tied to the euro zone. However, it will continue to have a safe haven status while troubles continue in Europe. Another round of QE remains a possibility and the authorities will be concerned with any further recovery of the pound against the Euro
• Japan.. Currency woes Japan could find itself struggling to hold the Yen back amidst the Euro fallout. Last week saw a break of EUR//JPY 100. Prediction. While Yen strength could dominate early on we could see the year end with weaker levels (USD/JPY over 90)
• China. Growth… Recent economic data is pointing to a slowdown in China. As things stand markets are presuming that Chinese authorities will manage to sustain high, if somewhat lower levels of growth. Prediction…. A somewhat harder landing for the Chinese economy could spook markets.

Geopolitical.

• Out on the streets.. More Arab Spring. Plus perhaps Europe and Russia might see demonstrators hit the streets
• Syria and Iran could be major influences on markets in 2012
• Oil. The range in predictions for oil vary between $70 and $150.. No other commodity has the potential to influence world growth as much. A massive spike higher in prices would be a disaster for fragile economies perhaps causing a world wide recession.
• Currency wars… Efforts to halt currency appreciation amidst declining economic activity or competitive devaluations will cause friction among major nations. China and Germany could be in the firing line.

On Wednesday, hundreds of Greeks rushed to settle last-minute issues at tax offices ahead of the strike. Many surrendered their car license plates, preferring to take their vehicles off the road rather than pay the increased road tax…………….the end is near

Happy New Year and Good Luck, we are all going to need it

Weekly review……. Online forex outrageous Euro Predictions 2012

It struck me this week when reading Saxo banks list of outrageous predictions that more should be written. In may seem tongue in cheek but such is the messed up nature of the world that it would be good to know what horrible nightmares could be lurking. In view of the current situation I have stuck with Europe

1. The German central bank goes bust.
Yes the Bundesbank, the stalwart of German economic success and keeper of the inflation keys sinks. Well apparently most of the money the ECB has been lending to other Euro zone countries comes from the Bundesbank. According to the latest data over €500 billion has been lent to other countries via the ECB since the crisis started.
 

2. ECB in collateral row.
When the ECB announced that it would lend unlimited funds to banks for 3 years with relaxed collateral rules it was designed to help banks buy more Sovereign debt without embarrassing them too much. Unfortunately in 2012 it was discovered that many banks including French Belgium Spanish and Italian Banks have been depositing euro zone sovereign debt as collateral. An ECB spokesman was quoted as saying ´We have enough of that shite on our books already. How about some milk bottle tops instead`.
 

3. Euro notes
As the crisis unfolded in 2012 one of the strangest developments was the issue of euro currency notes. Suddenly hundreds of thousands of tourists from Spain, Italy and Greece arrived in Germany to change their euro notes into German euro notes. It turns out that 95% of those 500 euro notes in circulation are used in those countries ( nothing to do with not paying taxes and dodgy property deals of course). Reluctantly Germany was forced to swap these notes into the German paper money. However, they had never printed denominations above 100 Euros so angry Southern Europeans were forced to buy extra suitcases to transport the notes home
 

4. Democracy in Europe not dead.
In amazing scenes of triumph Marie Le Pen wins the French election in April. She confirms that France will withdraw from the EU and proposes a new Entente Cordial with their true allies Britain. A snap election in the UK sees the UKIP party ( United kingdom independent party) win with ease and immediately leave the EU.

5. Brussels closes down
With the decline of the European Union politicians and civil servants were forced to leave Brussels. Thousands of expensive restaurants went out of business together with hotels and luxury giftware shops. Brussels rail station was a ghost town as the hundreds of gravy trains which had poured into the city were left idle.
 

6 Greece passes its 18th Austerity package.
The Greek government headed by Nana Mouskouri announced its 18th package of austerity designed to get its budget in order. Wages were slashed another 1%. Indexing of state salaries’ and pensions was capped at 10% and the retirement age raised to 47. The average salary in Greece is now just € 1874 according to the tax authorities who claim that revenues were up nearly €17000 Euros since the imposition of a 50% tax rate. The economy continues to struggle with sales of luxury cars down by 7 Mercedes and 2 Porches
 

7. Italy reverts to Emperor
Despite some initial protests Italians have by and large welcomed the new Emperor, Bulusconi to office. Emperor Silvio as he is known began a weeks celebrations by organising a series of Bunga Bunga parties accross the whole of Italy. Emperor Silvio was voted in on a promise of reduced taxes and solving Naples rubbish problem.
 

8. Germany rules out return of Deutche mark.
Despite speculation that Germany would be forced to bring in its own currency and therefore threaten its huge competitive trade advantage politicians seem more likely to stick with their plan to use the rouble. It makes sense said a spokesman following announcement of record German trade figures.

9. Europe forms a ´Bad Bank`
Following on from the Irish, Europe decides to establish a bad bank to package up all problem loans. The bank will be called the ECB and politicians hope that China will buy some part of it.
 

10. Europeans win World Waste of Space award
Messrs Jose Manuel Barroso , President of the European commission and Herman Van Rompuy, President of the European council have won a landslide victory in the award for the biggest waste of space. They truly are in a league of their own when it comes to being overpaid, unelected and not fit for purpose.
 

EUR/USD finshed 2012 on a stronger note back up at 1.05 floowing its record low of 0.85 earlier in the year

Weekly review.. Wait and sell or sell and wait

So lets qualify this statement.I mean that I think equities,peripheral euro zone bonds and the Euro are a sell (put the Australian dollar high up that list as well). On the buy side I naturally have the US Dollar first on the list.At the moment there is something for every pundit to claim success. Equities which sold off Thursday bounced back Friday and the Euro likewise snuggling up close to EUR/USD 1.3400.Italian and Spanish bonds did not recover all there lost ground and will be key to forex moves again I feel.
My reasons are the summary of the summit which I detail under and as you might gather does absolutely nothing for the hear and now problems. Maybe we will have to see the glut of Southern European depressing data before it happens Yes the ECB may have eased tensions a little in the Euro zone banks but just think of all that Italian Spanish and French debt coming up. Finally we have the rating agencies with Standard & Poor’s announcing late Friday that they should make an announcement In a few days This will be the focus of all markets or should be as it will have big potential to be next weeks biggest market mover.

Summit in short.

• Under the tougher fiscal rules, a member state would face automatic sanctions if it runs a budget deficit above 3% of GDP unless the sanctions are overturned by a majority of euro-zone nations.
• Debt to GDP would be capped at 60% and countries would have to write into law a commitment that if they had a debt burden above that, they would steadily reduce it.
• The euro-zone leaders tasked European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso to present a report on possible measures by next March.
• Leaders promised to increase the financial backstops to countries with debt problems by channelling EUR200 billion of funds to the International Monetary Fund but put off a decision on a proposal to lift the EUR500 billion cap on the funds available to the European Stability Mechanism till March.

Conclusions

• British Prime Minister Cameron has become a scapegoat. The outcome will have suited many countries who would possible struggle to ratify a new treaty
• What ever happened to the trillion or trillions of Euros once promised
• The agreements have no legally binding character. ( in fact a newly elected government could revoke commitment)
• Was the need for growth even mentioned let alone addressed.

Economics and markets
Already Portugal and Belgium have seen negative 3rd Quarter GDP data. There will be much more to come and Southern European countries including France could face the prospect of additional austerity measures while they are in recession ( Another Greek type spiral).
Sell and wait or Wait and sell? A difficult call and all will hinge on European Bond markets. However, as I mentioned, with Standard & Poor’s due to deliver its post summit review on all Eurozone countries I believe in the short term this could be the catalyst for markets moves. In reality there is not enough from the summit to convince them to not make some downgrades. That said they will likely hang on( this seems to be the consensus view) for possibly a few months. On that basis we might just get a pre Christmas equity rally and you will have the chance to sell EUR/USD at higher levels maybe 1.38 plus. If the opposite happens and there is immediate downgrades which would knock bond markets badly then you had better just sell assets and the Euro and Ausi etc

Mr Sarkozy was infuriated by the British who unlike him have not become a German poodle. When he loses his election next year a new French government will not be tied to anything that he agreed in Brussels according to the lawyers. The rest of the 26 will be pondering sending their budgets to Brussels (as we know now spelt Berlin). Europe dominated by Germany. Great Britain on the outside, now where have we heard that before?

Weekly review….Forex market detaches from Equities and Bonds

The correlation between forex markets and equity markets has been a plot that been going on for a long while. Certainly the US Dollar has by and large mirrored stock markets Likewise EUR/USD has recently been hugely influenced by eurozone bond markets.
Equities helped by better US data seem to have cast aside eurozone worries and even troubled bond markets improved with Italian bonds grinding there way below the 7% yield. However, forex markets and particularly EUR/USD decoupled on Friday closing lower initially on downgrade rumours for Spain which indicates the nervousness of forex markets at least. The same couldn’t be said for stock markets which finished the week over 7% higher. They seem to be taking the view that next weeks summit will conclude with enough unity to allow for some additional ECB intervention in bond markets.
There is much at stake next week and nothing seems clear,. These are some of the issues, proposals, and debating points

• Timetable. We kick off Monday with Merkel and Sarkozy finalising plans for increased fiscal discipline , the move forward towards control of budgets by Berlin ( Written as Brussels ). Other Euro zone leaders and EU leaders will be informed ( sorry consulted) before the summit starts on Friday continuing over the weekend with announcements before markets open on the Monday
• Eurobonds… NO The Germans have made it very clear that this will not happen. There will be negotiation and it will not be on the agenda. Notably no mention of them from Sarkozy last week.
• Treaty Changes ….NO It seems that any treaty changes at this stage are unlikely not least because as everyone knows there just isn’t the time. It could involve national referendums.Those as we know are not what leaders want.
• IMF…. There has been much muted about IMF involvement. Some kind of loan switch from the ECB to countries via the IMF looks possible though frankly seems the same as a direct loan from the ECB (which is forbidden under EU rules) However, the possibility of increased commitments to the IMF looks way off. US Republicans are already objecting to any additional transfers.
• ECB…. The European central bank should cut rates at Thursdays meeting (I think they will and many board members have been talking of the deteriorating outlook). It seems that if new fiscal controls are agreed that they may well agree additional bond purchases. I suspect they will not divulge how much and will attempt to get a good reaction from markets with the minimum amount possible. Wholesale massive intervention will only be considered as the last action to prevent break-up.
• EFSF…. We should finally get some details on the bumped up size of this fund. At least expectations of the Trillion plus have been well and truly dampened down.
• While politicians outside the Euro zone will be attending meetings including US Treasury Sec Geithner their influence will be minimal
   

CONCLUSIONS

• …. Will it be another grand plan from Sarkozy that disappoints? Possibly
• ……Will all Euro zone countries make it to or survive fiscal union ? Unlikely
• …. Will the markets be convinced ? Well maybe to start with but it has probably gone too far now for a happy ending lets say. In terms of forex moves we could still see a good bounce for EUR/USD which would mean something 1.38 plus.Equities seem to want to go up and with big bucks sitting on the sidelines we could get that Santa rally. If there is enough to edge bond rates lower then things might look ok for a few months.
• What we will not see is a reversal in the decline of European Money supply which is contracting at some pace particularly in Southern Europe. It may take more months but the credit crunch will suffocate any growth potential.

GOOD NEWS
Portugal will make its 2011 budget targets
BAD NEWS
Portugal has raided € 5.6 Billion from pension funds to meet its budget targets. That spells disaster ahead.

Away from Europe just make sure we keep an eye on China. Things just don’t seem to be quite right there. A more pronounced slowdown and the proverbial really would hit the fan.

Through in civil war in Syria or worse some hostility with Iran and you really would have the perfect storm

Weekly review… The Eurozone… welcome to the new Soviet Union

So not surprisingly the eurozone shambles runs on another week. Globally, risk markets have sold off and importantly the psyche of recession has been sown in many peoples minds.The credit crunch in Europe is developing at pace and companies and individuals will continue to put everything on hold until something is resolved.
In forex markets confidence is slowly sapping from the Euro but as yet we have not seen a crisis, unlike bond markets. I continue to believe that despite hitting lows near EUR/USD 1.32 there is not a huge overhang of short positions .Certainly there has not been a panic in currency markets, not yet at any rate. While the banks in Greece, Spain ,Portugal and Italy are being emptied of Euros much of it will remain for the time being in the same currency if not a different country.Thus far major corporations may not have followed suit but could signal the Euros death throws if they do.
What is not in doubt is that forex markets will continue to trade off eurozone bonds. Italian bond yields (10 year) closed the week over 7%, lack of aggressive ECB buying unable this time to push rates back below that physiological level. Belgium, now well and truly dragged in with rates just under 6% and a S &P ratings cut. How long left for France or even Germany for that matter.The ECB will soon face its ´High Noon´ moment and how it reacts may still be the deciding factor in eurozone survival.

Markets are being told that bold plans (yes another big event forecast) are being made by Merkel and sidekick Sarkozy for treaty changes in the EU. Yes the move forward to more Europe. What they mean by this is that all Economic powers except at the margin will be dictated by Brussels or should we say Frankfurt and by unelected morons. How long before social, foreign and other policies are taken away from increasingly powerless domestic parliaments. Yes disenfranchising the populations of many countries.None of this will be agreed by voters.No referendums, remember.

With Germany and the ECB becoming more and more isolated as eurozone bond markets continue to suffer, it remains to be seen how long we survive before a political spat. The finger is going to be pointed well and truly at Germany, and why not. Talk of a change of heart on Eurobonds would appear to be premature. For starters the powerful German constitutional court has pointed out concerns that the German parliaments constitutionally anchored control of the countries budget is not changed. Of course that doesn’t apply elsewhere. Speak to the Greeks, Portuguese , Irish ,Italians and Spanish.

As a political by-product of all this austerity, friction is certainly appearing in Spain or should I say Catalonia. The Catalan government ( PP didn’t win a seat there) are already complaining about damaging vital services when they have to subsidise the poorer areas of Spain with transfers (via Madrid of course) to them. I wonder whether Italy will see the same gripes between the wealthy North and the poorer South. Now that would be a great result for Mr Barrosso and the other idiots. Not only a eurozone crisis but cause the break up of Spain and Italy. Unfortunately this is not as crazy as it sounds. A vicious downward economic spiral could eventually set off many events, civil unrest or worse.
The decision could be simple. Either the German way or´you are on your own`, way. Unfortunately those decisions, as we have seen already in Greece will not involve the public or even elected officials. Get used to it in the new Soviet Union.

Late News

* Swiss bank UBS thinks markets are beginning to price in a eurozone break-up. Emphasis on beginning I would say
* Congratulations to Belgium who after 18 months without a government have agreed a budget. It took rating agency Standard & Poor’s downgrade to wake them up. However, come the new order they need not have a government at all.