Weekly review…. Spain shifts to poll position for next bailout.

Its a pity its so dull in forex markets because the action in bonds and to some extent equities is a real volatility frenzy right now.
Last week saw a big wobble for Spanish bonds with a new auction of just over 10 years coming in at almost 7 %. While Italian and Spanish yields came back down following probably heavier ECB buying they are still stubbornly over 6% for 10 year bonds. Indeed last week the bond tensions spread to core countries where French bonds briefly touched a 2% differential with German bunds. While the pressure increased on Germany and the ECB they merely carried on rejecting calls for more action.

As I say forex markets are almost a haven of tranquillity compared to others. That EUR/USD finished the week near 1.35, that stayed in a range of 1.3480 to 1.3620 is quite remarkable. I remain bearish but the resilience of the Euro as a currency in such adverse conditions has to be respected. For sure anything approaching good news could see us back at 1.40 if equity markets played their part to. That said it is difficult to see where that news might emanate from.Technically a break down below the 1.3480 should see some more downside and on the upside we have resistance all the way to 1.3850. For the time being its follow the bond markets if you are day trading that pair. Elsewhere the US dollar and commodity currencies continue to track equity markets.

Back to Spain where this weekend sees elections and the widely predicted winner the conservative People Party, headed by leader Mariano Rejoy. Almost another super Mario or will it be NoJoy
Unfortunately the new government does not get sworn in until December 13th and are voted in a week later. Even Snr Rajoy has spoken of his hope that no bailout will be required before then. Somewhat more realistic than past leader Zapatero who last year warned speculators in Spanish bonds, they would lose their shirts.
One of the biggest dangers in Spain is perceived to be the banks, which is very true and a severe credit crunch is already occurring with worse to follow. What could spark a real crisis is if the new government come clean on finances. In some circles there has been talk of a huge legacy of unpaid bills hidden in regional governments. This is almost certainly true. However, if the new government expose it, then they could well cause the crisis that pushes Spain into bailout territory.The mood in Spain generally has been very stoic in the face of massive austerity. High unemployment especially youth unemployment which promises a young brain drain is not good for any country.
The truth is the conservative PP will make it to power by default. There has been little in the way of substance in campaigns and Snr Rajoy will have to work quickly and with some inspiration to form a cabinet that can carry through more austerity measures. Quite where the promised job creations will come from is anyone’s guess.

Markets will give him very little time and without ECB help Spain look more likely to follow Greece Portugal and Ireland. For those who feel that Germany and the ECB will relent when a larger economy is at the cliff edge the day of reckoning could be very soon.

While Greece has slipped under the radar for a week it appears even with a non political government things can go wrong. The conservatives are refusing to sign a pledge on backing the agreed austerity measures. The Troika have made this a condition for releasing funds so once again we have a stand off.

Weekly review…New Europe , No democracy , Germany in charge.

When you do away with the your currency like in the eurozone you take away a safety valve on the economy. So when something has to give it is sovereign bonds which can take its place. As we have seen this week with Italy, bond prices have swung wildly with 10 year yields hitting a peak of 7.5% on Wednesday but back at 6.5% on Friday close.The best that can be said is that it focussed Italian political minds in passing the austerity budget (which unfortunately is totally inadequate) and will see the back of Sr Berlusconi, well for a while.
In equity and forex markets we saw the usual follow trades.In fact we ended up pretty much back at square one. EUR/USD which traded down to 1.3480 was back up close to 1.38 on Friday. I still believe in selling rallies although with US politics about to come into focus and the Federal Reserve still pondering QE3 it may be the US currency that draws some attention.
At times like this the rumour mill works overtime. The end of the week saw comments about possible bond yield pegs whereby the EFSF might look to hold Italian bonds at 5% yields, others at lower levels. Good luck if you believe that one. The fact is Italy has over € 300 billion of debt maturing over the next year and confidence has been crushed.
Next week again you can expect politics to dominate. In Italy while nominating an interim prime minister may be easy, agreeing a cabinet and more reforms seems another matter. Maybe they need the ultimate pressure from bond markets to focus their minds, it certainly worked last week. In Greece they have their new technocrat PM but it could be out on the streets where we now focus.

The early part of next week will be all about Europe .Recession and a credit crunch are just two things for southern countries to cope with amidst all the austerity.Germany continues to call the shots but thus far has refused to buckle under international pressure to sanction the ECB to fix it with unlimited bond purchases. In the mean time France does everything in its power to stop losing its triple A status.
If we get a rally in bonds equities and the Euro on Monday just because Sr Berlusconi has gone then my advice would be to sell into it. The eurozone crisis is way short of fixing. Two countries of the eurozone are now governed by unelected leaders and one of those is controlled economically by the IMF and EU.Now that is almost becoming a trend, so much for western democracy

In the US the sight of republican presidential candidate Rick Perry having a major blank moment on a TV debate seems to qualify him eminently for any number of senior European positions

Weekly review…. Papandreou & Berlusconi limp on, Super Mario surprises

Two weeks ago we would have expected to be celebrating a G 20 meeting that endorsed a grand battle plan from the EU. Commitments to the EFSF would be oversubscribed by nations as they helped Europe which had given a clear and workable plan to solve the Eurozone crisis. Well none it happened.and the IMF and China have not committed any funds to the EFSF merely lip service.
Poor Mr Sarkozy who hoped for a lift by hosting the meeting that solved everything is left grasping at straws and at best will limp to elections without losing France´s triple A status.
In some respects you could not have written the weeks events. Greek pm Papandreou held centre stage for much of the time. Firstly announcing and then cancelling a planned referendum once Mess’s Merkel and Sarkozy gave him little choice.Having somehow survived a vote of confidence late Friday, he has pledged to form a coalition government , which seems likely only without him at the helm
Italy is becoming the scolded child. Now they have acceded to IMF and EU supervision on planned reforms.However, like Greece the prime minister Berlusconi seems to have lost the confidence of his party his people and other political leaders. More importantly Italian government bonds are still languishing.
As stock markets came back to earth with a bump following Octobers rises the US dollar edged stronger. The Euro held up quite well despite the circus going on around it.
In fact the euro crisis as it keeps being called is of course not a currency crisis but euro bond crisis. Whether the currency does eventually take a big hit remains to be seen.It certainly did not when the ECB surprised with its 25 basis point cut and indications of more to come.It finished the week at a respectable EUR/USD 1.3770, EUR/CHF 1.22 and EUR/JPY 107.70
So where will forex markets go?
Well you can certainly expect more volatility. In EUR/USD you could have made equally good money playing from the long side if you were nimble enough. However, for the time being I continue to play from the short side. We may rally on Monday with relief on Greece but would use that to go short. Equities would be the same likely. EUR/USD 1.3850 has capped so that is as good a level as any to maybe start selling leaving some scope to sell higher still, if it happens
The yen which began the week in the spotlight with Japanese intervention is now out of it ,hanging on to the USD/JPY 78.00 level.
No Eurozone politician has dared question the German led ECB principles. Perhaps someone will point the finger at them especially if their political career is up.
All in all though Italy remains the major battleground for the Euro. Everyone realises current bond yields there are unsustainable although most probably correct.
What is clear is that banks who were forced to invest in risk free sovereign debt are finding out the hard way it is not always risk free. Europe has a credit squeeze beginning of huge proportions. Either the ECB does a Fed or Bank of England ( Which at the moment it refuses) or things will get a lot lot worse.
On the horizon Spanish elections and more importantly by the 23rd November the US congressional super committee to agree on budget cuts of USD 1.5 trillion.
No hope!

Weekly Review… Who’s wrong ?

The Euro summit came and went, eventually providing most of what had been leaked as likely and a bare minimum in terms of what was required. Indeed such was the pressure that many details are still to be worked out. As before the eurozone is sorting its problems on the hoof or as they go along if you like.
Conclusions
1. Greece has defaulted ! I´m with Fitch on this one. The voluntary haircut of 50% on Greek debt means ,subject of course to some legal challenges no doubt, that CDSs (Credit default swaps) will not pay out. This will backfire as now there may be no way to protect sovereign bonds other than…well yes selling them.
2 The EFSF is lightweight and although attempts to drag China the IMF or whoever into the support chain sound good they will not materialise in any major way.
(IMF support could indeed be challenged as being illegal)
3.Peripheral eurozone bond rates seem likely to deteriorate or certainly not improve.
4. Germany has proved beyond doubt that it calls the shots with the French influence well and truly diminished.Mr Sarkozy should start job hunting
5.No plans on how to improve growth in countries now engaged in austerity drives, compounding budget problems. Divergence continues in all areas of economic data
6.A credit crunch already in the making will now get worse as banks de-leverage to improve required capital status. It is already under way in Portugal and Spain.

Early winners
Equities
Equities surged across the globe as immediate worries were lifted. A background of better US economic data and improved corporate profits was just waiting to materialise in share prices.
Euro.
The euro made ground up against most currencies on Thursday hitting high close to EUR/USD 1.4250 although slipping back slightly on Friday to close at 1.4160.
The close was above the 200 (1.4103) 100 and 55 day averages which has put EUR/USD on an upward bias technically. In the short term 1.4250/60 resistance is key while levels below 1.3900 would need to be seen to altar that bias. Beyond 1.4250/60 targets would be 1.4550. I make no apology for not being a believer in the technical picture although an overhang in EUR/USD shorts could quite easily push us to the mid 1.40s. However, the eurozone debt crisis may just have finished stage one before it moves to bigger problems. The possibility of escaping market attention for months is just not going to happen this time.Get ready to sell

Early losers

Italian bonds
Unfortunately for the Italians they were first to test the markets with a small auction of debt. The results must have sent alarm bells ringing so soon after the summit end. Italy was forced to pat 6.06% for its 10 year financing. They are at unsustainable levels adding millions and eventually billions to Italy’s debt pile.Mr Berlusconi seems intent on fighting particularly the French but begins to look more and more like a man losing his grip. Italian politics, with unions flexing their muscles looks set for some dramatic times.( Italy has € 300 billion to finance in 2012)
US dollar
The US currency suffered as it does in a risk on environment. An overhang of long positions and the QE 3 possibilities weighed on it.

Where to now for the ECB?
The European central bank could now become the focus of attention.Backed by Germany who views the ECB as it did the German central bank ( Bundesbank) very little ground was conceded at the summit. Mr Trichet has been crowned an honorary German for his unstinting principals at the ECB but will Italian super Mario (Draghi) be the same.Initially we suppose yes but it is easy to see a huge rift with Germany if he was to look like a softer touch.
Next week will see the ECB meeting for the first time under his leadership. I think we will get a cut in rates and even 1/2% is possible.That would stop the Euro in its tracks but might just ease some pressure for a while in bond markets.If they do nothing then the Euro may benefit initially but thereafter as usual watch the bond markets.
Analysts who dealers love to castigate are by and large still calling for more problems within the eurozone, many seeking vindication for longstanding views that the euro was unsustainable in its present guise. There will be more talk of new rules, central fiscal control etc etc but it begins to look more and more like closing the stable door after the horse has bolted.14 crisis summits in 21 months. I would still be a buyer there.
Greece has just proved that there is such a thing as a free lunch and may I add without so much as a thankyou. Portugal will fancy a similar trick to cut some debt while there is still some money in the pot. So before Christmas get ready for a Portuguese haircut.

Weekly review…… The Long and Short of it and No, don’t buy Libyan Dinar

Friday´s forex trading and for that matter equities seemed to be about what positions existed rather than any real conviction. The currency market saw a US dollar sell off across the board as long positions were discarded. Even the Japanese yen woke up as USD/JPY fell through 76.00 to hit a record low of 75.78 before recovering to close at 76.30. The Swiss franc also made a move against the US dollar as shorts covered. EUR/USD made it to 1.3902 but the Euro made no progress on the crosses as the EFSF debate continues. As I said last week I favour a move higher for the Euro on relief as much as action next week although for the long term the jury will stay out much longer.However lets be clear even that sort of rally remains in the balance.

Despite continued differences between seemingly Germany and the ECB on one side and France and the other troubled countries on the other, next week will produce something. Latest rumblings still point to some kind of bond insurance through the EFSF and maybe crucially some IMF involvement which will add badly needed muscle to the proposals. On the other side of the coin the German budget committee have made it clear they want no ECB backing for the EFSF or leveraging.A banking bailout package of €100 Billion, the bare minimum I would think and the lobby for a Greek haircut of 50% at least is also surfacing. Neither of these would suit the French who can see their AAA status slipping away.In the midst of it. Herman Van Rompey European council president and circus clown has put forward a plan for a single treasury to oversee tax and spending across the eurozone. Well Herman its 10 years too late or 10 years too early depending on which way you look at it.

For forex traders I would urge you to watch Eurozone bond markets after events unfold, for it is their reaction that is crucial to how things pan out. Also bank shares which will probably be the lead for equity markets. We could see a continued short squeeze there leading to a surge in equities and therefore more US Dollar selling but that may require a bigger bailout package.

It will be interesting to see how long a honeymoon ( presuming it gets one ) that all markets get after the summits.

My own feeling is that we are headed for a European credit crunch as banks will retrench. You cannot have your cake and eat it. No growth and continued austerity….well you can see the answer to that one in Greece. What’s more the International Monetary Fund forecasts Germany to run a current-account surplus of more than 5% of gross domestic product this year. Meanwhile, this year Greece and Portugal are expected to run deficits of more than 8% of GDP, Spain 4.6% and Italy 3.5%. Even France—the latest victim of investors’ nervousness is seen running a 2.7% shortfall. These along with all the other imbalances within the eurozone are what really require some action not just lip service.

Finally don’t be looking to buy Libyan Dinar quite yet and certainly not those notes with you know who’s face on it. Presumably plenty of toilet paper around. Anyway good luck to a new and hopefully peaceful nation .

p.s. Congratulations to New Zealand on winning the Rugby World Cup but a very honourable defeat for the French instead of the humiliation predicted. Oh how they would take the same at the EU summit.
 

Weekly Review… European Credit Crunch…2

It seems that equities still rules the head as far as currency markets are concerned. Better US data continues with this time US retail sales coming in stronger than expected at up 1.1% giving a nice finish to the week for stocks. The Slovaks earlier did there bit by approving finally the EFSF ready at least now to relieve the ECB.

EUR/USD closed within a whisker of highs at 1.3880 happy to wait for that big Euro zone announcement. G20 ministers seem to have their doubts continuing to heap pressure on the Europeans to sort the mess which is so damaging confidence.

The issue of bank recapitalization seems to dominate thinking, but will it backfire?

Some would argue Europe already has a credit crunch but for sure the numb skulls, Mr Barroso and others seem to be missing the point.Forced Recapitalization, Writedown on Bonds, Transaction Tax = CREDIT CRUNCH. You would have thought even someone with a basic Economic grasp would have realised that one. Apparently not as this seasons top sport of Banker bashing takes hold. You just cannot expect it to be business as usual if you hit banks that hard. You will get more deleveraging and less money to go around.Lets make it clear this is not some sort of speculative,derivative off balance sheet fancy instrument that banks could take a hit on. No this is European sovereign bonds,initially from Greece and after that Portugal Italy Spain who knows ?

Frankly the rapid manner in which markets have been suckered in by the news of a grand plan is amazing. To my mind we have seen nothing concrete and people like Mr Barosso who throw in one liners about a common Eurobond being discussed before year end are just making it up to try and stave off market pressures.

Be perfectly aware Greece matters not a jot in the big picture but Italy is another matter completely. You cannot get growth when taking austerity measures unless the rest of Europe and the world is steaming along thereby making it perhaps possible to pull it off.

So the upshot is this be unconvinced and for goodness sake don’t get suckered in to thinking the euro zone crisis is under control. It is not and as yet all we have are temporary fix its.

If banks are to recapitalize and take hits from bond writedowns then who actually is going to buy more bonds going forward. I missed out the transaction tax because If Mr Barosso thinks that will work without global approval ( which wont happen) he is even more of a plonker than I already thought.

As an investor I would love to think we had seen the floor in equities but doubt very much. By the same token if its all happy days from here on in for the Euro then I am missing a secret ingredient. So play it long Euros if that seems like a mini trend but be sure to keep in the back of your mind where the real risk is. Last weeks rally was understandable in that oversold conditions in Equities commodities and the Euro were exposed when the grand plan comments came out surprising markets and economic data has been somewhat better. However, we have seen very little to no flesh put on those bones yet.

Oh and while I am having a moan maybe Mr. Trichet who congratulates himself on the ECB keeping such control on inflation during his tenure would explain the property bubbles that were created in Ireland & Spain although we all know monetary decisions are made on the basis of Germany & France . One size does not fit all

This message was sent from my Blackberry 05/05/2011
 

Weekly review…………How to end the Euro crisis

Before I discuss the options available to end the euro zone crisis a brief look at last weeks events and what lies immediately ahead.

What turned risk, commodity and forex markets around last week was a growing feeling that some kind of bank recapitalization was being seriously considered and will indeed be discussed by mess’s Merkel and Sarkozy in Berlin this weekend. Equity markets bounced across the globe eventually not far shy of 10% helped also by better US economic data, Fridays NFP being the final peace of good news.However, that particular event was ruined somewhat by announcements from rating agency Fitch who followed others in downgrades to Italy and Spain.
The Euro rose against a basket of currencies hitting highs of EUR/USD 1.3525 on Friday before selling off to close at 1.3385 on the Fitch announcements. Of course all these moves fitted nicely with oversold conditions which have now unwound to a good degree.
The Bank of England announced more QE the ECB did not and also left rates unchanged. What is interesting is that sterling made some ground back against the Euro closing marginally better on Friday at EUR/GBP 86.10 than it was just before the central bank announcements.
Next week will need to provide a higher probability of bank recapitalization if we are not to reverse last weeks equity and commodity gains, see the US dollar back in favour and the Euro slip back.
All eyes will be on Slovakia who vote on the EFSF on October 11th. It seems likely that opposition groups will bail out the coalition government who will not get a majority.This is because one of the minority parties has pledged to appose the vote.

Now on to the Euro crisis and how it can end. There can now be only 2 possibilities as anything else will merely be a temporary solution quickly exposed by markets.
Solution 1
The Euro area will become a transfer union formally.It will come at a huge cost to Germany and some others but more so in a different way to the weaker members. New rules and governance will come from Brussels taking away virtually all independent financial authority from individual governments. The reality will be much as those experienced by Greece from the Troika.If you look at a country like Italy the North has subsidised the South for 90 years and presuming Italy stayed together would continue inside or outside the Euro.Germany and the richer nations of the Euro would have a substantial bill to pay but going forward they may tell their electorate it will never happen again.
Solution 2
Is also very expensive for Germany possibly more so in the short term but would I believe be a better long term solution. This would involve the strong staying in the Euro, the weak which at least includes Greece, Portugal, Ireland*, Spain and Italy leaving and of course defaulting on huge amounts of debts. That bill would be paid to a large extent by Eurozone members staying but also by an enlarged IMF fund.Those countries would have their own currencies. Of course the fall out would be huge but would offer light at the end of the tunnel and eventually on terms those countries can choose.The EU would have to strengthen trade agreements and pursue business as it did before.( * Ireland would have to leave or accept a unified corporation tax,which it would not). The advantage of solution 2 is that a prepared exit strategy would exist for France who would indeed need it in years to come.
Believe me there is no other long term solution. Rules have been broken and certain countries just too indebted to ever recover.If social unrest is to be avoided then exiting countries must be given the chance to recover but not within the stranglehold of being tied to stronger more efficient economies. Life outside the Euro zone but in the EU is not that bad and may eventually be better.Inside it will certainly not allow such profligate and excessive action again.
.
I leave you with the words of Richard Sulik who heads the Slovakian party against the EFSF. He argues that countries have broken rules and that Slovakia has the lowest average salaries in the euro zone. ¨How can I explain to people that they are going to have to pay higher Value added Tax ( Purchasing tax) so that the Greeks can get pensions 3 times as high as the ones in Slovakia¨ Perhaps we should ask striking Greeks.

p.s. The rugby world cup moves on and looks like New Zealand Wales final to me. Apparently the performance of the Welsh team is down to a fitness regime that involved starting training at 5.00 am. In my day we didn’t get home till that time.

Weekly Review….ECB one trick pony? Will Slovakia say až vás? and the Italy nightmare

With Fridays announcement of a pretty big blip up to 3% from 2.5% in Eurozone inflation you would think that speculation of an ECB cut in rates next week would have dissipated completely. However, for once markets seem to think otherwise with a .25% cut priced in and rumours in late trading Friday still pointing to a .5% cut. It would certainly be a move away from the norm and probably to much for Mr Trichet concede and explain in what would be his final press conference. What’s more it would certainly indicate just how serious things have got. Mind you in current circumstances the Euro might suffer every which way.
Friday proved a real risk off day with equity markets and commodities tumbling despite moderately better data in the US. Markets rightly remain in a state of anxiety over the Euro debt problem with the positive German vote on the European Finanancial and Stability Facility ( EFSF) shrugged off with more negativity.
More meetings next week of course but outside the Eurozone politicians continue to berate those inside for their lack of any new initiatives.Last weekend I ventured to suggest the EFSF might be leveraged up big time but now too many heavyweight politicians ( mainly from Germany) have pretty much rubbished the idea .If the absolute death nail is sounded on any leverage whatsoever then the whole thing will once again look inadequate even before it hits the road.
Of course its not quite there yet anyway. Such is the ludicrous nature of the Eurozone that Slovakia who vote last in a couple of weeks could upset the whole plan
Yes Slovakia 1.6% of the Eurozone population and with a possible commitment of just 1% of the fund could still derail it. Having said that I think the pressure to pass will be too great even for sceptical coalition partners there. However, it all adds to tension at the moment.
Greece is still the focus of attention and remains on borrowed time and money. I stick with my view that they will default immediately the EFSF is effectively ready later this month. I think it will be a haircut of at least 50% as anything less will prove too short term and for now they will stay in the Euro.

Back to forex markets where the Euro was sold off across the board closing just under EUR/USD 1.34 and nudged close to 1.21 against the Swiss franc before reports of intervention saw it close at 1.2140. It could be a tough week for the Swiss National Bank I do hope the have plenty of dealing tickets printed. A continuation of market pessimism could see even more pressure on the Euro. That said there have still been reports of Asian central banks buying Euros still intent on diversifying away from the US dollar.
Eurozone bond spreads continue to widen against the German bunds and it seems Italy is now faring a good deal worse than Spain with 10 year yields over 5.5% again.
Before the end of the year Italy has about 250 billion Euros of debt which needs to be rolled over and that’s not counting the 17% they are hooked into the EFSF for.
So If you worry about Greece as another possible Lehman moment what about Italy. Their banks hold so much Italian debt that it would account for 160% of their capital….that means bust.
So maybe the Germans Fins and whoever else is saying no no no to the EFSF on steroids idea will have to change their minds. If it has to happen it will happen because there is still plenty of nutters out there who are intent on preserving what will prove to be the biggest financial cock up in history, the common currency.
Oh and that final little twist is that an Italian Snr Draghi will take the helm of the ECB a man who once lorded the Italian bond market as the biggest and most liquid in the eurozone.
The weeks mad hatter though at the EU tea party is commission president Jose Barroso who reiterated the desire for a ¨financial transaction¨ tax on EU banks which would by the commissions own admittance send the industry fleeing from Europe.
You could´t make it up could you.

Weekly review…G20 buying time in preparation for Greek default

Although as yet there does not appear anything 100% concrete out of G20 members in Washington the leaks and press speculation are beginning to outline what we can expect.
The major initiatives if you can call them that are all in preparation for a Greek default of some degree but not an expulsion from the Euro zone. To some degree its the same old same old with a G20 meeting in Cannes (get used to seeing that name) in early November for the great unveiling. Depending on who you read, what we will get will be an EFSF (European Finance and stability fund) on steroids. That is leveraged up some how to offer help in Trillions of Euros be it 1 or 2 or more. Banks will be recapitalised amid plans that definitely include some default from Greece and possibly Portugal and Ireland. The idea then is that Italy and Spain can if necessary be supported in the event that they are effectively shut out by bond markets.It all sounds so easy but in truth the Germans in particular have been dragged in against much of their thinking. What they will have to do is sell it to their public. The alternative, a return to the Deutche Mark which would endure strength beyond even Swiss franc proportions will be one of the frighteners used to convince. I sincerely doubt this will be a long term solution to the fundamental floors but if enacted could buy even more time, maybe several years.

So what for markets? Well lets be honest most of the action last week was in equities and commodities which tanked.In contrast currency markets were almost a haven of stability., certainly percentage moves were nothing to compare.In case we forget, it was initially reaction to a not so aggressive Fed move that sparked things off followed by continuing concern of EU debt and European Banks. In commodities particularly Gold and Silver I think we just saw an old fashioned clear out, although not to say we cant go lower, $ 1400 for gold maybe.
Greece is going down as politicians realise that more austerity wont work, certainly with the Greek public. Of course as yet the Greeks have barely tinkered with the real issue, a bloated unaffordable public sector which is sucking the blood from the private sector and individual taxpayers.
With the likelihood of statements coming thick and fast today and early tomorrow it could of course be, all change, but I think not. I would fully expect to see the Euro benefit and the dollar to suffer. EUR/USD which closed around 1.3500 may well open much higher, and depending on the depth of creditability of any new plan be at least in the 1.40s before to long.
German parliament will give the thumbs up this week to the original EFSF plan , which will then be leveraged in terms to be agreed. The only hiccup I see is a smaller nation e.g. Finland screwing things up by refusing to participate. However ,one suspects they or someone else will not want to be the architect of Euro Armageddon.

Finally when analysing recent months in currency markets some things are evident. We have not had a Euro crisis ( a Swiss franc one maybe) The Euro has faired pretty well against the US dollar still holding on to levels above even the purchasing power parity.When I look at Sterling I see a currency that could barely make any ground up against it even during these troubles.
The Euro project still remains deeply floored and we will never see convergence amongst all participants, but it could just get patched up for a long while to come although in nature if not name it will have become a transfer union.

Weekly review… Wait for it, wait for it

Trawling through the weekend press in the UK Europe and US is rather like looking through the reviews of various disaster movies. The big question is whether any come true or indeed whether some super hero can save the day. What is clear though is that the next week or weeks may provide some answers if not long term solutions.
Last weeks actions by central banks to add liquidity certainly helped. However, rather than some new found optimism I feel all we really saw was a short covering rally in stocks and pretty much the same in the Euro. The US Dollar was sold and EUR/USD regained some composure. While there was something to be had in the short term bounce for traders my advice is to try and keep your powder well and truly dry for action to come.
In Europe Finance ministers have made no real initiatives. Discussions have apparently been bogged down with the , ´Financial tax´ proposals and that of collateral being demanded for bailout loans. In fact the discussions do not even resemble that well coined phrase,´rearranging the deckchairs on the Titanic´. Even they have not been fiddled with.
The next few weeks will determine whether the appetite exists to continue to persevere with a Greek rescue or controlled default.
Can you imagine having your country controlled by a ruthless gang. Well welcome to Greece and the Troika. The ECB,European Commission and IMF will be determining if Greece should receive their next tranche of funds. Blatantly Greece is falling short of targets despite its latest property tax initiative. But will they still get their money? Most bets would appear that they will, but there is enough uncertainty to make backing it still a risky proposition.
It appears that Finance ministers did discuss the merits of the worthless bank stress tests which of course excluded a sovereign default. Talk about finally waking up and smelling the coffee. One statement from Jean Claude Juncker the head of EU finance ministers did ring a note though. He said,´ The Euro zone can´t pass another stimulus package despite the sharp slowdown in growth that is expected to persist in the months ahead.´This might just leave it up to the ECB who have of course demonstrated uncanny timing in screwing things up rate wise and of course will never do a Fed or Bank of England.

That leads me on to the next big event. The FOMC meeting next week which will last a couple of days. It could well be that this will be the first real market moving event.
Will Mr Bernanke come up with something new, something borrowed or something blue. In any event last weeks equity recovery had much to do with short covering ahead of the event. To my mind we can see either scenario for Stocks and currency markets. Will we have a stock rally on some new initiative with a weaker dollar or the opposite.
Even China was in the bad press circle with comments that they are possibly facing a sub prime credit crisis in local government finance. Well why should they escape the bad news.
Ironically sometimes when its just all gloom and doom that’s the time to fill your boots with risk. However, one suspects even Warren Buffet is holding fire at the moment.
So sorry folks no great calls from me but just make sure you have enough chips left if we finally see the fog lift.
Finally congratulations to Ireland who trounced mighty Australia in the Rugby World Cup, proving at least some times sport can be detached from economic superiority