Posts Tagged ‘ECB’
Policy Driven Markets are Treacherous
Volatility in the stock market is rising, intraday swings more violent, and high-to-low ranges increasing. The lurching action of the market is not driven by fundamentals, it’s difficult to profit from, and disconcerting. There isn’t a single item to pinpoint with respect to market angst, rather, a combination of factors, leading to manic sentiment changes.…
Read MoreMidsummer Issues Persist; Divergent Global Central Bank Actions Create Challenges
The market moves fast. Thankfully, in the rest of the world, trends of all kinds, generally move at a measured pace. The market overreacts to events and day-to-day happenings based on crowd think and behavioral issues. A change in trend will often start with a subtle data point or indicator, which in hindsight, ignites a…
Read MoreEurope’s Prisoner’s Dilemma – LTRO Needs to Continue for Years
European leaders have inadvertently created one of the financial world’s largest negative feedback mechanisms. By issuing long-term refinancing operations (LTRO) with cheap ECB funding for terms up to three years and encouraging European banks to take the funding and purchase assets such as sovereign debt, the ECB effectively has encouraged the European financial system to…
Read MoreDeja Déjà Vu – A Third Summer of European Crisis
Over the past week, it has become clear that a third annual conflagration throughout Europe is upon us. The crisis has morphed yet again, and like The Hydra, it has come back in a more menacing form. The issue this summer is more profound than the “sovereign debt crisis” which struck last summer. Last summer’s…
Read MoreLike QE, the ECB’s Long-Term Refinancing Operations Will Continue for Years
I came across an article in The Telegraph by Ambrose Evans-Pritchard which does a good job highlighting the circularity of the ECB’s LTRO and associated bond buying. As banks throughout Europe took advantage of ECB stimulus, which they were de facto encouraged to do by Mario Draghi and the ECB, it is clear that both…
Read MoreWhen Greek Debt Servicing Resolves – Spain is the Key to the Eurozone Compact
The Spanish Empire reached the height of its powers in the 1500’s. Naval supremacy, decades of rapidly rising wealth, discovery of gold, and influence over the Catholic papacy led to Spain becoming a dominant world power. It wasn’t until Philip II and The Great Armada’s defeat against the English in the Anglo-Spanish War that Spain’s…
Read MoreInflation in Europe is Sticky – Another Reason the ECB to Remain Balanced
December inflation data was released this morning in France and Germany. In both countries, the inflation rate was higher than expected and failed to come down relative to prior months. EU harmonized German inflation was reported at 2.3% and EU harmonized French inflation was 2.7%. Two large economies yet to report inflation data are Spain…
Read MoreInvesting Ahead of a European Recession
Investing ahead of a recession is like a trip to the dentist for a filling when the Novocain isn’t quite right. You know you are in for some pain, but it’s unclear just how much, and how long it will last. Europe is accepting the German path forward, which will at a minimum, lead to…
Read MoreThe Rest of Europe Can’t be German
The EU Summit and ECB meeting which transpired last week are likely to be the final supporting actions by Eurozone officials this year. The tack forward for Europe has been clarified; move ahead with the long and arduous process of fiscal unification, supported by a reactive ECB. The path ensures two outcomes; that there will…
Read MoreECB Cuts Rates 25 Basis Points to 1% – Hawkish Press Conference Q&A Squashes Hopes of Sovereign Debt Purchases in Larger Amounts
The ECB issued a terse press release detailing an interest rate cut for the main refinancing operations of the Eurosystem (from 1.25% to 1.0%) commencing on December 14th. In addition, the ECB cut rates on the marginal lending facility and deposit facility by 25 basis points. This move was widely expected and had a limited…
Read MoreMario Monti Announces Serious Austerity Plan for Italy – 2013 Balanced Budget Target Leads to Sovereign Debt Rally
Italian Prime Minister, Mario Monti, announced sweeping austerity measures and reforms, bolstering confidence in Italian sovereign debt markets. Monti’s plan includes tax increases, government spending cuts, pension savings and raising the retirement age. Italy needs to enact these reforms over the next couple of years, and there are some political risks to implementation, but the…
Read MoreChina Starts Monetary Policy Easing Cycle & Rest of World Provides Additional Liquidity
Overnight, financial market sentiment turned around pretty dramatically. The China A-Share market sold-off by 3.3% and approached the vicinity of recent lows. Fears started to mount that Chinese central bankers were going to be slow to ease monetary policy based on continued inflation concerns. After Asian markets closed, the People’s Bank of China announced that…
Read MoreGermany’s First Failed Bond Auction – The European Crisis Continues to Spread
Germany failed to get bids for 35% of the 10-year bonds auctioned today. Yields are up about 10 basis points this morning. The increase in borrowing cost is insignificant for Germany. Yields are still well below 2%, and Germany continues to benefit from the combination of very low borrowing costs, and a declining euro which…
Read MoreEmerging Market Currencies Signaling More Risk Aversion
For almost a decade, emerging markets have been in a bull market with high growth rates, declining interest rates, and capital inflows. During the financial crisis, emerging markets were hit like financial assets around the world, and capital flowed out of the asset class. Over the course of 2010, and most of 2011, emerging market…
Read MoreQue Lastima – Spain in a Vice as Interest Rates and Unemployment Soar
I’ve been writing about the impossibility of the ECB running appropriate monetary policy for 17 different nations. The dilemma couldn’t be more evident when contrasting the economy of Spain with the economy of Germany. Spain actually has less sovereign debt relative to GDP than does Germany. The problem for Spain isn’t the level of debt…
Read MoreEurope’s Crisis Spreads as Spain, Belgium, France, the Euro and EU-17 get Questioned – How Does It End?
For a number of months, the financial crisis in Europe has been explained under the guise of sound versus unsound policy. If this were indeed the case, the fix would be simple; eliminate unsound and unsustainable policy and voila, the problems would just go away. European leaders have shifted blame continuously from one problem to…
Read MoreEurope Must Decide Its Future – Self Induced Financial Crisis Has Led Europe to the Brink
After Wednesday’s market action around the world, it’s a good time for a big picture assessment on the state of the financial markets. The attitude out of Europe has pendulated between nonchalance and vitriolic attacks among the EU-17. Italian sovereign rates spiraling above 7% have brought the eleventh hour upon the region. Escalation of the…
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