29/05/2012
Daily market brief
Rates little changed overnight but today is another day !
- Spain is running out of cash
- UK government makes plans for EuroZone disaster
The major currencies were little changed overnight as thin post-holiday conditions and the absence of market-moving cues from economic data left traders without a significant reason to move the markets either way. Today is a full trading day though across the globe and there is plenty to be gloomy for them to absorb should they wish.
Spain runs out of money. Premier Mariano Rajoy and his inner circle have allegedly accepted that Spain will have to call on Europe's EFSF bail-out fund to rescue the banking system, even though this means subjecting his country to foreign intervention in their finances. Mr Rajoy denies the story, not surprisingly since it would be a devastating climb-down, and not all options are yet exhausted.”There will not be any (outside) rescue for the Spanish banking system," he said. Perhaps his maths isn’t as good as his public speaking as only one troubled lender, Bankia needs 23 Billion Euros and the fund set up to help troubled banks only has 5 Billion available. If the European central bank and Germany do not step in to help with this, Greece will be the least of our problems.
Members of the both the British government and central bank reportedly met Monday, and the topic of conversation was how best to stabilize the Kingdom’s economy and financial markets. From the commentary that was read after the discussion, it was clear that there is a common problem that the officials are coming to: the Euro Zone’s finances and the members inability to face up to reality. A disorderly eurozone break–up could spark another deep recession comparable to that caused by the banking crisis.. Yesterday, Dr Ben Broadbent, a member of the Bank's monetary policy committee and former Treasury adviser, said that the Bank was ready to intervene. He said: "Were the still unlikely worst case risks in the euro area actually to be realized, then our own monetary policy would again play its part in mitigating the impact." But he added: "While they are both necessary and effective, these domestic interventions have their limits. It remains the case that, for the time being at least, the most important policy decisions affecting the UK are being taken in other parts of the continent. Given Prime Minister’s drive to complete the austerity effort, it was likely the discussion included calls for more BoE stimulus
Bad stuff, they say, comes in threes. We've already got the banking and the Eurozone sovereign debt crises. Next comes the corporate funding crisis. In its analysis of the refinancing challenge, S&P concedes that it might just about be possible for the banking system to cope with the wave of corporate debt maturities, assuming no further deepening of the eurozone crisis. But providing the $13 trillion to $16 trillion of new money to spur growth is going to be a much bigger ask, especially in Europe. With the Eurozone debt crisis still at full throttle, the Chinese economy slowing fast and a still tepid US recovery, it's not clear that the banking system is in any position to deal with this incoming wave of demand. Europe desperately needs growth, and to fuel that growth it needs it the engine room to be going full steam Difficult to see how that can happen without freely available credit to the corporate sector.
Looking ahead to European trading hours, the preliminary set of May’s German CPI figures is in focus. Expectations call for the headline inflation rate to hold at 2.1 percent. A print in line with expectations will mean little for ECB policy expectations and so seems unlikely to produce fireworks from price action. Indeed, given the scope of aggressive Euro selling over recent weeks, the risks appear skewed to the upside in the event that an upside surprise offers a compelling excuse to drive profit-taking. France and Italy are set to hold bond auctions, but short tenor of the debt on offer (see below) means the results may pass with little fanfare.
Have a good day!
Regards
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