Another week and the European debt issue goes on.
What has changed? In my opinion nothing changed regarding fundamentals and drivers of positions. It actually got a bit worse because the cost of rolling debt or issuing new debt has gotten worse.
Why? Simply because what happened is what everyone expected would happen: policy makers trying to cool the fire. Even though the voting in Greece was positive and the news that the Greek government and the IMF have struck a deal on what the austerity program will be in order for the Greeks to get the aid.
And markets and the funding costs?
Well, as the price board below shows the markets have not calmed.
- Sovereign Bond yields for Italy, Spain, Portugal (and the others) have gone up and broke resistances to the upside.
- Rates derivatives demonstrated an increase in stress in short-term funding markets, widening 5bps (Sep11 and Dec11 USD 3m Libor futures).
- The EUR took a beating
- The European Financial Index lost almost 4% this week.
As Albert Edwards quoted others here the whole issue is in the hands of politicians from debtor and creditor nations. And it takes only a handful of people to go against all the austerity programs or bailout programs with taxpayer money to ruin it all.
Argentina did it.
Iceland did it.
Greece didn't because they do not have their currency. Otherwise I believe they would have already done it.
Now those useless charts on weekly data:
What has changed? In my opinion nothing changed regarding fundamentals and drivers of positions. It actually got a bit worse because the cost of rolling debt or issuing new debt has gotten worse.
Why? Simply because what happened is what everyone expected would happen: policy makers trying to cool the fire. Even though the voting in Greece was positive and the news that the Greek government and the IMF have struck a deal on what the austerity program will be in order for the Greeks to get the aid.
And markets and the funding costs?
Well, as the price board below shows the markets have not calmed.
- Sovereign Bond yields for Italy, Spain, Portugal (and the others) have gone up and broke resistances to the upside.
- Rates derivatives demonstrated an increase in stress in short-term funding markets, widening 5bps (Sep11 and Dec11 USD 3m Libor futures).
- The EUR took a beating
- The European Financial Index lost almost 4% this week.
As Albert Edwards quoted others here the whole issue is in the hands of politicians from debtor and creditor nations. And it takes only a handful of people to go against all the austerity programs or bailout programs with taxpayer money to ruin it all.
Argentina did it.
Iceland did it.
Greece didn't because they do not have their currency. Otherwise I believe they would have already done it.
Now those useless charts on weekly data:
*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com
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