For
further proof of this, look no further than the fact that another
record was set for banks leaving money on deposit with the ECB, which is
a sign of fear. Another measure of this fear is that German short-term
debt no has a negative interest rate. In other words, there is so much
demand for German paper that people are willing to pay to lend them
money, and not receive interest. This last happened here in the US back
in 2008 during our banking crisis so the similarities are telling.
Enter
Merkozy to the rescue! Today's meeting between the French and German
leaders is intended to hammer out the details of the fiscal rules that
they agreed to last month and what further actions need to be taken in
order to save the Euro. Among these topics are the potential to
increase the size of the bailout facility and how big of a haircut Greek
bondholders may be required to take. This could exceed the 50% losses
that have already been discussed.
Meanwhile,
the ECB is going to have their interest rate decision on Thursday and
the speculation that Monti may try to emulate Bernanke's maneuvers is
starting to pick up, as there is some thought that further monetary
accommodation could be necessary to stave off a liquidity crisis. This
doesn't seem likely at this point and perhaps they will wait until the
news out of the Merkozy meeting which they claim is going well at this
point.
There
is not a lot of news coming out of the US this week on the data front,
but we are going into stock earnings season, which could have an effect
on the US dollar if the correlations remain in tact. But recently, it
seems as though the correlations have been breaking down a bit so the
impact could be lessened.
The
Japanese markets were closed overnight for a holiday, and in the Euro
zone German trade balance figures came in much better than expected on
stronger exports, though industrial production figures came in worse
than expected. Later this week we will get the German Real GDP growth
report on Wednesday, followed by CPI data and the rate policy decision
on Thursday.
The
Bank of England will also be releasing their rate policy but are not
expected to have made a change. Recall that the ECB decision also comes
with an accompanying statement, whereas the BOE decision does not.
In
Switzerland, the unemployment rate ticked slightly higher than expected
to 3.3% from an expected 3.2% and retail sales figures came in better
than expected showing a gain of 1.8% vs. the expectation of a .2% gain.
This comes in the midst of a minor scandal involving the currency
trading prowess of the SNB honcho Hildebrand's wife, which is
reminiscent of Hillary Clinton's commodities trading activity. While
this is likely much ado about nothing, there could be changes coming at
the SNB.
Lastly,
the Fed has the "dog and pony" show this week with a lot of Fed speak
from various officials in different venues essentially trying to allay
fears but you never know when one wrong statement can send the markets
spinning.
And
of course let's not forget the noise coming out of Iran and the
potential oil supply disruptions that they threaten but likely won't act
on. Should the scene over there escalate then we could see oil spike
higher.
So
the markets are flat to slightly higher this morning, with US dollar
weakness and the Euro bouncing off of lows that saw the Euro trade a
1.26 handle vs. USD. If the Merkozy meeting produces positive results
than this could quell the markets for a bit as the focus shifts to
corporate earnings and the potential good economic story taking place
here in the US. So it may be risk-on again until the weekend where
investors may want to lighten the load.
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