Forex Market Commentaries - End of the Road

The End Of The Road

Nov 25 • Market Commentaries • 3656 Views • 4 Comments on The End Of The Road

A small-town Greek mayor visits the home of his friend who is also the mayor of a ‘twinned’ small rural Italian town. The Greek mayor is blown away by the amount of luxury on display: swimming pool, three cars, impressive villa with 10 bedrooms and 7 bathrooms.

Greek mayor: “My dear friend, who paid for all this?”

Italian mayor: ‘The EU did. See that bridge? The EU paid for a two-lane bridge. Instead we built a one lane bridge and put traffic lights at both ends.”

A year passes and the Italian mayor decides to visit his friend the Greek mayor, at his town on a small barren Aegean island. His jaw drops and he falls on his back as he docks in the harbour. The Greek mayor lives in a palace with indoor and outdoor pools, there’s a private yacht in a private harbour, a heliport with a helicopter and pilot on standby and several luxury German cars. The palatial house has 15 bedrooms with ensuite bathrooms.

The Italian mayor: “My dear colleague, how is this possible, who paid for all this splendour?”

The Greek mayor: “The EU did. Do you see a bridge over there…?”

Italian mayor: “No…”

According to the latest bombshell from the FT, the EFSF cannot and will not ‘enjoy’ 4-5 times leverage. At best if it can be doubled, which kills the project as the fund needs to be capitalized by over €1 trillion to come into existence. From the FT:


A plan to boost the firepower of the eurozone’s €440bn rescue fund could deliver as little as half what the bloc’s leaders had hoped for because of a sharp deterioration in market conditions over the past month, according to several senior eurozone government officials.

As the situation currently stands, there is no bailout in place for Europe whatsoever, the ECB’s demands for a fallback to the ECB are now dead as a concept. If “the market” finally wakes up and realises there is no backstop to the trillions in debt rollover over the next several years, sovereign bonds will be dumped quicker than Berlusconi’s little black phone book, pushing Europe into a toxic, terminal death spiral and further funding crisis. This will ultimately make bond repayments impossible, send prices lower etc.etc..

Market Overview
The dollar has strengthened, U.S. equity-index futures have retreated and European stocks have slumped for a seventh day on concerns that euro-area leaders are once again struggling to fire fight the region’s ever growing debt crisis.

The dollar has advanced versus 15 of its 16 major peers and reached a seven-week high versus the euro as of 8:50 a.m. in London. Standard & Poor’s 500 futures decreased 0.7 percent, signalling the index may drop for a seventh day when U.S. markets resume trading after the Thanksgiving break. The Stoxx Europe 600 Index slipped 0.7 percent.

Shares sank after the Financial Times reported the European Financial Stability Facility may not be able to raise enough funds to increase its capacity because of a deterioration in market conditions over the past month. Italy’s two-year yields earlier jumped to a euro-era record 7.495 percent today as the nation prepared to sell bills. German Chancellor Angela Merkel yesterday ruled out joint euro-area borrowing and an expanded role for the European Central Bank in fighting the crisis.

 

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The dollar rallied 0.5 percent to $1.3286 per euro. Joint euro bonds would immediately lead to a convergence of interest rates in the region, Merkel said yesterday at a press conference with Italian Prime Minister Mario Monti and French President Nicolas Sarkozy in Strasbourg, France. Hungary lost its investment-grade rating at Moody’s Investors Service.

The yen slid 0.4 percent to 77.41 per dollar. Japanese Finance Minister Jun Azumi said today he’s cautiously watching the foreign-exchange market and is prepared to act should he see moves driven by speculation. Consumer prices fell for the first time in four months, data showed today.

The Stoxx 600 was headed for a 6 percent weekly loss. The MSCI Asia Pacific Index retreated 1 percent, poised for the lowest close since Oct. 5. Australia’s S&P/ASX 200 Index fell 1.5 percent, South Korea’s Kospi index declined 1 percent and Japan’s Nikkei 225 Stock Average slid 0.1 percent to close at the lowest level since March 2009.

Brent oil declined 0.1 percent to $107.62 a barrel, wiping out most of its gains for the week. Losses today were capped by concern violence in Saudi Arabia may destabilise the world’s biggest oil exporter. West Texas crude traded at $95.99 a barrel in New York, compared with the settlement price of $96.17 on Nov. 23. The January contract has dropped 1.7 percent this week.

Market snapshot at 10:00 am GMT (UK time)

Asian markets experienced mixed fortunes in overnight and early morning trade. The Nikkei closed down marginally 0.06%, the Hang Seng closed down 1.37% (down 23.27% year on year), the CSI 300 closed down 0.73%, (down 20.27% year on year).

Turning to European bourse indices the UK FTSE is currently down 0.47%, the CAC is down 0.37%, the DAX is down 0.61%. The IBEX is down 0.52%, (down 20.47% year on year) and the MIB is down 0.74% (down 30.21% year on year).

Looking towards the NY session the SPX equity index future is currently down 0.54% the NASDAQ future is down 0.59%.

There are no significant economic calendar data releases that may affect the afternoon market sentiment.

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