Markets Aren’t In A Position

As Chuck wrote yesterday, the markets were feeling confident that an agreement on a second financing accord for Greece was going to be finalized yesterday. The euro (EUR) continued to rally on the news through most of the day, but the talks stumbled over the issue of pension cuts, and EU/IMF officials had to give Greece 15 more days to come up with additional cuts. The delay in an agreement caused the euro to retreat from the two-month highs against the dollar, moving back into the $1.32 handle after trading as high as $1.3313. But there is still confidence an agreement will be met, as the parties have agreed on all the issues except a 300 million euro reduction in pension benefits. The ECB meets today to set monetary policy, and ECB President Mario Draghi will hold a press conference ...

Fundamental News: Today's highlight; · Fed Chairman Bernanke Testifies. (US, 15:00, GMT) The EUR/USD is trading down at 1.3055 from early 1.3085, having been as low as 1.3028. European trading was a worrisome as investors could not decide what was happening. News from Greece was not promising. Greece failed to agree on new austerity measures across political parties yesterday, a requirement for the proposed bailout to avoid default in March. There was some progress on bank recapitalization. Overcoming the political realities of further austerity after almost 5 years of recession is proving very difficult. There cannot be a new program for Greece unless the conditions of the troika are met,” Merkel said at a joint press conference here with Sarkozy, referring to the European ...

The currency/risk on rally was quite strong yesterday, all day long! However, in the overnight markets, we’ve seen some profit taking, and reassessing of what they were doing, like pushing the euro to above 1.30. I say that because there’s still no agreement with Greece and the private creditors… I keep hearing and reading analysts, talking about how the Greece problem is unsolvable… OK… maybe it is… but if that’s true, then what about Illinois? Or California? Why aren’t these same analysts looking at what’s going on here? Do they have blinders on? Or have they become fixated on what they claimed would happen, and until that happens (Greek defaults), they can’t think of anything else? Sure, Illinois and California, along with a handful of other states that are so deep in the red ink they ...

Forex News and Events: Risk correlated assets continued to make gains in Asian session due to the optimism sprung from yesterdays well received Spanish and Italian auctions. EURUSD traded up to 1.2879 while AUDUSD after a brief dip charged to 1.0362. Asia’s regional indices were broadly higher with the Nikkei up 1.36% and Hang Seng 0.57% yet shanghai failed to contribute to the feel good atmosphere falling -1.34%. Risk taking was subdued for most of the session till FT cited comments by Greek officials suggesting that a deal regarding private debt holders could be announced today. French paper Les Achos provided a bit splashier headline say ‘debt restructuring agreement is close’. As for the current risk rally we are unconvinced and would be looking to fade the move. The main reason is ...

FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400) USD The euro remained soft overnight but quiet holiday trading probably limited further losses and the breach of 1.33 against the dollar was only temporary. Investors remain nervous about the currency and although leaders are pushing for structural changes, short-term market-oriented solutions continue to be ruled out. German Chancellor Merkel, French President Sarkozy and Italian Prime Minister Monti met yesterday, but no new crisis-fighting measures were announced at the subsequent press conference. The ambition to change the Treaty remains in place, and Germany continues to rule out common bond issuance. Fitch downgraded Portugal one notch to BB+, becoming the second rating agency to cut the rating to junk status. The Financial Times ...

Last week produced nothing but more disappointment. At the center of it was the Europeans’ inability to make their debt disappear. They had hoped that they could just announce a plan to take care of it…and that would be enough. But then, the Greeks said they wanted to vote on it…and then, they didn’t. ‘Papandenomium,’ the papers called it. If the voters were allowed to give their opinions everybody knew what would happen; the whole fix would be unfixed quix. So, they all got together and twisted Papandreou’s arms…and his arms gave way. And then, investors started getting nosey. They wanted details. They wanted to know how the French and the Germans could cover so many potential losses — from Spain, Portugal, Ireland, Greece, and Italy. Italy is in the worst position. It has scarcely any ...

Last time we looked, yesterday, stocks were falling. We’re on a plane bound for Madrid this morning. So, we’re just going to forget the markets and move directly to the economy that supports them. Both The International Herald Tribune and The Financial Times signal that the American economy has hit a bad patch. Both refer to consumer confidence as a cause of the problem. Consumers aren’t willing to borrow or spend…say the papers…because they lack confidence. What they really lack, of course, is money. They don’t have enough money to continue spending at the bubble era rate…and they have little hope of getting any. “Gloom holds back the US economy,” says the FT. The Conference Board does an index of consumer sentiment. It’s at its lowest point in 40 years. And no wonder. More Americans ...

“Do something” is fast-becoming the recurring whine of most financial market commentary. In fact, “Do something” is fast-becoming the recurring whine of almost all socio-economic expression in the Western World. From the rioters in Greece, to the Occupiers on Wall Street, to the long-term unemployed of America’s big cities, to the underwater homeowners of America’s small towns to the heavily indebted college grads nationwide; the desperate citizens of the Western World are turning to their governments and shouting, “Do something!” Reacting to these pleas, the governments are attempting to do something, even though doing something is what brought us to this lamentable situation in the first place. In general, governments are attempting to overturn the eternal relationship between risk and ...

It’s a plan so dumb you have to have to Ph.D. to believe it will do any good. Quantitative easing was dumb. This is dumber. They are calling it Operation Twist. The Federal Reserve will buy $400 billion of long-dated Treasuries, financed by selling bonds with three years to go or less. The idea is to try to drive long-term rates lower, which the Fed thinks will help the mortgage market. The Fed unveiled its crackpot scheme on Wednesday and the market quickly registered a firm opinion, as you see in the daily chart of the S&P500: Yesterday was no better, with the stock market ending the day deeply in the red. Aren’t you glad we have the Federal Reserve to run to our rescue? What’s the old saying, “with friends like these…”? The market tanked presumably because of the Federal Reserve’ ...