The euro remained hostage to headlines regarding the Eurozone sovereign debt crisis during the US session, and it seems several more days of this headline sensitivity lies ahead. Eurozone officials have called a second summit for Wednesday Oct. 26, although the original one on Sunday Oct 23 is also due to go ahead as planned. Continue reading →

Although Eurozone officials have repeatedly warned over the last 72 hours that the weekend is unlikely to deliver a cure-all for the sovereign crisis, there is a heightened sense of urgency after emergency talks yesterday between French President Sarkozy, German Chancellor Merkel and the heads of the IMF and ECB. In particular, the Financial Times reported that the size of the European bank recapitalization plan is likely to be only EUR70-90 bn or less, and that banks would be given up to 9 months to raise the capital. We note that this would likely disappoint market expectations, being too small in scale and too slow in delivery. France is of particular interest in this respect due to its higher banking risks, and multiple news reports suggest that yesterday’s emergency talks were aimed, in part at determining how France would be able to retain its AAA rating. German Finance Minister Schaeuble, according to Handelsblatt, also said that he is no longer ruling out a Greek default, though Greece itself continues to deny that this is on the cards. Continue reading →

Risk sentiment has opened on a better footing in Europe despite disappointing headlines overnight. Initially the euro jumped sharply during the US session after The Guardian newspaper reported that France and Germany have agreed to create a leveraged EFSF worth EUR 2 trn. All gains were surrendered after the report was quickly denied by other wires. Adding to the mix, Moody’s downgraded Spain’s sovereign rating by two notches to A1, taking it one notch below both S&P and Fitch. Continue reading →

Risk sold off heavily overnight as China posted its weakest quarterly growth figures in two years on softer conditions domestically and a fall in external demand. Given the European Union is China’s largest trading partner, investors are justifiably questioning Europe’s ability to register enough growth to help alleviate its debt crisis. The soft data added to worries sparked yesterday by Germany warning markets not to be too expectant of a grand bargain at the upcoming EU summit. Continue reading →

The weekend meeting of G20 finance ministers and central bank governors passed largely without incident and there were no concrete signs that any tangible progress had been made. The IMF, however, does appear to be increasingly amenable to providing short term liquidity to solvent sovereigns, and IMF Managing Director Lagarde said proposals on this would be presented at the Nov. 3 G20 summit. Continue reading →

Risk sentiment was mixed in Asia after Standard & Poor’s downgraded Spain and US stock markets closed lower. S&P downgraded Spain to AA- from AA and kept a negative outlook, citing high unemployment, tightening credit and high private-sector debt as the main reasons. As S&P’s decision only matched Fitch’s move to downgrade Spain and as there is no indication of a similar short-term move on Italy, the impact on the euro was muted. Continue reading →

Risk appetite has been firm in Asia, mainly due to continuing optimism that EU officials may be nearing a solution to the debt crisis and better-than-expected data releases. The FOMC’s Sept 20-21 meeting minutes showed some officials wanted to keep further asset purchases as an option to boost the economy. Continue reading →

Risk sentiment was stable in Asia, mainly on a view that China will continue to support the domestic stock market and expectations the Slovakian parliament will still approve enhancements to the EFSF despite the failure of the first vote. The first vote failed as it was linked to a confidence vote for the government, and was thus based on the desire to vote down the government rather than on changes to the stability fund. Already ahead of the vote Finance Minister Miklos said that one way or the other, there would be an approval of EFSF enhancements by the end of the week, and the main opposition party is now set to support the measures. Continue reading →

Risk appetite has been stable in Asia, mainly in reaction to improving sentiment about the EU debt crisis, better than expected macro data, and after news that China’s government plans to boost its stakes in the country’s biggest banks. In Europe, Greek Finance Minister Venizelos said yesterday that the troika has concluded discussions. An official statement in which the troika inspectors will detail whether they believe that Greece has made enough progress to receive its next aid tranche will now be released earlier than expected, and crucially, ahead of the next EU summit. Continue reading →

Risk sentiment improved in Asia on continued hopes of a more targeted policymaker response to the Eurozone debt crisis. Investors’ growth expectations have also started to improve after Friday’s better-than-expected US payrolls release. German Chancellor Merkel and French President Sarkozy met on Sunday to seek a compromise on a bank recapitalization plan and generally discuss a more efficient response to the European debt crisis. Both leaders indicated they are determined to do everything necessary to ensure the recapitalization of their banks, something Sarkozy had consistently opposed previously. Continue reading →

Risk sentiment improved further in Asia on signs officials are becoming more focused in tackling Europe’s debt crisis and after the ECB said it will provide markets with additional liquidity. While keeping rates on hold, the ECB announced its intention to restart the covered bond purchase program and to re-instate 1y tenders to provide Eurozone banks with longer-term access to unlimited euro liquidity over the end of 2011 and of 2012. Continue reading →