Archive - Sep 19, 2011

• Greece Seeks Further Cuts (WSJ)
• No new China stimulus - former deputy central banker (Reuters)
• Obama to propose "Buffett Tax" on millionaires (Reuters)
• Greece-Troika Conference Tonight To Decide Next Steps (Market News)
• China Slowdown Looms as Inflation Limits Stimulus, ex-PBOC Official Says (Bloomberg)
• Bernanke Joins King Tolerating Inflation (Bloomberg)
• Swiss Cash blockade against German tax evaders (Spiegel)
• Moody's stays negative on states, local governments (Reuters)
• Germany Rejects Using ECB Leverage to Increase European Rescue Fund’s Size (Bloomberg)
• Merkel and Eurosceptic allies beaten in Berlin (Reuters)

Gold rose on Friday on the news that private participation in the Greek bond swap would miss the required 90% level, gold then climbed a robust $58. The Eurogroup/Ecofin meeting has disappointed the market as little or nothing of substance came from the meeting. If anything it has underscored the deep level of disunity in Europe as to how to manage this crisis going forward. This week's U.S. Federal Open Market Committee meeting may give a clue as to what quantitative easing initiative awaits the market this year.  FOMC watchers are indicating that a recognisable increase in rhetoric on the topic will become evident. Paper and ink futures are sure to soar from here.

Something about the news-flow over the weekend seems scripted. All of the comments and actions and "leaks" seem to be following a plan. The comments are too consistent. For the first time in months it seems that they have managed to contain people willing to speak to the media to just a few senior ministry of finance officials at the largest countries. Merkel and Sarkozy have been very quiet about the Finance Minister meetings, though Merkel was busy losing another election, so that may have something to do with it. This all started after a Friday trading session that was described by many corporate bond traders as not just quiet, but as "eerily" quiet. In any case the big question is guessing how this play will end. Is it an attempt to allow Greek to default with as much dignity as possible? The Greek's can say that the new plans were pushing things too far too fast and it was unfair. The US says they need stimulus to grow, we could not continue on a plan of austerity. The other countries would then say that they gave Greece every opportunity to remain current and they would do so with other countries that were more commited to plans. Or they could be setting us up for Greece to announce some new commitment to a plan. Then the European leaders can tell their citizens that they pushed Greece to the edge of default and are only providing taxpayer money with the certainty that Greece will live up to its obligations.

The Eurozone crisis will remain on top of the agenda with a Monday conference call scheduled between the Greek Finance minister and the Troika to assess if the conditions have been met for the disbursement of the next tranche. Also on Monday, Chancellor Merkel will face the press after weak regional election results in Berlin. Likely, the Eurozone crisis will be on the agenda. The developments in Greece will remain important throughout the week, with speeches by German Finance Minister Schaeuble and the ECB's Mr. Stark potentially important at the end of the week, during the IMF/Worldbank/G20 meetings, which start at the end of the week. At the Washington gathering we expect plenty of public comments on the Eurozone crisis by global policymakers, giving the currency market an opportunity to move on every headline. The other main event this week is the FOMC meeting, where Goldman expects “Operation Twist”. Some investors have started to wonder if there will be a QE3 surprise with additional asset purchases.

Fear is quite obviously rearing its ugly head once again tonight and Belgium's ever-ready-for-an-understatement finance minister Reynders told La Tribune that the euro area may need as much as two years to overcome the sovereign debt crisis. We think it will all be over one way or another by then. As the US Treasury market opens for business tonight, yields are reflecting the fearful action seen in futures markets and dropping notably. The 2Y has just traded at its lowest yield ever at 15.12bps and the 10Y is trying its best to hold above yet another Maginot line at 2.0026%. Credit markets are also starting to crack wider as they open for trading with financials and non-financials notably wider already. While risk-assets in general are offered and safe-haven TSYs are bid, we are seeing PMs gently glide higher and note an interesting article in today's FT that asserts European Central Banks have resumed net-buying Gold after 20 years of consistent selling.