Archive - Sep 12, 2012

Despite an initial knee-jerk higher on the 'ratification' confirmation, risk-asset markets seems less than enamored at the new European Conditional Union. European and US stocks popped but are falling back now - only marginally higher. EURUSD is back to pre-decision levels - though swung around in some crazy stop-seeking runs up and down. Bunds and TSYs are modestly higher in yield; Spainish and Italian bond yields are flat (so spreads are marginally lower). The biggest movers are Gold and Silver so far.

UPDATE: EURUSD unsure - but seems like 'Unlimited' ECB Bazooka's trigger (ESM) is now capped at EUR190bn from Germany.

The Kardinals of Karlsuhe kame through. As somewhat expected, they declined the complaint that, simply put - and among many other things, the ESM structure (i.e. German payments into it) stretches German constitutionality and can proceed to a broader vote next year - but basically - in a nutshell - there's no coming back now. As expected there are conditions though - that the market seems perturbed by:

• *GERMAN COURT ALLOWS ESM RATIFICATION WITH CONDITIONS :13347Z US
• *GERMANY MUST SET CAP FOR LIABILITY UNDER ESM WEHEN RATIFYING
• *GERMANY MUST MAKE SURE ITS ESM SHARE IS CAPPED AT EU190 BLN

Limited ESM (primary market) vs Unlimited secondary bond market buying (OMT). Go figure it out

The "fate of Europe" rests in their hands. Watch the decision live here.

As the world waits with baited breath for the Karlsruhe Klan to decline (the positive risk-on decision), markets are leaking modestly off their overnight best levels. Barroso's State of the Union seemed to have been the trigger for some weakness as he reminded everyone just how political this problem is. EURUSD is up 10pips, S&P 500 e-mini futures are up 2.5pts, European stocks are up marginally (IBEX +0.5%, MIB +0.17%, CAC -0.15%, EuroStoxx unch), Financial and corporate credit is 2-5bps tighter (XOver -9bps at one-year tights), and Sovereign spreads unch to slightly tighter.

• *BARROSO CALLS FOR DECISIVE DEAL TO COMPLETE EMU
• *BARROSO SAYS FEDERATION WILL ULTIMATELY REQUIRE NEW TREATY
• *BARROSO SAYS EU MUST COMPLETE DEEP ECONOMIC, POLITICAL UNION
• *BARROSO CALLS FOR FEDERATION OF NATION STATES, NOT SUPER-STATE