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Mounting Euro Breakup Risk Seen by Banks

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News and Views in brief

Economy

Banks and ratings companies are sounding their loudest warnings yet that the euro area risks unraveling unless its guardians intensify efforts to beat the two-year-old sovereign debt crisis.

As European finance chiefs prepare to meet this week, and Italy seeks to raise as much as 8.8 billion euros ($11.7 billion) in bond sales, economists from Morgan Stanley, UBS AG, and Nomura International Plc say governments and the European Central Bank must step up their crisis response. Moody’s Investors Service said today the “rapid escalation” of the crisis threatens all of the region’s sovereign ratings.

“Skepticism has grown that euro-area policy makers can deal effectively with the key challenges they face,” Pier Carlo Padoan, the chief economist at the Paris-based Organization for Economic Cooperation and Development, said today as he cut forecasts for European and global growth. Serious downside risks remain, linked to “loss of confidence in sovereign-debt markets and the monetary union itself.”http://www.bloomberg.com/news/2011-11-28/mounting-euro-breakup-risk-seen-by-banks-as-debt-crisis-festers.html

Germany spurned investor calls to maximise financial firepower to calm markets, saying its fast- track proposals for European Union treaty change to enforce budget discipline are key to solving the euro-area debt crisis.

Germany is working with “an ambitious timeline because we believe that Europe can’t wait for this forever, but that it should also be possible to put such limited change into effect in what for some is a surprisingly short time,” Chancellor Angela Merkel’s chief spokesman, Steffen Seibert, told reporters in Berlin today.

Merkel will deliver a speech on the crisis to the lower house of parliament in Berlin on Dec. 2, previewing a Dec. 8-9 summit of European leaders that is due to discuss proposals for treaty change, Seibert said.

Stocks rose for the first time in 11 days and U.S. equity futures, commodities and the euro all advanced today on speculation that leaders are stepping up their efforts to resolve the sovereign debt crisis. As euro-area finance chiefs prepare to meet in Brussels tomorrow, Germany continues to reject joint euro-area bonds or attempts to deploy the European Central Bank to fight the crisis, Finance Minister Wolfgang Schaeuble said yesterday.http://www.bloomberg.com/news/2011-11-28/merkel-spurns-bazooka-in-favor-of-fast-track-eu-treaty-change.html

 

Indexes

U.S. stock futures rose, signaling the Standard & Poor’s 500 Index will snap a seven-day decline, after Thanksgiving retail sales climbed to a record and euro- area leaders were said to boost efforts to end the debt crisis.

AT&T Inc. (T) added 1.2 percent in early New York trading after the company was said to prepare an antitrust remedy proposal over its acquisition of Deutsche Telekom AG’s U.S. unit. Alcoa Inc. (AA) rallied with metal prices. JPMorgan Chase & Co. (JPM) advanced, tracking European banking shares.

S&P 500 futures expiring in December advanced 2.7 percent to 1,185 at 7:13 a.m. in New York. The benchmark equity index has fallen 7.9 percent since Nov. 15, including the worst Thanksgiving-week decline since 1932. Futures on the Dow Jones Industrial Average gained 240 points, or 2.2 percent, to 11,427.http://www.bloomberg.com/news/2011-11-27/u-s-stock-index-futures-gain-after-report-on-imf-planning-loan-to-italy.html

Bovespa stock-index futures gained, signaling the gauge may rebound from a one-month low, as speculation European leaders are intensifying efforts to contain the region’s debt crisis lifted commodities and boosted the outlook for Brazilian producers.

Oil producer Petroleo Brasileiro SA and mining company Vale SA gained in Frankfurt trading, following crude and metals prices higher. Usinas Siderurgicas de Minas Gerais SA may be active after Ternium SA (TX) and Tenaris SA agreed to pay 5.03 billion reais ($2.7 billion) for a 27.7 percent voting stake in Brazil’s second-biggest steelmaker.

Bovespa futures rose 2.3 percent to 56,370 at 10:04 a.m. Sao Paulo time. The real strengthened 1.3 percent to 1.8677 per U.S. dollar. The Standard & Poor’s GSCI index of 24 raw materials rose as much as 2.8 percent to 653.66, the biggest gain since Oct. 27.http://www.bloomberg.com/news/2011-11-28/bovespa-futures-rise-as-optimism-on-europe-debt-solution-lifts-commodities.html

Currencies

For the first time since at least 2003, investors are fleeing the euro for currencies of countries that don’t depend on international capital markets to finance their budget deficits.

The franc rose 7.3 percent and the yen 4.6 percent in the past 12 months, the biggest gains as measured by Bloomberg Correlation-Weighted Indexes, even as the Swiss and Japanese central banks intervened to weaken their currencies. The euro was little changed versus the dollar in the period as the European Central Bank cut interest rates and lenders in the region brought funds home to meet new capital requirements.

Investor concern the euro is at risk is mounting as bond yields in the 17-nation bloc rise to records, costs to insure its members against default jump and ECB President Mario Draghi says providing a more powerful backstop for governments is outside his authority. Traders are favoring currencies of markets that don’t need foreign capital such as Norway’s krone as banks hoard cash amid the most expensive financing rates in more than three years. http://www.bloomberg.com/news/2011-11-28/intervention-no-barrier-as-euro-loses-to-surplus-currencies-most-since-03.html

Central banks across five continents are undertaking the broadest reduction in borrowing costs since 2009 to avert a global economic slump stemming from Europe’s sovereign-debt turmoil.

The U.S., the U.K. and nine other nations, along with the European Central Bank, have bolstered monetary stimulus in the past three months. Six more countries, including Mexico and Sweden, probably will cut benchmark interest rates by the end of March, JPMorgan Chase & Co. forecasts

With national leaders unable to increase spending or cut taxes, policy makers including Australia’s Glenn Stevens and Israel’s Stanley Fischer are seeking to cushion their economies from Europe’s crisis and U.S. unemployment stuck near 9 percent. Brazil and India are among countries where easing or forgoing higher interest rates runs the risk of exacerbating inflation already higher than desired levels.http://www.bloomberg.com/news/2011-11-27/central-banks-ease-most-since-2009-to-avert-impact-of-european-debt-crisis.html

 

Commodities

Commodities are beating equities for a fifth consecutive year, a sign that demand from developing economies is sustaining global growth that drove prices up almost fourfold in a decade.

While the MSCI All-Country World Index of equities dropped 14 percent this year and yields on Treasuries fell to near- record lows, the Standard & Poor’s GSCI Index of 24 commodities rose 2.8 percent. Goldman Sachs Group Inc. expects commodities to return about 15 percent in the next 12 months. The last time there was a recession, raw-material prices slumped 43 percent.

The S&P GSCI more than doubled from a four-year low in February 2009 as shortages emerged. China, the biggest user of everything from energy to copper to cotton, will lead gains in a projected 6.1 percent expansion in emerging economies next year, more than compensating for the anticipated 1.9 percent growth in the developed world, the International Monetary Fund says. http://www.bloomberg.com/news/2011-11-27/raw-materials-topping-equities-with-economic-expansion-intact-commodities.html

Copper rose the most in two weeks in London after record holiday sales in the U.S., the world’s second-biggest consumer of the metal, fueled optimism demand will remain steady.

U.S. retail sales during Thanksgiving weekend climbed 16 percent to $52.4 billion, according to the National Retail Federation. Copper also gained as the euro climbed against the dollar after German Finance Minister Wolfgang Schaeuble urged fast-track treaty changes to tighten budget discipline.

“The markets are being driven by good numbers out of the U.S. for Black Friday,” said Nic Brown, head of commodities research at Natixis Commodity Markets Ltd., referring to the day after the Nov. 24 Thanksgiving holiday. “It certainly appears that Europe is getting more serious in its consideration of closer fiscal integration.”

Copper for three-month delivery climbed 3.1 percent to $7,452 a metric ton by 10:11 a.m. on the London Metal Exchange. Prices increased as much as 3.5 percent, the most since Nov. 14. Copper for March delivery rose 3.1 percent to $3.3845 a pound on the Comex in New York. http://www.bloomberg.com/news/2011-11-28/copper-gains-most-in-two-weeks-on-italy-loan-report-record-thanksgiving.html

 

 

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Mon, 11/28/2011 - 14:32 | 1921644 AndrewCostello
AndrewCostello's picture

It's a given that we will sink into depression and the paper currencies will collapse.  People should be concentrating on what they will do when that happens.

 

Check this out:

http://www.facebook.com/pages/Gun-Owners-for-a-Gold-Standard/180803025347901

Mon, 11/28/2011 - 13:36 | 1921441 LawsofPhysics
LawsofPhysics's picture

"For the first time since at least 2003, investors are fleeing the euro for currencies of countries that don’t depend on international capital markets to finance their budget deficits."

 

At the end of the day, isn't that pretty much every single government on the planet, or does pivotfarm still believe in the infinite growth model in the finite world?

Mon, 11/28/2011 - 11:58 | 1921051 Georgesblog
Georgesblog's picture

This looks like a perverse game of Tetris. The next block to drop may not fit anywhere. There is no "Continue" option in this game. 

http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/

Mon, 11/28/2011 - 11:03 | 1920844 apberusdisvet
apberusdisvet's picture

The 2% ceiling for the gold manipulators will not be breeched today, as usual.  The transparency is excellent; unlike in every other market move.

Mon, 11/28/2011 - 10:52 | 1920812 daxtonbrown
daxtonbrown's picture

I don't see how the game of 'kick the can' ends well for sovereign and bank debt unlss there really is a Santa. Consumers haven't appreciably deleveraged either according to the Blackl Friday sales figures. The media still puts out this baloney that there are signs of recovery, which may be the case superficially, but not one problem has been solved. The Super Committee couldn't even cut a lousy $trillion when they needed to cut at least $15 trillion over the ten years.  Everyone appears to be getting ready to party on like it's 1929.

I think given the fundamentals, that the smart thing to do is keep hunkering down and Go Galt. http://www.futurnamics.com/goinggalt.php

Mon, 11/28/2011 - 10:47 | 1920788 xcehn
xcehn's picture

Desperation: “The markets are being driven by good numbers out of the U.S. for Black Friday,” said Nic Brown, head of commodities research at Natixis Commodity Markets Ltd., referring to the day after the Nov. 24 Thanksgiving holiday. “It certainly appears that Europe is getting more serious in its consideration of closer fiscal integration.”

Mon, 11/28/2011 - 11:18 | 1920889 s2man
s2man's picture

And I am getting more serious in my consideration of marrying Pamela Anderson.

Mon, 11/28/2011 - 17:34 | 1922879 URZIZMINE
URZIZMINE's picture

Or possibly Palmala Handerson.

Mon, 11/28/2011 - 09:31 | 1920509 Escapeclaws
Escapeclaws's picture

They're following their leaders behind them.

Mon, 11/28/2011 - 13:53 | 1921511 Popo
Popo's picture

On my small handheld screen I read the title of this post as:   "Morning Euro Breakup Risk Seen by Banks".

 

Sigh.  First time I've been happy in days...

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