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Global Markets React (Badly) To Draghi's Disappointing Nothing-Burger

Submitted by Tyler Durden on 10/02/2014 09:28 -0400

Extending current programs (i.e. no imminent Sovereign QE)... may not spend the entire EUR1 trillion on current programs... no rate change... Markets are not happy. EUR is surging, European stocks are dropping, European peripheral bond risk is rising. Treasuries are bid and US equities have dropped to yesterday's lows.

EURUSD not happy.. (and remember everyone and their mom is on one side of that trade)

European Stocks and Bonds not happy...

US equities (S&P 500) back at yesterday's lows...

Charts: Bloomberg

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Thu, 10/02/2014 - 09:29 | 5279564 ekm1

Germans said NEIN.

The reason?

TARGET2 IMBALANCES

ECB does policy looking at Target2

Fed does policy looking at Interest Rate Swap derivatives

Thu, 10/02/2014 - 09:30 | 5279572 Mi Naem

Yes, it seems someone convinced the ECB that this is not a good time to be pissing off the Germans.

Thu, 10/02/2014 - 09:48 | 5279646 Ghordius

I'm sorry to spoil the narrative, but it was the French government to say mais NON first to Draghi's "Help the Greek and Cypriot banks" ABS tranche. and it has nothing to do with TARGET2

Thu, 10/02/2014 - 09:49 | 5279660 ekm1

You can say anything you want and I can say anything I want, at the very end we all just say things

However, Policy is not done in vacuum.

Without Target2, Eurozone can't exist, euro can't exist.

Thu, 10/02/2014 - 10:09 | 5279730 max2205

SNAFU

Thu, 10/02/2014 - 10:25 | 5279806 Ghordius

TARGET2 is still one of the most misunderstood parts of the EuroSystem

I had once a participation in a farm in Greece. this farm made profits, which I had in a Greek bank. when I shifted those euros from my Greek bank to my bank in Spain, the TARGET2 headline for Greece went negative and the one for Spain went positive

it's still my frigging money. but for TARGET2 purposes it was created as Greek and then transformed in Spanish money

^{(the FED system has the freaking same thing among the 12 FEDs)}

Thu, 10/02/2014 - 10:37 | 5279862 ekm1

Not so if you sell output in spain, get paid with reserves created by bank of spain buying greek bonds and liability stays with the Bank of Greece

https://www.bancaditalia.it/sispaga/servpag/target2;internal&action=_set...

there is no Eurozone without Target2

There is no euro without target2

Thu, 10/02/2014 - 10:48 | 5279917 ekm1

If you ship stuff from greece to spain and the receiver has no money, but bank lends him the money, then you get paid by bank of spain buying greek bonds.

Liability stays between central banks via ECB, Target2.

Hence the receiver in spain consumed your output, but didn't produce anything.

That is the issue. Too many consumers, not many producers.

Hence ECB does policy only for Target2, to pay suppliers which are not paid by consumers in another country who borrowed but who have no money to pay.

Thu, 10/02/2014 - 09:32 | 5279577 Headbanger

You mean like this?

http://www.youtube.com/watch?v=1MLry6Cn_D4

Thu, 10/02/2014 - 10:24 | 5279802 Robert.Paulson

Or like this?

https://www.youtube.com/watch?v=-3WqEUUJNTY

Thu, 10/02/2014 - 09:34 | 5279587 disabledvet

Your only collateral is the currency itself which as I have said "is debt."

The "actual debt" or "what is called debt" is just a number with an interest rate. In fact it is worthless and cannot ever be redeemed.

Should be interesting to see who is allowing Eurobonds to be used as collateral. "You might think its worth a 100 trillion" but you'd have to measure it against the only "real debt" which used to be called the euro but now is called the Zero.

Thu, 10/02/2014 - 12:56 | 5280647 KnuckleDragger-X

but...but...but the Great Lord Draghi promised.... waaaaa!!!

Thu, 10/02/2014 - 09:31 | 5279574 youngman

So what happens to Greece.....do they have to pay their own bills now or what???

Thu, 10/02/2014 - 09:32 | 5279575 Bokkenrijder

Guys, you forgot: "Gold & Silver not happy either."

Thu, 10/02/2014 - 09:32 | 5279579 Bill of Rights

The middle class is poorer today than it was in 1989 - The Washington Post

Thu, 10/02/2014 - 11:57 | 5280319 SheepDog-One

And in 1989 things were nothing to write home about either.

Thu, 10/02/2014 - 09:33 | 5279583 aliki

reversal in the dollar kinda throws cold water on those "dollar strength" statements ... more like it was "everything else weaker for the time being"

Thu, 10/02/2014 - 09:34 | 5279586 buzzsaw99

don't know who is stupid enough to be on the wrong side of that trade other than pimco. the euro is loosely pegged to the usd. everybody knows it.

Thu, 10/02/2014 - 09:38 | 5279614 disabledvet

Pegged to a "Petro dollar"...where the Petro is collapsing in price.

Thu, 10/02/2014 - 12:59 | 5280658 KnuckleDragger-X

But everybody else is collapsing faster, long live the toilet paper dollar.

Thu, 10/02/2014 - 09:39 | 5279615 Keltner Channel Surf

Will glady pay you Tuesday for a disappointing nothing burger today . . . (Russell's reacting more positively early, perhaps extra ketchup?)

Thu, 10/02/2014 - 09:39 | 5279626 aliki

cramer blaming europe for the drop past few days, weeks ... i love that almost as much as them blaming "the machines" for us being down nearly 10% in small caps. funny, i don't seem to remember "the machines" getting the "credit/blame" when IWM went from 84.00 to 120.00. guess that was due to "expanding economies & global growth"

Thu, 10/02/2014 - 09:41 | 5279629 Dr. Engali