Europe is once again scrambling by clutching at broken straws and juggling dead ends. To wit: instead of actually proposing a realistic solution to its massive debt overhang, the ECB's Ewald Nowotny [8]said [8]"there are arguments in favor of giving Europe’s rescue fund a banking license, reviving the debate on bolstering its firepower as leaders face the prospect of a full-scale Spanish bailout." As a reminder, this is an absolute dead end that Germany and the ECB have both repeatedly rejected as implementation would confirm just how hollow the European gutted shadow banking market (you can't have shadow banking without credible collateral). Reuters explains [9]: 'Nowotny, however, said the issue was far from settled and that it was not being actively discussed right now - an indication that, if were to be considered, it would take time to agree on the measure. "There are also other arguments, but I would see this as an ongoing discussion," he said, adding that he was "not aware of specific discussions within the ECB at this point." France has been behind a push to give the ESM access to ECB funding operations. The ECB has repeatedly rejected the idea, arguing it would be thinly disguised monetary financing of governments. The ESM is an entity that is funded by governments."
Further slamming the Nowotny comment was Daiwa which called the Nowotny statement a Red Herring and that "remarks that ECB council member sees arguments for giving bailout fund banking license "look to be just noise," Grant Lewis, head of research at Daiwa Capital Markets Europe, says in client note. Comments appear to have been off the cuff and purely personal opinion; such a move remains “highly improbable,” as Germany and ECB “implacably opposed” to this. Finally Daiwa adds that markets will soon focus again on fact that if ESM can’t be activated in early autumn, there’s no money available to bail out Spain, “let alone Italy."
"Oddly" enough, just like yesterday's Hilsenrath non-fact stick save minutes before Apple's miss would have dragged futures down by several hundred more points, this non-event come just at the right time to prevent the EURUSD from sliding to a 1.1 handle, and has pushed not only the EURUSD higher by 100 pips, but futures well into the green. Good timing.
Efficient and unmanipulated markets.