The “rabbit hole” is an accepted metaphor for the conceptual path which leads to the true nature of reality. Infinitesimally deep and complex, venturing too far down is probably not too clever an idea, you have to wonder if beginning to expose just how deep the global economies’ rabbit hole is burrowed will now irreversibly spook the markets.
There’s been a collective denial during the past three to four years and despite the dizzying amount of meetings of the good and the great of the financial world over recent weeks, the reluctance to actually put a figure on the total stability ‘bill’ has not gone unnoticed. There’s two reasons for this, firstly the mention by the IMF and ECB of €2-3 trillion to protect Spain, Italy and Greece is a number that doesn’t compute with the electorates of the seventeen member countries of the Eurozone.
It’s confusing given it’s such a large sum, it could be €5 trillion it’s that ‘stellar’, most of us cannot comprehend the reality of such sums and what the impact will be. At that level ‘money’ actually loses meaning to the ordinary man and woman in the street. However, that new reality may, in the short term, be explained by the media outlets who choose to be off side with the various politicians and the decision makers. When they ‘do the math’ and explain in basic digits the impact such bailouts will have coming so close after the 2007-2009 economic crash, the mood of the electorate may change.
The second reason the politicians and decision makers have avoided the mention of cold hard facts is they know the inevitable focus will then be on those figures and very quickly the question will be asked; “is that enough, at what point do you come back and ask for more?” Naturally the inquisition then moves forward by asking how these crises differ from 2008-2009 and naturally the IMF and ECB will go to any lengths to avoid stating the truth; ” oh..this is much, much worse, we didn’t know how deep the rabbit hole went back then and we have absolutely no idea now..this €3-4 trillion is just the start.”
On the subject of the IMF (and without clumsily mixing up Alice in Wonderland and the Wizard of Oz) the IMF has been pushed as a lender of last resort bulwark over recent years, the evangelical, mystical saviour of the system. As the curtains were accidentally moved back by Christine Lagarde during the IMF’s weekend meeting she revealed that the IMF has circa €400 bl at its disposal, barely enough to ‘solve’ the short term Greek issues..
Asian markets reacted badly to the various proposals put forward by the IMF and the general mood of gloom which has cast a shadow over the global economy. The Nikkei closed down 2.17%, the Hang Seng closed down 3.08% and the CSI closed down 1.80%. The most spectacular fall was on Thailand’s main bourse the Bangkok SET which closed down 7.82% down and is now in negative territory year on year.
In late evening the ftse and SPX futures pointed towards positive openings, however, the overall ‘nervousness’ of the markets was illustrated by both futures indices being negative by over 1% pre the London open. The ftse is in positive territory now as is the SPX future. The ftse is currently up 0.5% and the SPX future is up 0.75%. the STOXX is up 1.52%, the CAC is up 1.02% and the DAX up 0.63%. Brent is down $15 a barrel gold down $43 an ounce and silver, which has imploded as an alternative investment recently, is down $234 or ten percent.
Sterling is up circa 0.5% versus the USD, EUR and CHF and relatively flat versus yen. The euro has clawed back earlier losses versus the dollar but is down circa 0.7% versus yen and down circa 0.5% versus the dollar. The Euro is very erratic versus CHF but is currently flat. There are no scheduled data releases that are likely to impact the markets today.
Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/you-take-the-red-pill-and-you-stay-in-wonderland-and-i-show-you-how-deep-the-rabbit-hole-goes/
Daily Market Roundup by FXCC - September 27 am
The Zloty Loses its Slot
Please no laughing at the back of the class, the Polish currency, the zloty, is apparently falling out of favour with investors and speculators. Are you thinking what I’m thinking, that it’s a shame they didn’t ditch their sovereign currency in 2002 and join the euro?
Trading humour can be so cruel. The zloty is down 16 percent against the dollar and 9.9 percent versus the euro this quarter as the worst performer amongst the European currencies. “The zloty was not so long ago the darling of Europe, Middle East and Africa regions but these days are gone,” Benoit Anne, the head of global emerging-market strategy at Societe Generale SA in London, said in a phone interview with Bloomberg, “It used to be a very strong fundamental story and you don’t have it anymore.”
Poland’s was the only European Union economy to avoid recession after the global credit crisis in 2008 caused record purchases of government’s bonds. The economy expanded an average 4.4 percent a year since 2007, compared with 0.1 percent in the EU. However, that artificial ‘growth’ came at an obvious price; Poland’s budget deficit has more than quadrupled since 2007 to 7.9 percent of GDP last year, the widest gap since at least 1996, according to data compiled by Bloomberg.
Contagion thoughts took a twist in an unfamiliar direction yesterday, with news that Danish banks are experiencing their own crisis and it’s deepening due to the new government’s plans to impose taxes on lenders, this threatens to deplete capital at a time when most of the country’s banks have no access to funding markets.
“The banks are under severe stress,” said Jesper Rangvid, professor of finance at Copenhagen Business School, in an interview with Bloomberg. Imposing extra taxes on the country’s banks “definitely does not contribute to banking stability.”
Stocks rallied yesterday, rebounding from last week’s slump. Commodities reversed losses and the Dollar Index declined. The Standard & Poor’s 500 Index jumped 2.3 percent to close at 1,162.95 at 4 p.m. in New York. The S&P 500 is down circa 12 percent since the end of June, heading for its worst quarterly performance since 2008. Ten-year U.S. Treasury note yields added six basis points to 1.90 percent, rising from a close to record low. The Dollar Index lost 0.5 percent, while the euro fell against 12 of 16 major peers. Financial shares ranked among the session’s best performers, with the KBW Bank Index up 5.3 percent. Dow component JPMorgan Chase & Co advanced 7 percent to $31.65 while Citigroup Inc gained 7 percent to $26.72.
Turning attention back to Europe, Greeks are facing up to a miserable existence due to the austerity measures. Greece will deepen pension cuts, extend the painful property tax and put tens of thousands of workers on notice in order to secure new aid and stave off bankruptcy, causing more pain for an increasingly embittered electorate. With civil servants suffering swingeing 15% salary cuts and core inflation hitting hard the experience is exacerbated by the random rolling transport strikes. Talk of plans for a 50 percent write-down in Greek debt and improvements in the euro-zone rescue fund buoyed the market, however, European officials called the talk premature. The plans could involve using leverage and the European Investment Bank to buy sovereign debt to save European banks. A solution cannot come quick enough for Greece’s battered and embittered population.
Gold lost circa 4% on Monday, hit by liquidation by commodity hedge funds triggered by another sharp margin hike. The metal has lost 11% during its recent four-session sell-off, its worst four-day drop since February 1983. There was widespread talk of possible selling by big hedge funds to cover their losses in other markets. Gold was down 3.4 percent at $1,600 an ounce by 1:17 p.m, having fallen earlier by more than 7 percent to a 2-1/2-month low of $1,534.49. The difference between the session high and low of $128 marked the largest daily price swing on record. Silver fell as much as 16 percent and was set for its sharpest three-day fall on record of more than 25 percent. Silver eventually dropped 3.2 percent to $30.05 an ounce.
Looking towards this mornings London and European session the European bourses equity futures indices look positive, the FTSE up 1%, the STOXX up 3% and the DAX likewise. The SPX future is currently flat. Brent is up $69 a barrel. Will Asian markets feel the wave of premature optimism felt by Europe and the USA? Talk may be regarded as cheap, until action is taken Asian markets and policy makers will remain sceptical as to the will and ability to rescue both Europe’s and the USA’s debt crises.
Key morning announcements include; at 09:00 the Eurozone – M3 (Money supply) for Aug. And at 11:00 UK – CBI Industrial Trends Survey for Sept. Nether of which publications are likely to affect sentiment greatly.
Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/september-27-am/
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