June 29. Italy defeats Germany in soccer; Merkel retreats on all fronts

–Germany’s loss to Italy caused Merkel to lose her bearings. Europe agreed to a deal to help fund Spain’s banks (and Italy, and Ireland) which sent euro soaring, along with other risk assets. EUR was up to 126 (from 124.36 close in ECU2). Crude oil and silver, leaders on the way down, have had modest bounces while copper and stocks are seeing more powerful upside moves. From Reuters: “…European Stability Mechanism, would be able to lend directly to recapitalize banks without increasing a country’s budget deficit, and without preferential seniority status.” And “…European Central Bank to break the “vicious circle” of dependence between banks and sovereign governments.”
–In my opinion, this actually strengthens the linkage between banks and gov’ts, especially since banks were encouraged to buy sovereign debt funded by LTROs. Also, the ESM is not being increased, so the euphoria may be short-lived.
–Curve was much flatter yesterday but is steepening this morning on european announcement. Ten year yield fell 4 bps to 1.58 yesterday, but has jumped back up to 1.63 this morning. US news today includes several Fed speakers, Personal Income and Spending (expected +0.3 and 0.0) and Chicago PMI, expected 53.1 from 52.7.
–(dailycaller.com) “According to the USDA, greater food stamp usage can be an economic plus for states and communities. “Every $5 in new SNAP benefits generates $9.20 in an additional community spending,” the USDA contends in their outreach guidance. “If the national participation rate rose five percentage points, 1.9 million more low-income people would have an additional $1.3 billion in benefits per year to use to purchase healthy food and $2.5 billion total in new economic activity would be generated nationwide.” Zerohedge also covered this story: “Wal-Mart gets as much as 25% to 40% of revenue at some stores from food stamp dollars.”

Posted on June 29, 2012 at 3:36 am by alexmanzara · Permalink
In: Eurodollar Options

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