Sept 19, 2011. EU meeting goes badly; euro tumbles

–The biggest event on the US calendar is FOMC Tuesday and Wednesday.  The market is expecting a “twist” operation which could further flatten the curve and erode yet another source of US banking revenues, which have already been limited by Dodd-Frank rules banning prop trading. 2 year note ended at just 17 bps.  There are suggestions that Bernanke wants to further support stocks, but outside of direct buying, continued monetary efforts are likely to yield only temporary results. (If it really worked, then why hasn’t the Nikkei rebounded?)
–In Europe, things appear to have gone badly over the weekend: (BBG) “We have slightly different views from time to time with our U.S. colleagues when it comes to fiscal-stimulus packages,” Luxembourg Prime Minister Jean-Claude Juncker told reporters after chairing the meeting yesterday in Wroclaw, Poland [with Geithner]. “We don’t see any room for maneuver in the euro area which could allow us to launch new fiscal stimulus packages. That will not be possible.”
From ZH: German Finance Minister, Wolfgang Schäuble, took Geithner to task and explained to him in no uncertain terms, according to Fekter, that it was not possible to burden the taxpayers to that extent, particularly not if only the taxpayers of Triple-A countries were to be burdened. A bailout “with tax money alone in the quantity that the USA imagines will not be feasible,” Schäuble said. (Wiener Zeitung, article in German).
Geither warned of catastrophic consequences.
–Is it the euro that needs to be saved, or is it the european banks? Obviously the two are linked, but each country recognizes the risks to its own banks. As of the end of the week, DB, UBS, Credit Suisse, Soc Gen and Paribas COMBINED market caps were about $171 billion.  JPM alone has $132 b mkt cap.  JP, Wells, Citi and BofA combined have $423.  According to a Reuters piece, French banks have exposure to Greece, Ireland, Portugal, Spain and Italy of $671 B, and the exposure of Germany to the group is $522 billion.  Clearly those funds aren’t all at risk, but the assets of european banks rest on a slender reed of capital, and are significant percentages of GDP.  Further equity AND debt capital is certain to evaporate in the crisis.  The system isn’t unified enough to confront the problems, and to think that US stocks can escape tangential negative effects is unreasonable at best.

Posted on September 19, 2011 at 8:27 am by alexmanzara · Permalink
In: Eurodollar Options

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