This week's main events were: EU summit agreeing on the banking union, Spain still playing time, better than expected data from China, US presidential election uncertainty increasing. A very important, but currently less discussed topic is the possibility of the central banks to write off the QE-acquired sovereign debts. As debt monetization has a bad ring to it, the discussion will be held in the background for political reasons.
Previously on
MoreLiver’s:
EUROPE
Once
"Jollying The Markets" With "Faith, Hope And Charity"
Fails, What Comes Next: A Primer On Europe's Next Steps – ZH
Grexit:
First Borg, then Buiter, now Jakobsen – Saxo
Bank
The main macro input on Europe is now
the German election (September 2013) and the total apathy left behind by the
discussion on fiscal multipliers from the IMF has left the central planners
'rudderless on the open sea of debt crisis'. The EU Commission will try to find
a compromise on extend-and-pretend for Greece but...
How
would ECB bond purchases affect the level of interest rates? – Nordea
Eurozone
Bank Supervisor Plan Found To be "Illegal" – ZH
FT: A plan to create a single eurozone banking
supervisor is illegal, according to a secret legal opinion for EU finance
ministers
The
case against EU membership – The
Telegraph
In the event, Britain’s timing
could hardly have been worse. We joined the EEC in 1973,
at the very end of Europe’s Wirtschaftswunder.
EUROPE:
SUMMIT
Low
expectations ahead of this week’s EU Summit – Nordea
EU-Summit preview: don't
expect too much – Danske
Bank (pdf)
In the
Picture: the EU’s October summit – The
World / FT
The EU summit that begins on Thursday has enjoyed less
fanfare – and less frenzied speculation over its potential outcomes – than many
others. That’s because decisions on some of the hot topics will be deferred
until later dates.
EU
summit: Leaked Q&A to summiteers – Brussels
blog / FT
The issue of a collective budget for the 17 eurozone
members has come roaring out of nowhere to become one of the most contentious
issues heading into today’s EU summit.
EU Aims for Euro-Area
Bank Supervision to Start in 2013 – BB
European leaders committed to their goal of
establishing a euro-area bank supervisor by year-end, opening the prospect of
direct aid to Spain’s banks.
Europe advances towards single banking supervisor – Reuters
European Union leaders took a big stride towards
establishing a single banking supervisor for the euro zone, agreeing it would
enter into force next year, opening the way for the bloc's rescue fund to
inject capital directly into ailing banks.
EUROPE: PIIGS
Spain's exposure to the rating
agencies – Sober
Look
The recent downgrade of Spanish debt by the S&P is
not going to have a significant effect on the bonds' eligibility as collateral
at the ECB. The ECB takes the best of the four ratings of Moody’s, S&P,
Fitch, and DBRS to determine the eligibility for repo collateral.
Rating agencies have
a funny way of agreeing about Spain – alphaville
/ FT
After the two notch downgrade by S&P about a week ago,
both agencies now have the sovereign on equivalent ratings. It’s pretty
hilarious to compare and contrast the reasons for each agency’s (in)action.
Greece and Spain – Marc to Market
European officials’ ability to reduce the tail risks
appears to have been quite successful.
And they have achieved this without spending a single penny. Yet the tension between the interests of the
creditors and the interests of the debtors has not been resolved.
Spain Banks Face More Pain as
Worst-Case Scenario Turns Real – BB
Spain’s banks
face more loan losses as the pace of an economic slump risks turning a
worst-case scenario dismissed in stress tests into reality.
UNITED STATES
Seven Varieties of Deflation – John
Mauldin / The Big Picture
One of the
questions I (and other analysts) get asked most frequently is whether I think there
is deflation or inflation in store for the US. My quick answer is “Yes.” A brief
answer is that we are in a deflationary period and have been for over 30 years,
but like all cycles it will come to an end. A great deal of the “when” depends
on how the US deals with its deficit following
the election.
The
Ultimate Presidential Election Guide For Investors – ZH
Credit Suisse’s deep look – 42 pages
ASIA
Weaker growth in Q3 and bottom is reached – Nordea
Weaker growth in Q3 and bottom is reached – Nordea
China: Finally signs of recovery – Danske
Bank (pdf)
IMF BACKTRACKS ON AUSTERITY
Hold the Press: The IMF Changes Sides – Marc
to Market
A significant event has taken place this week. It will alter the
balance of power between creditors and debtors and help shape the contours of
the ongoing policy response to the end of historic credit cycle. The IMF
has not only delivered a mea culpa of sorts, but urges its members to do so too.
IMF: Austerity is much worse
for the economy than we thought – Wonkblog
/ WP
Robustness of IMF data
scrutinized – Global
Economy / FT
The maths behind the madness:
interactive guide to government-debt dynamics – The
Economist
Spain has lots of work to do. Keeping all
things equal, the country would need to grow by 7.7% a year, or nominal bond
yields to fall to a Teutonic 0.5% to stabilise government gross debt at its
2011 level of 70% of GDP. Fat chance: the IMF forecasts GDP growth to average just 0.5% a year
and bond yields of 7.7% between 2012 and 2017. A bail-out for Spain it seems, is not a case of if, but
when.
MARKETS
Understanding
The Bond Bubble – The
Short Side of Long
A look at both the stock and bond markets
New Financial Forecasts:
Another EU summit, another clearance? – Nordea
(pdf)
Next weeks
EU Summit is not expected to reveal much new. More discussion of Greece, Spain and perhaps Cypress and Slovenia but if anything expect more
defensive clearance. The fact that Spanish bonds managed to rally after the
S&P downgrade indicates the risk-on crowd is still here. Hence, we still
believe investors on balance are looking to take on more risk going into the
end of the year but it’ll not be a straight line and volatility will continue
to be rather high.)
G10
Weekly: US Earnings – what’s up…or is
it down? – Nordea
(pdf))
US Earnings
– what’s up…or is it down? * Riksbank preview: A fine balance
Citi On The Five FX Issues
Waiting To Play Out
– ZH
QE,
electoral politics and fiscal cliff, emerging markets, euro, reserve managers
OTHER
Stability through simplicity – The
Physics of Finance
We can and
should work hard to explore the space of what might happen, and so gain some
forewarning of dangers, but we will still encounter surprises and we should
expect to do so. So our approach to regulation ought to be centered on that
premise -- that we face a world of uncertainty.
Buffet vs Modigliani-Miller – The
View from The Blue Ridge
We think
the same behavioral errors that tempt “gamblers” to buy lottery tickets, seduce
“investors” to speculate in high risk stocks.
The result: a structural overvaluation in excitement and a systematic
undervaluation in high quality stocks.
Macro hedge funds stink at
market timing – Sober
Look
And now
they are positioned with a long bias. Given Macro funds' average track record
recently, that bet does not bode well for the equity markets going forward.
Reckoning with Risk 12/12:
The Greatest Risk of All – Above
the Markets
Final piece
of a 12-part article – see the bottom of the post for links to the previous
ones.
Will central banks cancel government debt? – Gavyn
Davies / FT
The
next step – Buttonwood’s
/ The Economist
The idea that central banks might cancel their
government debt holdings, or restructure them into zero coupon debt, is gaining
traction.
IN FINNISH
Nyt se on virallista: talouden löylykisa onkin vikatikki
– Jan
Hurri / TalSa
Kriisimaat ovat lamassa ja muukin Eurooppa uupuu uuteen
taantumaan. Ongelmat ovat osin omatekoisia, sillä ennenaikaiset vyönkiristykset
ovat heikentäneet muutenkin huteraa taloutta. Nyt osa talouspäättäjistä
myöntää, että "talouden löylykisa" ei sittenkään vahvista vaan
päinvastoin heikentää taloutta.
Kohti "todellista" talous- ja rahaliittoa
– Sampo
Terho / US Puheenvuoro
Talousjournalismin lyhyt
historia – SK
Voittoja ja
tappioita sekä uutissulku ”isänmaallisista syistä”