Markets are booming today, with US futures pointing to gains over over 2%. European yields are going negative.What’s setting the tone today?
Here’s a quick taste from Nomura of what’s on the agenda:
Overnight, EUR rallied strongly along with other risky currencies as short-covering was triggered. This occurred after the Italian daily newspaper La Stampa reported that the IMF is preparing a EUR600bn loan for Italy in the event the country’s debt crisis worsens. Our G10 FX strategy team commented that the EUR600bn loan package is clearly not feasible, as it is beyond the resources currently available to the IMF. While there is potential for ECB financing or SDR issuance to finance the loan, the larger issue of the source of financing remains, given major creditor economies have expressed a reluctance to invest in eurozone bailouts. Late in the Asian session today,
the Dow Jones reported that there was no discussion within the G7 of a large
IMF package for Italy. Asian equities, S&P 500 future and FTSE 100 futures rallied in the Asian session. News last Friday that S&P downgraded Belgium to AA with negative outlook from AA+ and Moody’s downgraded Hungary to junk failed to check this rally. There was also a separate Reuters report that the Germany and France governments are exploring avenues to fast-track
changes to tighten budget discipline. Rather than securing agreement among all 27 member countries to change the EU treaties through a drawn-out process, the fast-track solution would only impose budget controls over the 17 EMU countries. This approach could be implemented as early as start of 2012. The hope is that this step towards a “stability” union would pave the way for a
more forceful ECB policy response.
There’s also a report out about some kind of Eurobond that would only encompass the core or elite nations in Europe (Germany, France, Austria, Finland, The Netherlands, Luxembourg) with the idea that perhaps some funds raised could go to finance the periphery. The report seems a bit dicey.