Financial Market Reports for July 13, 2011
1) … European banking and sovereign debt news of the day
Open Europe relates Moody’s downgrades Ireland as Italian cost of borrowing soars;
Greek PM: “Tactical politics” has undermined management of eurozone crisis
Italian borrowing costs reached their highest level for a decade yesterday, prompting Italian Prime Minister Silvio Berlusconi to call for national unity and “sacrifices” to deal with the country’s debt and deficit, adding that Italy was now on the “front line of the battle”. The Italian government and opposition pledged to pass the new three year €40bn austerity programme by the end of the week, following calls from the IMF for a “decisive implementation” of the package. Eurozone leaders announced they will hold an emergency meeting this Friday to discuss the crisis and contagion to Italy and Spain.
Moody’s credit rating agency downgraded Ireland to junk status yesterday, citing the likelihood that the country will need additional financing after the current bailout package and this may involve losses for private sector bondholders. Despite this, Moody’s did announce this morning that it sees the debt situation in Italy as “relatively stable”. Separately, Belgium moved to quell market fears over its economy, announcing better than expected deficit projections for the rest of this year.
In a letter to Jean-Claude Juncker, President of the Eurogroup, George Papandreou, Greek Prime Minister, claimed that “indecisiveness and errors” from EU leaders have fuelled the crisis, according to the FT. On Monday night Deputy Greek Finance Minister, Pantelis Economou, told the Greek parliament that the EU-IMF mandated privatisation plan will probably not raise €50bn as planned, saying, “Many fewer assets will be sold than are included in the privatisation plan. It is impossible to sell them all”.
Meanwhile, Chancellor George Osborne suggested a detailed plan was needed to deal with crisis, including “credible stress tests, backed up with recapitalisation for the most vulnerable banks”. Open Europe’s Raoul Ruparel appeared on Yahoo Finance’s the Daily Ticker, discussing the developments in the eurozone crisis. FT WSJ FT 2 Reuters Italy La Repubblica Independent FT 3 FT 4 EurActiv FT 5 WSJ 2 EurActiv 2 European Voice Independent Telegraph Irish Times Le Monde FT 6 Bloomberg Conservative Home FT 7 FT 8 European Voice 2 FT 9 WSJ 3 WSJ 4 City AM Yahoo Finance Business Insider El PaisEl Pais 2El Pais 5El Pais 6El Pais 3El Pais 4Yle.fiLe MondeLe Monde 2Le FigaroLa TribuneLes Echos Le Monde Le Figaro La Tribune Les Echos Les Echos FTD.de FAZ.net FAZ.net Guardian Guardian 2
Open Europe relates EU governments pledge support for banks that fail stress tests
The WSJ notes that EU finance ministers last night called on any banks that fail stress tests, due to be published on Friday, to recapitalise or restructure, but also committed themselves to provide government support, if necessary. “These measures privilege private-sector solutions but also include a solid framework for the provision of government support in case of need, in line with state aid rules,” according to a statement. WSJ WSJ 2 WSJ: Heard on the Street IHT El Pais
Open Europe relates Martin Wolf: Eurozone might be on the verge of a crisis that “destroys” much of the European project
In the FT, Martin Wolf argues that, “The eurozone might be on the verge of a fiscal cum financial crisis that destroys not just the solvency of important countries but even the currency union and, at worst, much of the European project.” He notes that, “Italy, with the fourth-largest public debt in the world, is probably too big to save: Italians themselves must make the decisive moves needed to restore fiscal credibility.”
In the Telegraph, Ambrose Evans-Pritchard writes, “Irritation with Germany is palpable in Club Med capitals. Spain’s leader José Luis Zapatero yesterday came close to accusing Berlin of setting off the contagion by frightening private investors with talk of haircuts.”
Germany’s Die Zeit criticises European leaders for focusing their efforts on condemning the rating agencies rather than solving the crisis: “The euro crisis is deepening every day and the common eurozone is in danger but all that our politicians have to say is: The power of the rating agencies must be broken”.
Corriere della Sera Il Sore 24 Ore: Passera La Stampa FT: Wolf FT: Editorial FT: Peel FT: Plender WSJ: Nixon Zeit La Tribune: Artus Conservative Home: Callanan Guardian: Editorial Guardian: Pratley Telegraph: Evans-Pritchard Independent: Leader Independent: O’Grady Independent: Prosser El Pais: Editorial
Guardian reports EU Declares War On Ratings Agencies. Europe is sliding into a war it may struggle to win with the international credit ratings agencies following a tumultuous week in which the agencies partly forced a major shift in the EU response to the Greek sovereign debt crisis. The commissioner in charge of the EU’s single market, French politician Michel Barnier, alternately sneered and threatened the three big agencies who dominate 90% of the ratings industry: Standard & Poor’s, Moody’s and Fitch.
Business Insider reports The 6 Reasons Italy Has Come Under Attack.
Automatic Earth relates As Italy Sinks, France Is Leaking
2) … Charts of the day:
3) … Associated Press reports Moodys Puts US Ratings On Review For Downgrade After News Reports That Debt Compromise Might Be Possible. And ZeroHedge sums up the likely debt compromise: “The final outcome on the debt ceiling will be a grand compromise of muppetry in which nothing is achieved on either spending cuts, or tax hikes.” And Zero Hedge reports reports that President Barack Obama abruptly ended a tense budget meeting on Wednesday with Republican leaders by walking out of the room … It looks to me like a train wreck is picking up speed, as engineers have a knock down dgag out fight at the throttle, and wheels are coming off the train and the track is way out of alignment.
4) … Will US Treasury checks go out out to Social Security and Veterans on August 1, 2011?
A significant downgrade on US Sovereign Debt is likely, given that the US leaders have been unable to reduce expenditures. Furthermore I believe that the war between the ratings agencies and European Leaders will manifest now as well with the US Congress and President Obama; and that out of this Gotterdammerung, or clash of the gods, an investment flameout will occur, possible during July, and definitely in August 2011.
I receive a social security check, and have doubts that the one scheduled for August 1st is going to arrive, as I believe a financial emergency will arise between now and then.
It has come time for someone else to enjoy my DVD collection of four years, so I sold it at the pawn shop, cancelled my fitness club membership and plan to walk at the mall and exercise on the yoga mat at home, took my Quest land line telephone bill off auto-pay and will cancel it at the time my check fails to arrive, stand ready to cancel my Delta Dental insurance policy next month before it is generated in late August, and sent a letter to my landlord relating that “due to situation beyond my control” that my “payday” may not materialize.
The lollipop in the chart of TMF suggests that US debt is topping out.
4) … Chart of bonds, BND, suggests that peak credit is being achieved
Symbols: TMF, EWI, EUFN, FXE, TLT, EDV, IEF, ZROZ, EEM, ACWI, VT, BND;
Keywords: Debt Limit, Gotterdammerung, Peak Credit