The FT’s Alan beattie and Tom Braithwaite summed up where the weekend ended for the euro-crisis rather well ‘The International Monetary Fund annual meetings wrapped up in Washington on Sunday with widespread concern over the eurozone sovereign debt crisis but no immediate consensus on the solution. Participants said they were waiting for the ratification of the action plan agreed on July 21 by the eurozone, particularly by the German Bundestag this week, before starting serious negotiations on increasing the rescue fund’s firepower or asking for a bigger writedown in private sector holdings of Greek debt. Meanwhile, Greece continued to insist it would not default, despite widespread private pessimism among attendees at the meetings’.
So after lots of talk of a ‘deal’ to leverage the EFSF, re-capitalise banks, put a firewall between Greece (and Ireland and Portugal) and Spain and Italy, the weekend ended with no visible progress. Beneath the surface, the outlines of the next steps are taking form, but it is depressingly clear that Europe’s leaders will only be able to move forwards slowly, despite the risk of catastrophe.
Positioning into the week defensive. Poor New Zealand trade data this morning mean NZD is just about a better short vs USD than AUD, though both can fall further. We remain long USD/CAD too as we prepare for more SPX softness. In Europe, we are short EUR/GBP and short PLN against SEK and NOK. We’ll start the week with these trades, though we are more confident that short EUR and short CEE FX is the way forwards than we are about GBP, NOK or SEK. As ever, finding currencies to short is easier than fidng currencies to buy! The yen remains the strongest G10 currency of all, though USD/JPY is in a very narrow range and intervention risk lurks.
The main data today is Germany’s IFO (deteriorating), the US Chicago and Dallas Fed indices (stabilising?) and new Home Sales (at record lows). The main risk is that the world’s ‘leaders’ start arguing in public.
Societe Generale
Research & Analytics