TV

Ian Coleman - First 4 Trading
Ian Coleman is looking at USDJPY, and suggests selling at the open and at 102.40 with a stop at 102.60. For the third day in succession levels above 102.65 found sellers. This resulted in the trend of five higher daily highs being broken.
Article / 21 November 2012 at 9:11 GMT

EU tail risk is political; Europe's downside risk grows

Steen Jakobsen Steen Jakobsen
Chief Economist & CIO / Saxo Bank
Denmark

I'm surprised at the delay in disbursement of the Greek aid. Sure we knew that the IMF and EU disagree on the sustainability of Greek debt, but delaying the final decision to next week means one of two things:

1) This is a real impasse – the IMF defending the need for OSI (official sector involvement – i.e., restructuring debt held by public sector/ECB) to get Greece back on the road - and EU/Germany/ECB not wanting to open the door to further “real losses'' on their domestic deficits from the same exercise. The likely options still may be along the lines of an “OSI Lite” with lower rates for Greece combined with long duration on loans. This will be sold as a quid pro quo for Greece 'compliance'.

2) The policy makers realize they need to go beyond the expected and in doing so have bigger ambition to hammer out a real deal, which is taking a longer time to agree.

The latter could include a compromise on this idea that the year 2020 and 120% to GDP are some kind of magic number, in other words, a real debt forgiveness that stops the nonsense of arguing over pennies (which, for the EU, it is. Greece can’t make a go of it at any level above 90 per cent/GDP). There is also the need to address an almost alarming fall in core European export volumes - that data shows that all of Europe is increasingly in the same boat. Finally, there is the all-critical situation in Spain, as the Spanish region of Catalonia goes to the polls this weekend to vote on independence.

Clearly, Merkel and Germany want both the Greek issue, but also the ever present need for Spanish recapitalization, to go away as soon as possible. But they won’t, and the situation will only get worse before it gets better, as we also have an Italian election on the way, most likely in March.

Yes, tail-risk is back, but this time in the form of political risks. The financial “systemic” side of things remains contained by the ECB put - but the focus is now, rightly, back on the politicians and their lack of willingness to be accountable and proactive.

The EU political leadership has merely been reactive at best, and the deterioration of political consensus is increasing uncertainty in light of the dramatic worsening of fundamentals at the EU core. The response will be tough talk, rising social tensions, and the risk of serious radicalisation at the political fringes. In markets, this will translate to less faith in core bond markets, a falling Euro currency and less transparent outlook, which will hurt equities.

Up to now, EU politicians have been bailed out by the ECB, now the ball is in their court. Of course, the most likely outcome is more extend-and-pretend, but note that social tensions and rising political tail-risk might soon kick off a move toward the phase of crisis I call a “mandate for change” as the unbearable tensions in the situation finally forces a change of behaviour and dramatic new action from the political leadership .

Investment ideas:

Selling CAC-40 CFD and French OATS CFD with 2 pct stop loss.

Safe travels,

Steen

1y
benlouro benlouro
how can be explained the divergence (relative value) between US equities (SP500) and EU equities (Dax or CAC) after US elections? Is just because Fiscal cliff is more serious than EU economic activity? CAC for example is almost at same levels... thanks in advance.
1y
Mariani Carlo Mariani Carlo
I agree on political risk. For me sell euro usd up to 1,3000 - 1,3300 is a good deal.

Disclaimer

The Saxo Bank Group provides an execution-only service and all information provided on Tradingfloor.com is solely for general information. When trading through Tradingfloor.com your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. Tradingfloor.com does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. Saxo Bank Group will not be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available as part of the Tradingfloor.com or as a result of the use of the Tradingfloor.com. Any information which could be construed as investment research has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such should be considered as a marketing communication. Furthermore it is not subject to any prohibition on dealing ahead of the dissemination of investment research. Please read our disclaimers:
- Notification on Non-Independent Investment Research
- Full disclaimer

Show latest activity
Dismiss
Sorry, there was a problem communicating with the TradingFloor.com servers. We are working hard to solve this. Please try again later.
Oops! There was a problem communicating with the OpenAPI Portfolio service.
Oops! There was a problem communicating with the OpenAPI History service.
Oops! There was a problem communicating with the OpenAPI Reference service.
Oops! There was a problem communicating with the OpenAPI Root service.
Oops! There was a problem communicating with the OpenAPI Trading service.
Sorry, there was a problem communicating with the Financial Calender servers. We are working hard to solve this. Please try again later.
Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail