1) Europe’s step to a solution
Europe and especially Greece are kept in a tight leash until the German elections – but Spain surprises! In Q1 it is still assumed that the EUR 100bn would be enough, but the rise in non-performing loans forces Spain to request EUR 300bn. That is too much and someone leaves the club. Those who buy stocks anticipating EUR 3-4 trn quantitative easing are sorely disappointed and experience a market shock lasting couple of months in the Q3. The EMU breakup lows will not be seen again, as markets then turn bullish.
2) Showdown over Senkaku
People’s Republic of China decides it owns the islands and the only question is will US accept the ultimatum. US thinks through n-1 scenarios, including China selling all its US Treasury paper. The markets panic expecting this. US backs off and tells Japan to give up the islands. Markets return to normal, except some large banks have doubled their annual profits, while some are bankrupt.