Stocks and Dollars

Accusations that Germany’s efforts to fly-solo in propping up the euro created greater tension today. Since the sun broke over Manhattan, equity index futures have dropped from unchanged to 20 points lower in sympathy with a reversal of fortunes for the performance of European benchmarks. Just for fun, U.S. initial jobless claims data poured fuel on the theory that the global recovery is toothless. Meanwhile mere rumors that Euro-area governments would follow the German lead in banning certain short sale practices highlighted the fear gauge and created a heavy bid for government debt pushing yields lower still.

Markets remain jittery after yesterday’s cascade of events. First was Germany’s unilateral announcement of a ban on naked short selling on specific bonds, stocks and CDSs. While the move has interesting implications for market participants, the greater issue is why go it alone? This move and the corresponding comments by Chancellor Merkel reek of Germany putting its own interest above those of the EU. While the argument can be made that the ban was politically motivated to reframe the rescue package, no one is really sure. Analyst speculate that the move was made to frame the bailout in a legal context allowing Germany’s participation in the bailout under the Lisbon Treaty.

Markets remain jittery after yesterday’s cascade of events. First was Germany’s unilateral announcement of a ban on naked short selling on specific bonds, stocks and CDSs. While the move has interesting implications for market participants, the greater issue is why go it alone? This move and the corresponding comments by Chancellor Merkel reek of Germany putting its own interest above those of the EU. While the argument can be made that the ban was politically motivated to reframe the rescue package, no one is really sure. Analyst speculate that the move was made to frame the bailout in a legal context allowing Germany’s participation in the bailout under the Lisbon Treaty.

European stocks are trading higher this morning and EUR/USD is trading comfortably, albeit choppily, above yesterday’s lows but anxiety levels in the market remain elevated. The VIX is at its highest levels for a week, Libor is maintaining its uptrend and oil is holding around its lowest levels of the year.

European stocks are trading higher this morning and EUR/USD is trading comfortably, albeit choppily, above yesterday’s lows but anxiety levels in the market remain elevated. The VIX is at its highest levels for a week, Libor is maintaining its uptrend and oil is holding around its lowest levels of the year.

The session began with a continued uncertainty surrounding the credit risk contagion out of Europe and the implications of potential policymaker decisions to resolve market volatility. There was a plethora of official comments about the Euro price action. EU’s Juncker noted during the Asian session that the pace of the Euro currency decline was unwarranted, but joint FX intervention was not needed. EU’s Almunia stated that he too opposed market Intervention to prop up the Euro. Dealer continued to note that the overall environment remained ripe for rumor activity.

The session began with a continued uncertainty surrounding the credit risk contagion out of Europe and the implications of potential policymaker decisions to resolve market volatility. There was a plethora of official comments about the Euro price action. EU’s Juncker noted during the Asian session that the pace of the Euro currency decline was unwarranted, but joint FX intervention was not needed. EU’s Almunia stated that he too opposed market Intervention to prop up the Euro. Dealer continued to note that the overall environment remained ripe for rumor activity.

In terms of the growth-inflation outlook, the minutes did not add much to what the after-meeting statement had already conveyed. Namely, in the Fed’s view, inflation is likely to be subdued for some time due to significant slack and stable long-term inflation expectations. Secondly, although improvement in the labor and housing markets are taking place, gains are being made over “depressed” levels. A number of Fed members struck a cautious tone by noting that “the economic recovery could eventually lose traction without a substantial pickup in job creation”.