Euro at the Crossroads

Dollar is broadly weaker amid hopes that Greek debt negotiations are very close to agreement. Asian stocks posted new trend highs, MSCI Asia Pacific up 0.3%; Dow Jones tested highest level since 2008. EuroStoxx 600 reverses earlier losses and is currently flat on the day; Greek banking shares up nearly 6.0%

The stark contrast between European economic policy and US economic policy

I was on CNBC yesterday ahead of Ben Bernanke’s speech explaining the FOMC’s recent decision to add an explicit inflation target to its decision to extend its rate easing/permanent zero policy. My conclusion: the Obama mortgage plan and Bernanke easing campaign are bullish for the US economy

Will the ECB Take a Haircut?

The ECB’s hand though could be forced if there is a credit event, a non-voluntary debt restructuring. Under such conditions, it would be more difficult to show some bond holders (ECB) preferential treatment over other holders of the same bond. This warns of potential knock-on effects of a hard restructuring

Why I am not optimistic about Europe

I am not at all optimistic about the euro zone in terms of policy makers fashioning a solution to the problem. The euro leaders have the diagnosis all wrong. They keep harping on government debt and deficits as if that’s the problem. And this has caused them to go all in for austerity without a backup plan. The reality is that the sovereign debt crisis in Europe is not about government debt; it’s about private debt and intra-euro zone imbalances

Not Too Late for Turn Around Tuesday

Many observers will posit the euro’s resilience today to the flash PMI reading for January where both the manufacturing and service sector readings were above expectations. The flash manufacturing diffusion index stood at 48.7 vs 47.3 consensus and 46.9 in December. The service sector index is at 50.5 vs 49.0 consensus and 48.3 in December. Yet in the forward looking components like new orders remain weak

A Month In Spain That Didn’t Shake The World

Spain’s economic problems are very grave. The country is facing a decade long depression, and if enough young qualified people leave during this period then the country could enter a negative dynamic from which it will never properly recover. At the outset (2007) I and others argued for a 20% internal devaluation to shift resources over to the export sector. This did not happen, and virtually no one is interested in the idea. The main priorities are still reducing the deficit, and restructuring the financial sector without injecting any significant quantity of public money. Both these policies are contractionary in their impact. In addition the proposed labour market reform is timid, and won’t act quickly enough to stop the rot on the growth front

Euro Races Higher

The euro is racing higher after initially gapping lower in Asia on indications that the private sector involvement in Greece had hit another stumbling block ahead of today’s EU finance minister summit. It has moved above the $1.30 area in the European morning, for the first time since January 4. There are a few consideration prompting the continuation of the short-covering advance that began last week

Greece Debt Talks Remain in Focus Ahead of the Weekend

Dollar pares back some of its recent losses ahead of the weekend; focus on Greek debt negotiations. A leaked draft of the new EZ fiscal pact contains tougher rules; growth sensitive currencies top performers. We, along with the consensus, expect the Mexican central bank to remain on hold; China’s flash

On the IMF bailouts, Greek defaults and Canadian household debts

Below is the link to my latest appearance on BNN with Howard Green and Ryan Avent. Quick thoughts here

Marginalization of Western Europe

US money markets have dramatically cut their exposure to European bank paper. This has been widely reported and has intensified the dollar funding needs of some European, especially French and Italian banks.

When we talk about European banks needing to secure dollar funding, where are they getting those dollars

Market Tone Remains Upbeat after Euro Zone Auctions

Dollar continues to trade on the back foot as markets maintain upbeat tone; strong EZ auction results. Soft Australian December employment reports supports Feb rate cut; BoC likely to remain on hold in H1. SELIC rates likely to fall but the government may act to stem BRL appreciation; Philippines CB cuts by 25bp

The Importance of the Mario Brothers

They are not really brothers, but Mario Draghi and Mario Monti are countrymen and are doing a great deal to respond to the European debt crisis in ways that were unimaginable until very recently