Nervous Consolidation, Waiting for Other Shoe to Drop

The US dollar is trading within the ranges that were seen prior to the weekend as the market awaits fresh developments. The market remains apprehensive as additional rating fallout is expected, ahead of a resumption of Greek PSI talks and this week’s European sovereign supply (estimated 17 bln euros of bonds)

The S&P cuts were expected, a disorderly default by Greece won’t be

With the long-awaited euro zone downgrades by S&P now out of the way, we thought it would be useful to assess just how close current ratings are now to our own sovereign ratings model

The Swiss Franc is the most overvalued currency in the world, and the Indian Rupee most undervalued

That’s what the Economist’s Big Mac Index tell us. According to this index, the Swiss Franc and the Norwegian Krone are both more than 60 percent overvalued compared to the US dollar. Much further down are Sweden with over 40% overvaluation and Brazil which shows more than 30%.

The flip side comes with the Indian Rupee, which had been hitting record lows last year. Here, we’re talking about a 60% undervaluation

Willem Buiter: “We will certainly have a panic stage before the debt crisis is resolved” (part 2)

Continuing from part 1 of the Willem Buiter interview with het Financieele Dagblad

Buiter: “The temporary pause in the European debt crisis is as deceptive as the frenzy before the New Year”

The countries of the eurozone will eventually emerge from the sovereign debt crisis — with pain and difficulty

Willem Buiter: “We will certainly have a panic stage before the debt crisis is resolved” (part 1)

The countries of the eurozone will eventually emerge from the sovereign debt crisis — with pain and difficulty. That is what Citigroup chief economist Willem Buiter, on a visit to Amsterdam on Friday during a roadshow, expects. Spain and Italy will get their finances in order and the ECB will jump in when necessary. Deep integration of fiscal policy, according to him, is not necessarily required

All S&P sovereign credit ratings in order from Australia to Greece for January 2012

In the wake of today’s extraordinary credit ratings action for the euro zone by Standard and Poor’s, below are the rating agency’s sovereign credit ratings

Full text: S&P European Sovereign Downgrades

The following is the text of the S&P ratings statement associated with a review of the euro area sovereign credit ratings

The Long Term Refinancing Operation was the hidden bazooka

After the better than expected Spanish bond auction, eurozone sovereign spreads came in significantly yesterday. Even before today’s auction, the widely watched Italian 10-year bond yield had fallen to 6.63 percent

Rumor Bought, Fact Sold, and Other FX Developments

The euro extended its recovery in early Europe but reversed course after the lukewarm Italian bond auction. Italy raised the funds it sought and yields did fall at the shorter term auction, but increase at the longer term and the bid-covers were on the low side. In some ways, this is the best Italy might be able to hope for given that the market has been warned by Fitch to expect a multiple step downgrade before the end of the month

Roach Sees ‘Relatively Contained’ Recession in Europe

Stephen Roach told Bloomberg television earlier today that he does not expect the recession in Europe to be severe. Therefore, he believes the impact on other economies, particularly in Asia that depends on Europe for external demand for exports, will be limited. Video below

Playing Chicken And Rooster With Hungary

Tension surrounding the application of a series of so-called “unorthodox policies” by Hungary’s Fidesz government has certainly been rising in recent days. While Washington has been reasonably quiet as government emissary Tamas Fellegi meets with top IMF officials, Brussels has seen a veritable avalanche of official statements and policy initiatives. Despite constant rumours that an agreement with the IMF is near, I find it pretty implausible that any deal can be reached without some kind of EU assent. At the present time this assent is unlikely to be forthcoming, and indeed the ”ante” has been pushed up and up