The collision of global markets and social mood

Tuesday, August 16, 2011

The Merkel And Sarkozy Show

This morning the DAX and the CAC-40 are down 2.6 and 2.05% ahead of the big meeting between Germany's Angela Merkel and France's Nicolas Sarkozy.

It looks like the markets are sensing that Merkel will finally say NO to Sarkozy no matter how much he grovels. No euro bonds.

That likely means no more euro . . . eventually.

In the meantime, the leaders must be seen as doing "something."

Merkel and Sarkozy may announce proposals that “go in the direction” of joint euro-area bonds, Peter Bofinger, an economic adviser to the German government, said in an interview today on Bloomberg Television.

Merkel Meets Sarkozy on Debt Concerns seems to prep the markets for low expectations of a deal.

A French official last month said there isn’t enough coordination among national economic policies to justify jointly sold bonds.

German Finance Minister Wolfgang Schaeuble told Der Spiegel in an interview published on Aug. 13 that he opposed unlimited aid, including joint borrowing. “There is no collectivization of debt or unlimited support,” he told the German magazine.

Merkel last directly addressed the topic in 2010, telling reporters in Berlin on Dec. 6 that EU treaties don’t “allow euro bonds, as far as we’re concerned.”

Merkel is examining whether euro bonds could help end the sovereign debt crisis, the Sueddeutsche Zeitung reported today, without quoting anyone. Germany’s biggest-selling Bild newspaper came out against euro bonds, saying in today’s edition that their introduction would be “explosive for our currency and the coalition in Berlin.”

The road to euro bonds runs through the German parliament, which may mean a long slog. Ruling coalition lawmakers last week rejected a further expansion of the 440 billion-euro rescue fund or introduction of joint bonds to staunch the debt crisis.


The stage is set. The actors are ready. "Action" will be called around 12:30pm EST. Let the drama unfold.

As for the S&P, it tagged the 38% retracement nicely yesterday and the futures sold off almost immediately in the after session. I was scooping up some SDS yesterday as it approached 1200, so this is a welcome move. 1180 and 1164 are retracement areas from 1204. I'll be looking to hedge with calls there depending on how the internals look.

No comments:

Post a Comment