Fear of Debt Crisis Contagion Continues to Grip the Market - The Euro remained near a two month low as contagion fear continues to grip the market. Investors continue to dump Spanish and Portuguese bonds on concerns that they will be next to ask for a bailout. In fact, there are real concerns that the bailout fund will not have enough to cover a Spanish bailout. This is causing the market to doubt the ECB will be able to move away from limited auctions of three-month loans, which they have been saying that they would be ending by year end. In short, the ECB will have to continue and enlarge it own version of QE in order to keep things together. In my opinion this crisis has come to be by German Chancellor Angela Merkel’s push for investors to foot more of the bill in future EU bailouts. The market needs to hear that the ECB and Germany are ready to foot the bill in order for this crisis to pass. Meanwhile, the GBP traded higher against the Euro but was down versus the USD on conflicting monetary policy direction. Policymaker David Miles said the Bank of England must avoid any action that could strangle the recovery, but bank hawk Andrew Sentance reiterated it was time to raise interest rates to combat inflation. Sentance is the only hawk so continued monetary easing will prevail. In Asia, the Yen was up on speculation China will take fresh measures to combat inflation. People’s Bank of China adviser Xia Bin said at a conference in Shanghai today that China may need to use reserve ratios and interest rates to control excess liquidity. In Canada, the CAD continues to trend higher as the market is starting to price in sooner than anticipated interest rate hikes. Yields on the June 2011 bankers acceptances contract, a barometer of short-term rate expectations, has risen 1.73%, which is the highest level since July 14. Also, adding to CAD gains has been firmer prices in gold and oil in spite of thin trading due to the U.S. Thanksgiving holiday.
No comments:
Post a Comment