Quote of the Day:
Gonna stand my ground
And I won’t back down
Hey baby, there ain’t no easy way out
Hey I, will stand my ground
Tom Petty
Macro Overview
Hollande Stands His Ground
- Only two days ago I wrote that Hollande was the Canary in the Eurozone Mine. As Pettis, and many others, have indicated, France is right on the dividing line between what constitutes “bad” and “good” fiscal discipline in the Eurozone. There is a resurgence of anti-austerity sentiment boiling in Europe and the new kid on the block, Hollande, is clearly the political face of this movement – he was the one to watch, I declared.
- I cited two extremes in the Eurozone endgame (none of which would happen):
- The Eurozone dream is in tact. There is genuinely no talk or consideration whatsoever about a Eurozone break up or exit of any nation. Merkel and Hollande agree on most aspects of the fiscal compact and general philosophy on austerity.
- The Eurozone dream is in tatters. There is such a wide chasm between their respective views, that to communicate anything like this to the markets would result in carnage.
- The, reality was, I presumed, the end game would fall somewhere in between these two extremes.
- Well, if the last few days is anything to go by, we are heading much closer to the second extreme than the first. The rhetoric out of Europe is that Hollande is standing his ground and, far from being bullied, he appears to be garnering support from his other European counterparts. The reuters article quotes Hollande as saying:
“The relationship with Germany is very important but I am not keeping other countries at a distance,” Hollande told reporters on his train ride to Brussels, another change in style from Sarkozy, who usually travelled in his presidential jet.
“I want France to be heard and supported by other countries. I don’t my relationship with Germany to be like an executive board that imposes itself on others.”
- And the Economist writes this about his negotiation style:
Mr Hollande was all too happy to highlight his differences with the chancellor. “For Mrs Merkel Eurobonds are the end point of a process of integration. For me they are the starting point,” he declared. This is a striking change of tone from the election campaign, when Mr Hollande, though critical of Mrs Merkel’s brand of austerity, seemed keen to find an accommodation.
- It’s clever tactics from Mr Hollande and it’s very different rhetoric to what we’ve been used to from Merkel’s wee lapdog… errrr sorry, I mean Sarkozy.
- It’s interesting that recently Hollande chose to meet Spain’s Rajoy, as preparation to meeting Europe’s Iron Lady.
- It appears the battle ground du jour is Eurobonds… it’s another way of saying what I was talking about in the 3-tiered approach to solving Europe’s woes in my article: Short, Medium and Long Term Solutions to the Euro Crisis.
- Europeans have addressed the Short Term solutions, aka kicking the can, aka procrastination of the highest order and achieved this by half-baked bailouts meshed with extreme monetary policy by the ECB (LTRO).
- Europeans have addressed much of the Long Term solutions with the new Fiscal Compact and Treaty revisions to incorporate stricter penalty for profligacy.
- But the Medium term solution (the most painful for the Germans) is missing. Germans and other economies which have benefited greatly from a devalued currency (relative to what it would be if they were under national currencies) need to dip their hands in their pocket and either contribute much more directly to the bailout funds (ESM/EFSF) or some other ingenious method of transferring credit from the core to the periphery.
- Eurobonds are such an ingenious method… the Germans aren’t having any of it… but we’ll see where it leads. For now I’d say the “Aye’s” have the political momentum… for now at least.
Market Overview
Tale of Two Techs
- What a difference in fortune… Dell got absolutely mullered and Hewlett-Packard was off the races – but only after the announcement that it would slash 27,000 jobs (yikes!). Still the Margaret Whitman nay-sayers have something to think about.
- On the silicone valley software front Google seems to have faired quite well into this sell-off. Whereas Microsoft and Facebook have been really beaten up. Alpha is key in the market it would seem.
- Chart of the Day is a little scary for all those who hope a Global recovery is just around the corner… Jefferies CRB Commodities Index… Also I thought I’d throw in the Chinese currency… China seems to be systematically WEAKENING the Renminbi again… am I the only guy seeing this?
Chart of the Day
Jefferies CRB Commodities Index (Source: Bloomberg)
Renminbi (Source: Bloomberg)
Events
Macro Events:
Update:
- UK GDP worse than expected
- German GDP in line but PMI and IFO worse than expected
- Mexican GDP very good +10% YoY
Alerts:
- Taiwan GDP
Corporate Events:
Results:
- Nothing Significant
Dividends:
- Nothing Significant
Reading, Links:
Nothing Significant
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Tags: ECB, Economy, EU, Euro, Eurozone, Fiscal Compact, Fiscal Policy, France, Francois Hollande, Germany, Macroeconomic News, Mariano Rajoy, Merkel, PIIGS, Politics, Renminbi, Spain, TIPSTER
Michael Kudrna
