Forum > View Topic
by Ashraf Laidi
Posted: Feb 20, 2010 5:00
Comments: 30765
Posted: Feb 20, 2010 5:00
Comments: 30765
Forum Topic:
EUR
Discuss EUR in this thread
but in Russia. If Europe and China both limp Russia who depends 100% on economical recovery stumbles and falls.
Greece sneezes and Portugal catches a cold. Portugal coughs and Spain falls ill. Spain runs a fever and Italy comes down with the flu.
Contagion, or contagion theory, is sweeping the euro zone, where Greeces debt crisis is infecting neighboring countries and threatening to make its way across the Atlantic to U.S. shores.
At least thats what were told on a daily basis. European Central Bank council member Axel Weber warned last week of grave contagion effects for countries that have adopted the euro. Greece Fuels Fears of Contagion in the U.S., trumpeted a May 6 Wall Street Journal headline.
I hate to pour cold water on that theory, but healthy countries arent susceptible to Greeces disease. The sick ones, already plagued with high debt levels and bloated state budgets, dont need a carrier. Capital flight from these countries is not evidence of contagion, said economist and author Anna Schwartz.
Of course, Schwartz said that in 1998 following the Asian financial crisis. In International Financial Crises: Myths and Realities (the Cato Journal, Vol. 17 No. 3), Schwartz punctured the notion that financial crises spread from the initial source to innocent victims. Nations are vulnerable because of their home grown economic problems, she said.
....
There is no question we live in an interconnected world. Subprime mortgage defaults by homeowners in Irvine, California, infected banks in Europe and Asia, thanks to the miracle of securitization.
So yes, European banks that hold Greek debt are vulnerable to losses. The interbank lending market is showing signs of stress. And the austerity measures required in Europes peripheral countries may spill over into reduced U.S. exports. Thats not the kind of contagion we keep hearing about.
On the other hand, it would be a mistake to interpret the flight-to-quality into U.S. Treasuries last week as a sign of immunity. The U.S. is already infected with the debt virus. Its still in its incubation period.
Sovereigns out in force. Middle Eastern sovereigns joining their Asian counterparts buying EUR/USD. Were back above 1.2700, presently at 1.2710.
Middle Eastern sovereigns also buying cable. Having been down to 1.4766 the pairing has shot back up to 1.4820 at writing.
ECBs Nowotny: I Dont See Inflationary Risks From Bond Buying Measures
*Main problem for euro zone is weak demand, slow growth
*Euro/Dollar rate always fluctuates historically, no reason for concern
Well that last comment doesnt sound like someone readying for offical intervention, I have to say.
Really appreciate your commentary, good to know the finer points, tks mate.
It will probably decline toward $1.20, according to UBS AG and Barclays Plc, ranked by Euromoney Institutional Investor Plc as the worlds second- and third-largest currency traders. Schneider Foreign Exchange, the third-most-accurate forecaster of the euro against the dollar in the first quarter, also cut its prediction.
Traders are betting the currency will resume its decline as Europes economic recovery trails behind that in the U.S., prompting the European Central Bank to keep its main refinancing rate at 1 percent this year while the Federal Reserve starts raising rates. The ECBs decision to buy bonds may prompt investors to question its independence and demand a higher risk or credibility premium, Kenneth Broux, a senior market economist at Lloyds Banking Group Plc in London, wrote in a client note.
http://www.bloomberg.com/apps/news?pid=20601087&sid=apEs5KHZq620&pos=3
but industry metals.