From Alhambra Investment Partners:
We will find out Sunday if all the rumors are correct (and by how
much) about a significant portion of European banks either failing or
still with their “feet wet” after the usual comedy of the stress tests.
You never really know with these types of weighty events, as there are
all sorts of biases and trading considerations in where these rumors
come from and how they manifest. However, the ECB’s history here is far
less than ideal, which places them in a precarious position of a huge
conflict of interest.
Given what the ECB is trying to accomplish with regard to lending,
there is enormous pressure to simply “pass” everyone, or at least most
of them, in order to move in that direction (though it is as yet unclear
as to why struggling banks will suddenly lend since their struggles
have not magically been contained to this point under any of the dozens
of “liquidity” programs started and completed by now).
For his part, Mario Draghi has been talking and talking the
“stimulus” game, and I have little doubt that he is trying to assuage
growing nervousness not just about the direction of Europe (economy and
finance) but now to questions about depth once more. To that end, I
have to give him credit as it appears, somehow, as if his words still
carry some weight. Credit markets in Europe have paused this week, and
whether that is the reverse condition of widespread stress test
“failures” bringing about even more “stimulus”, as might relate to why
Draghi has been so vocal this week, should be cleared up by Monday. You
would think that rumors of so many failures would be driving credit
markets even more bearish, so I have to assume that contrary take here
(or that markets are unconvinced by the rumors).
For the most part, European credit, the primary drivers of ECB ire at
the moment, has moved to the sidelines for whatever ultimate reason.
The only indications of any merit to my own attention are the shifts
in Swiss currency and swaps. The franc has moved upward once more
(against the euro) to the closest “challenge” to the peg since September
4. That would indicate cash market hedging or laying off some risk
should this weekend go badly (or Europe stumbles further)....MORE
