(Source)The Guardian - UK : Desmond Supple and Jens Sondergaard on the EMEA team at Nomura have just issued their Europe Special Report: Endgame : The eurozone financial crisis has entered a far more dangerous phase as asymmetry of risk in the market has combined with banking sector deleveraging. This is a particularly toxic combination for financial asset values and ultimately the real economy. Unless a sizable balance sheet can be brought to bear on the crisis – which we believe can now only be the ECB – a euro break-up now appears probable rather than possible. The need for an ECB policy response is immediate in our view. However, we expect the ECB to deliver only conventional easing measures next month (25bp rate cut, longer-term LTROs and dovish forward guidance to monetary policy). This would not comprise a solution to the crisis, but should enable the ECB to avert a full-force financial crisis in December. However, we would be more comfortable in making this assumption if the ECB also eased collateral rules. The risk is that the ECB is required to deliver this policy response before 8 December. However, as we enter 2012 we believe the ECB will have to go down the QE route as the economic outlook deteriorates and financial market stress intensifies. This could preserve the integrity of the euro, although the risks are sizable and over the coming weeks and months the outlook for financial markets appears bleak and downside economic risks are likely to build.
Access Investments-Building Awareness - European Union-ROMANIA
Friday, November 25, 2011
Italian bond yields spike•Two-year bond yields soar above 8% as investors put premium on near-term risks
(Source)The Guardian - UK : Desmond Supple and Jens Sondergaard on the EMEA team at Nomura have just issued their Europe Special Report: Endgame : The eurozone financial crisis has entered a far more dangerous phase as asymmetry of risk in the market has combined with banking sector deleveraging. This is a particularly toxic combination for financial asset values and ultimately the real economy. Unless a sizable balance sheet can be brought to bear on the crisis – which we believe can now only be the ECB – a euro break-up now appears probable rather than possible. The need for an ECB policy response is immediate in our view. However, we expect the ECB to deliver only conventional easing measures next month (25bp rate cut, longer-term LTROs and dovish forward guidance to monetary policy). This would not comprise a solution to the crisis, but should enable the ECB to avert a full-force financial crisis in December. However, we would be more comfortable in making this assumption if the ECB also eased collateral rules. The risk is that the ECB is required to deliver this policy response before 8 December. However, as we enter 2012 we believe the ECB will have to go down the QE route as the economic outlook deteriorates and financial market stress intensifies. This could preserve the integrity of the euro, although the risks are sizable and over the coming weeks and months the outlook for financial markets appears bleak and downside economic risks are likely to build.
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At present, the planned European Stability Mechanism, a permanent rescue fund, will have a requirement for banks to take losses on their holdings of government debt, just as banks have agreed to do in the case of Greece. Reuters is reporting that almost all the euro zone nations are against this forced private sector involvement - including Italy, France and Spain - with the exception of Germany, Holland and Finland. The change is being discussed as part of the negotiations over the EU treaty changes which will be needed to push through stricter regulation of euro zone nations' finances. The euro, which has remained remarkably strong throughout this crisis, is also suffering - it went down to a seven-week low against the dollar, trading at $1.3272 in afternoon trading
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