Wednesday, May 16, 2012

Early Volatility

Where's the early market volatility coming from? One Guess.

Perhaps part of the dollar selling (remember I suspect it is on some news we are not aware of yet) is due to rumors circulating this morning in Europe that the ECB "may" engage in more easing, better known as LTRO 3 in a bid to recapitalize the European banking sector which has had a huge capital shortfall (i.e. Italian banks recently downgraded, Greek bank runs, etc).

For now, that seems to be just a rumor, but rumors are more than enough to move the market, especially when they involve Central Bank easing.

On the other end of the spectrum, Bloomberg: Draghi Signals ECB Won’t Keep Greece in Euro Area at Any Cost


"European Central Bank President Mario Draghi indicated that while his “strong preference” is that Greece stays in the euro area, the bank won’t compromise on its principles to prevent an exit.

The ECB will continue to comply with the mandate of keeping price stability over the medium term in line with treaty provisions and preserving the integrity of our balance sheet,” Draghi said in a speech in Frankfurt today. Since the euro’s founding treaty does not envisage a member state leaving the monetary union, “this is not a matter for the Governing Council to decide,” Draghi said.

The comments are the closest Draghi has come to conceding Greece could leave the euro region. Greece faces a fresh election on June 17 that may boost parties opposed to the conditions of its international bailouts, raising the specter of its exit.

“The Governing Council’s strong preference is that Greece will continue to stay in the euro area,” Draghi said."

Earlier we already heard the ECB is scaling back money to Greece to re-cap the banking system as that money already sent to Greece has not found its way to the banks. It sounds like Draghi may be signaling he is cutting his losses on Greece and there won't be further help or "extraordinary measures" coming any time soon.

In addition the situation has been updated by MNI News

"The European Financial Stability Facility (EFSF) is expected to approve an E18 billion recapitalization disbursement for Greek banks within the next four days, and the banks should get the money within a week, a senior Eurozone official told MNI Wednesda.

Earlier today MNI reported that the European Central Bank was growing nervous about delays in the recapitalization program for Greece and was threatening to suspend its lending to Greek banks as a means of expediting the decision.

"This has been a point of concern for the last month, and it was debated during Monday's Eurogroup meeting, where ECB President Mario Draghi and EFSF head Klaus Regling were present," the official said. "Up until then, the EFSF had sided with the Greek Financial Stability Fund, which was delaying the recapitalization process because it disagreed with certain points of the assessment of Greek banks' eligibility for the funds," he explained."


Whether this is a bluff to get the Greeks to send the money to where it was destined to go or whether the ECB really did just announce they are halting all monetary operations to re-cap Greek Banks, the effect thus far has been the same...

 The Euro moves down on the news...

Just so you know where the Euro is compared to yesterday's 4 p.m. NY close....

Now we'll have to see what denials, rumors, counter-rumors pop up in the next couple of hours. It still seems to me like there's something bigger going on.

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