Over the Weekend and In To the Open

The big news or really the only news of consequence was an un-sourced story this weekend in Germany's Spiegel in which they reported the ECB was going to vote on a bond buying program that set caps for PIIGS countries, for instance, they would buy if Spain went above 7% for example and keep buying until it came back below 7%-s an example. This news alone sent the Spain 10-year debt to 6.3% overnight, it had been a full point higher less than a month ago at 7.3%.

As is almost always the case in the EU, nothing un-sourced like that remains unchallenged very long and after the European open, the German Finance Minister said he was aware of no such program being proposed by the ECB; in addition the very influential Bundesbank said AGAIN, that the bank DOES NOT support any new government bond buying by the ECB and that any bailout loan have strict conditionality, such as that Spain has already outright rejected.

The bank added that risk solvency risks should be handled by parliaments and not the ECB, that ECB buying would create instability (there is some question how much larger the ECB's balance sheet can grow and when they tried this last year with Italian bonds, the results were poor).

Following the German response to the Spiegel article, the ECB itself came out saying that bond yield targeting has NOT been discussed by the council, that it is misleading to report on decisions not yet made, and that the ECB will strictly adhere to its mandate. By this point the S&P Futures were off their best levels of the overnight session and after the European open.

Furthermore, the hope that the PBoC will enact another RRR is not seeming very likely as they are doing just the opposite by carrying out Reverse Repos in an effort to try to contain food inflation. As I have mentioned many times, it is purely the hope of Central bank easing that has kept this market up, now the PBoC is restrained by inflation, the ECB has refuted rumors from the weekend, Germany strongly opposes any such measure and the last CB, the F_E_D has its Jacksonhole meeting in 10-days, with gasoline prices climbing, it seems very unlikely they will announce anything along the lines of easing with an election coming up. Hope is now looking less hopeful.

Also contained in the Bundesbank monthly report released this morning, they believe German may be hit hard for Q3 de to the Eurozone crisis, so they may be attempting to lower expectations.

With there being a lack of tier 1 economic data on either side of the pond today, it is likely that this article from Siegel and continued responses to it will drive trade the rest of the day, thus far, not looking good since the article has been denied with ES moving from an overnight high to a pre-market low, but we aways see some momentum either way on the US open.

Here's ES

and the EUR/USD since the FX markets opened for this week.