Overnight and in to the open

Like several weeks ago, the ECB again pledged to do all it could to save the Euro, which sent the market higher back then, but when it came for the tires to meet the road at the ECB meeting, Draghi punted, all the talk was nothing more than empty words. For now, it seems Merkel is joining in the empty words with similar talk of the Euro-project not failing. From Canada, (and we thought this would be a quiet time for Merkel), she said she is "Committed to saving the Euro". Merkel also did back the ECB' "Conditionality" for aide stance which is slightly more hawkish in sentiment as Spain has said they'd refuse any aid tied to conditions.

For a different perspective that is probably more realistic, last night Finland's Foreign Minister told the Daily Telegraph,  "Either the south or the north will break away because this currency strait-jacket is causing misery for millions and destroying Europe's future."

The North/South divide was something we saw coming way before the French elections that really started to exacerbate the situation with France re-aligning itself more closely with its southern neighbors and ending the era of "Mer-Kozy".

This wasn't a threat, just an observation, but Finland is key to any bailout measure as they do hold a VETO and they have already been a little more of a task master than we have seen in the past when they demanded collateral for any Spanish banking bailout, the first time they really spoke up and forcefully. 

The minister did add that he is "Deeply suspicious of the gang of 4" which includes or is headed by the ECB's Draghi and specifically promises with regard to ESM seniority which is a major bond market issue, adding he, "does not trust these people". And you might have thought my Northern/Southern divide talk was hyperbole.

These comments may have fueled reports that Finland was preparing for a Euro-zone breakup, since then another Finish government representative has said the views of the Foreign Minister don't represent the views of the government, even though he is the Foreign Minister!?!?!

In other European news, it seems European banks are finding themselves scarce $USD as the F_E_D/ECB Dollar swap lines (banks borrow from on a 7-day window) has seen the highest usage this week since December 9 of 2009!



Thus far this week the Spanish Ibex has outperformed the DAX by a 7:1 margin, this all based on the assumption Spanish banks are about to receive a bailout payment. On the other-side of the coin, Spanish banks have just hit a new record in bad or non-performing loans, now at a new 3 year high and while the 10 year rate has been under control recently, the main reason is there has been no supply on the market or issuance, the is set to change late this month, going in to September and for the rest of the year; this is where we will really see what happens to the Spanish 10-year when they try to issue more debt, my prediction is that yields jump and bailout talk becomes more pressing and a more regular daily news item. If the banks were already in huge trouble, a new 3 year high in bad loans doesn't help, in fact it's disastrous, but just like the Euro-zone GDP trends I published 2 days ago, the trend has started and maintained and in this case, the trend is not their friend. Perhaps Merkel's comments were to front-run the Spanish loan news as the two are closely connected?

In the US...

Today is a VERY light day for Macro economic data, most coming mid-morning. It is options expiration though which due to pins, has started to turn into the most boring week of trading as the market has been showing us recently, there's little movement in the market on options expiration week.

In the US you know it's election year as the president brings out plans to release oil from the Strategic Petroleum Reserve in an effort to bring down gas prices before the election. Thus far this morning, while USO did gap up, it's not trading far from unchanged.

While I personally think QE3 this year is a dead issue, the controversy is still feeding the minds and imaginations of traders as the F_E_D's Kockerlakota said yesterday that the F_E_D went too far with the 2014 rate pledge, which was followed by the F_E_D's presumptive, unofficial mouthpiece, the Wall Street Journal's John Hilsenrath who commented that the F_E_D hawks are weighing in against more F_E_D action/intervention. It will be interesting to watch Gold over the next few weeks, but I still think down is the path of least resistance for now.

As for the open, we simply went from a rangebound market to a more volatile (as is ALWAYS the case on the US open), range bound open.

Opening Indications are coming up...