MidSession Review 24/09/12

Today word is “Exasperation”.

Growing exasperation with Spain has been showed today by a Germany's governing coalition member, Michael Meister, the chief whip and finance spokesman for Merkel's Christian Democratic Union, said in an interview in Berlin today referring to Spanish Prime Minister that “He must spell out what the situation is…Rajoy evidently has a communications problem. If he needs help he must say so”.

Meister said the priority is for Spain to recapitalize its banks after the banking aid was agreed upon. He indicated that he hopes existing Spanish reforms will be enough to fix Spain's economy “and balance the budget.” Germany is “open” for a full bailout for Spain, yet it cannot come without conditions, Meister said. “Conditionality will and must apply,” he said. “The German parliament would not accept anything less. If conditionality doesn't apply it would be only a short step for Ireland to ask for renegotiated terms and Italy might request partial help under those conditional terms.”

As the news were crushing the headlines, the common currency slid 0.58% to 1.2906$ breaking the 1.2950$ level we pointed out in our today's Morning Meeting.

The move in the currency drove Equity benchmarks lower at midday the broader Stoxx50 fell 1.01% to 2,551.18, Southern European markets led losers with Italian Ftsemib trading at 15,763.98 or 1.42% lower and Spanish Ibex down 1.54% to 8,103.70.

The German Dax traded 0.65% lower to 7,403.09 as the Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped for a fifth straight month to 101.4 from 102.3 in August. That's the lowest reading since February 2010.

In the bond market, Euro zone's troubles drove Spanish government bond yields 6 bps higher to 5.85 percent. Italian and Portuguese yields also rose while the weak Ifo survey boosted demand for German government bonds, with German bund futures up 40 ticks at 140.40 as investors went in search of traditionally risk-resistant assets.

In the commodity market Oil prices were down another 1.31 percent to $91.67 a barrel. Metals were also broadly lower and gold was roughly 20 cents an ounce lower at $1,759.40.

The Spanish dilemma is making investors nervous, exasperation is exacerbated by the battle fought on the headlines ground: as we pointed out in our Morning Meeting the Der Spiegel reported a 20 billion euros shortfall in Greece budget, the news was  denied by a representative from the Greek Ministry of Finance.

The representative from Greece's finance ministry said that the country is only negotiating a 11.5-billion-euro cut in expenditures with the so-called Troika of international lenders, as well as finding a way to raise 2 billion euros in revenue. With the Troika — the European Commission, European Central Bank and International Monetary Fund — taking a break from budget negotiations this week, the final agreement on budget cuts is not expected until next week, the representative said.

A financial crisis is becoming more and more a credibility crisis. In the past months few times we underlined the risk associated to credibility crisis.

For what it may concern our daily game plan, we were short-biased in the morning and up to now that bias has not been scratched. Again we need to stress that the Line of Least Resistance is upward sloping therefore we need to be really careful in loading our guns.

Sources: Bloomberg News, Reuters News, the Dow Jones Newswires, Benzinga, Marketwatch.

Originally posted at www.77sigmatrading.com