Intraday Market Thoughts

Doubts Growing About EFSF Leverage Plan

by Adam Button
Oct 19, 2011 23:13

Questions about yesterdays EFSF leverage report weighed on sentiment Wednesday. Sterling was the top performer while CAD lagged. The Asia-Pacific calendar is quiet, with only lower-tier releases upcoming. 5 of the 9 Premium Trades hit all targets. 2 in progress, 1 unfilled and 1 stopped out.

Its sounding more and more likely that someone at the Guardian will have some explaining to do on Monday. Multiple reports are casting doubt on the assertion that Germany and France have reached a deal as part of a comprehensive plan that will leverage the bailout funds to 2 trillion euros.

5 of 9 Premium, trades hit all targets (2 EURUSD, 1 EURJPY), 2 in progress (USDJPY & EURGBP), 1 unfilled (EURUSD), 1 stopped out (EURJPY). For direct access to these trades, click here: Non subscribers can get a 1-week trial here:

A particularly damning rebuttal came from the WSJ who reported that using the EFSF to provide direct first-loss guarantees would violate the EU no-bailout clause. They said a plan under discussion would allow countries to borrow extra funds from the EFSF and hold that portion in trust in case of default an idea so laughably feeble that it seems possible. Merkel and Finlands PM also downplayed summit expectations.

EUR/USD fell 150 pips from its intraday high of 1.3870 as sentiment turned. The S&P 500 fell 1.25% to 1210. Oil declined $2.25 to $86.08; gold was down $15 to $1665

Economic data was downbeat, with the Beige Book showing continued expansion but with growth in many districts modest or slight. Consumer spending was weak excluding autos and tourism. Lending also softened and the jobs market remains in the doldrums. News on housing starts was positive as starts jumped to 658K from 572K.

Inflation is slowing in the US but remains well above the levels the Fed would need to see for QE3. Headline CPI was at 3.9% and core at 2.0%. With energy prices lower recently, higher vehicle production and the alleviation of temporary factors expectations are for inflation readings to drop in the coming months. The depth of the drop will be a large factor for the Fed.

The data calendar is essentially void for the Asia-Pacific session but a major cast of European leaders is assembled in Frankfurt for evening meetings and reporters will be pressing them for headlines.


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