Yet more excitement about the Eurozone has investors scurrying in the latest risk off trading session.
Initial enthusiasm over the EU deal agreed to late last week on tighter EU control over national budgets faded, as the realization set in that there remain serious issues unresolved. Such as:
- can Italy really be protected
- what is the true state of banks
- whether this show of solidarity really solves the fundamental issue of economic health throughout Europe
Yes, Germany got its way, with a treaty to pursue its favored remedy for fiscal discipline, central over oversight and sanctions on countries that break the rules about debt limits, which will be written into national laws. Sounded great. However, there are risks remaining even in getting the Brussels deal ratified, which is likely to take until late summer 2012 at the soonest. In the meantime, there are heaps of European debt due to be refinanced early next year and as stated by Joschka Fischer, the former German foreign minister, “More tests will obviously come, and soon, perhaps as early as the opening of financial markets on Monday.”
Early Monday, Moody’s also said it plans to review the credit ratings of all European Union members at the start of the new year, as the deal offered “few new measures”. Makes you wonder what in the world people expected ?
With the European Union providing up to 200 billion euros in bilateral loans to the International Monetary Fund in response to the turmoil, and the ECB buying only 635 million euros worth of government bonds last week compared to 3.662 billion euros the week before (i.e. buying Italy and Spanish bonds to keep the lid on borrowing costs), the market clearly is only happy when it sees austerity and profligate bailouts all at the same time !
So –more of the same panic as traders head for the sidelines – aka US dollar and equities. With the stronger dollar, excess supply created by gold lending by European banks in return for U.S. dollars, and everyone selling everything, gold declines, technical sells are triggered as gold falls below $1700 level, and panic reigns supreme.
Silver futures dropped 3.75% to $31.05 an ounce and base metal copper for March was down 2.88% to $3.46 a pound. Overall markets were off by 1% and more.
The broken record keeps on spinning.
Meanwhile, U.S. congressional negotiators say they are likely to pass a compromise spending bill that would prevent a U.S. government shutdown on Friday, when the current spending authority runs out. Congress has brought the government to the edge of shutdowns three times in the past year. Thank goodness the U.S. can print its way out of its own mess and continue to kick that proverbial can down the road.
Take heart commodity investors – as the developed world steadies itself with low to no growth and developing economies continue to grow, albeit at a lower rate, the investment thesis for permanently increased demand for commodities can be made and commentators can once again make the case that resource-related commodity stocks are a great deal.