Enis’s Macro Wrap – Mario’s Gift

by Enis October 9, 2012 7:44 am • Commentary

European politicians took their usual place in the headlines this morning, as Angela Merkel visits Greece, and European finance ministers met last night, with no resolution on Spanish aid.  Draghi’s pledge to “do whatever it takes” took a lot of pressure off the hapless politicians this summer, but today’s headlines are a reminder that they still have some work to do.

Looking at Greek and Portuguese government bonds over the last 6 months illustrates just how convincingly investors have viewed Draghi’s pledge.  The chart of Greek 10 year bonds first:



A buyer of Greek 10 year bonds since the July Draghi pledge would have almost doubled their money in the past 3 months.  Investors are clearly betting that the ECB and European officials will soften their pledges on forcing further losses on Greek government bonds, particularly since they’ve been so lenient with the Spanish in comparison.  Merkel’s visit this week is viewed as another step in that leniency process.

Portuguese 10 year bonds have been more rallying since the spring, up 50% since March, and back to levels last seen in March 2011.



The money printing verdict has been viewed as favorable in preventing further Euro sovereign defaults.  That nasty tail is gone.  For now, all eyes on corporate earnings.

Markets overnight:

  • Asia was mixed, with China strongly green, and Japan down more than 1%.  Europe opened in the green, but fell quickly into the red, after headlines that the IMF had downgraded global growth forecasts
  • SPX futures are unchanged after trading in a 5 point range overnight.  The dollar is broadly weaker, and commodities broadly stronger, with Treasuries catching up to yesterday’s equity move.
  • Alcoa reports after the close, as does YUM.  AAPL has been active pre-market after 3 straight down days, trading as low as 630.25, but back up to 636 now with general market rally