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26 Mar 2013
Forex Flash: Volume may drop after Dijsselbloem's comments - BBH
FXstreet.com (Barcelona) - Brown Brothers Harriman analysts note that many participants are still trying to digest the meaning of Dijsselbloem's comments yesterday and also may be deterred from taking fresh positions due to month/quarter and fiscal year end.
They feel that the confusion is not so much among investors as it is about the European officials themselves. Brussels immediately tried to play down the euro group head's comments. They write, “They have been resisting the German and IMF effort to shift more of the cost of the adjustment from taxpayers to investors and, incidentally, uninsured depositors and unsecured creditors in cases of insolvency.” However, despite the reaction, European officials have succeeded in stabilising the situation with words of assurance and despite the dramatic price action yesterday, there has been no follow-through euro selling. They see that European bourses have mostly stabilized with Spain's an exception, led by developments in the telecom space (Telefonica's filings) while financial shares are slightly firmer on the day. They note that Spanish and Italian bonds are recovering from yesterday's slide.
They finish by noting that in order to square the circle drawn by Dijsselbloem's comments, they feel that one needs to recognize that there some relatively unique aspects of the Cypriot situation. It is a divided island, the large role of Russia, including facilitating putting off the adjustment with a EUR2.5 bln loan a couple of years ago, and the reliance on deposits to fuel the financial expansion beyond any reasonable metric. However, their most telling reflection on the situation comes with a view back to the Asian Financial crisis. They write, “The chief economist of the IMF, Michael Mussa, once explained that there were three kinds of crises: liquidity, solvency and stupidity. The crisis in Europe continues to morph.”
They feel that the confusion is not so much among investors as it is about the European officials themselves. Brussels immediately tried to play down the euro group head's comments. They write, “They have been resisting the German and IMF effort to shift more of the cost of the adjustment from taxpayers to investors and, incidentally, uninsured depositors and unsecured creditors in cases of insolvency.” However, despite the reaction, European officials have succeeded in stabilising the situation with words of assurance and despite the dramatic price action yesterday, there has been no follow-through euro selling. They see that European bourses have mostly stabilized with Spain's an exception, led by developments in the telecom space (Telefonica's filings) while financial shares are slightly firmer on the day. They note that Spanish and Italian bonds are recovering from yesterday's slide.
They finish by noting that in order to square the circle drawn by Dijsselbloem's comments, they feel that one needs to recognize that there some relatively unique aspects of the Cypriot situation. It is a divided island, the large role of Russia, including facilitating putting off the adjustment with a EUR2.5 bln loan a couple of years ago, and the reliance on deposits to fuel the financial expansion beyond any reasonable metric. However, their most telling reflection on the situation comes with a view back to the Asian Financial crisis. They write, “The chief economist of the IMF, Michael Mussa, once explained that there were three kinds of crises: liquidity, solvency and stupidity. The crisis in Europe continues to morph.”