Thursday, February 10, 2011

March Madness - and no I'm not talking about basketball

Knight Capital has released a sovereign roadmap Catalyst Calendar which is a must read for anyone who trades with more than a 15 millisecond eye on the markets. And while everyone is now focused on what is going on with the Chinese tightening regime (with expectations of two-three more liquidity tightening steps over the next several months) with much speculating over just how priced in all this is (not much if one looks as the Bombay Sensex or even the SHCOMP for that matter), the real focal point should once again be on Europe. The reason: March is coming fast, and March will likely be the cruellest month for Europe, and possibly for the stock markets, and serve as the catalyst to introduce QE3 in all its glory.

Why March?

From Knight Capital...

March Madness -Political Risk Is High and Rising

Funny thing about democracies is the feedback loop between electorates and national policy
Policy risk remains tethered to national, and even regional political risk across the European Union
Higher risk within coalition governments
Breakdown of coalition (i.e. Ireland) can lead to snap elections and uncertainty around policy action
Two primary sources of political risk as it relates to the Euro sovereign crisis
Stressed states (periphery Europe) lose the electoral support to carry out reforms, trim deficits, and curtail debt
Core Europe or payer states (e.g. Germany) lose electoral support to bail out Peripheral Europe or debtor states
EurozonePolitical Sound Bites:
“We believe that Ireland may be left with no option, in the absence of a renegotiated deal, but to write down the value of the bonds in the Irish banks or face the prospect of a hugely damaging sovereign default”
Fine Gael, Irish Opposition Party, February 2, 2011
“62% of [German] voters oppose further bail-outs of weak euro members….”
The Economist, January 13, 2010
“49% of Germans would like to have a return of the D Mark”
YouGovInsitute, December 26, 2010
It may be “useful for the €440 billion European Financial Stability Facility to buy government bonds”
Jean-Claude Trichet, January 26, 2011