I feel as if the market is approaching a moment, a place in time that offers choices of paths to follow. Think about this – the German high court will decide September 12 if the EU plan to set up an overarching bank authority is legal. In September, the EU, the IMF, and the ECB will decide if Greece gets another tranche of money or it is kicked out of the Eurozone. This week, the ECB policy makers and the Fed meet independently to decide on their respective approaches to stemming the loss of confidence and stimulating their respective economies. Today, Secretary Geithner meets with Mario Draghi.
Draghi, who sparked a global market rally last week by pledging to do whatever it takes to preserve the euro, is trying to build consensus among governments and central bankers for a plan to ease borrowing costs in Spain and Italy before ECB policy makers convene on Aug. 2
Can Draghi do it? Can he build the consensus needed to unleash the power of the ECB?
“Draghi put his personal credibility on the line and would not have done so without being confident about his key constituency,” Erik Nielsen, global chief economist at UniCredit Bank AG in London, wrote in a note to clients yesterday. “The ECB under Draghi does not like to mess around in the market, but if it sees a need, it will come with overwhelming force.”
Draghi has some formidable foes in his bid to unleash the ECB on Europe’s interminable economic crisis. Specifically, his problems are in Germany.
The biggest hurdle may be [Jens Wiedmann the head] of the Bundesbank, which last week reiterated its opposition to ECB bond buying, saying it blurs the line between monetary and fiscal policy. A lawmaker in Merkel’s coalition, Hans Michelbach of Bavaria’s Christian Social Union, yesterday reiterated his party’s opposition to ECB bond purchases, saying they take pressure off governments to enact necessary reforms.
Stay tuned, as the ECB and the Fed make policy statements after their meetings this week …
Of the 20 S&P consumer staples companies that have reported earnings so far this quarter, 80 percent beat EPS estimates. That’s the third highest rate after utilities and industrials.
Given that all other companies in the S&P 500 that have reported beat estimates by only 40%, what does the above say about the US economy? Not much, but it does say something about the US consumer – discretionary spending tailed off in the second quarter. The important thing in the previous sentence is the “ed” at the end of “tail.” Consumers backed off in the past quarter, but what will they do in this one coming up? My leading indicators suggest the consumer will return to spending in this next quarter, and if I am right, look for opportunity in non-consumer-staple stocks, specifically those that took a recent hit from revenue misses.
Several banks under investigation for suspected rigging of euro interest rates have joined Deutsche Bank in giving information to EU antitrust regulators in the hope of lower fines if they are found guilty [and] HSBC’s chief executive apologized on Monday for shameful and embarrassing mistakes made on anti-money laundering controls.
The arrogance of these bankers is astounding. How long will the market take this? Fines and apologies? Shouldn’t someone go to jail for criminal activity?
Trade in the day; Invest in your life …
