Nothing that has come out over the last couple of days on Europe is exactly new; it has been festering all summer. However, the speed and ferocity of the renewed EUR splurge, without a really good catalyst has caught us by surprise. The WSJ article, as mentioned yesterday, is irrelevant, but the market has been fiercely rummaging through their June notes to recycle the obvious.
In Euros' defence the Eurocrats have wheeled out the Clown-in-Chief at the ECB - “ECB's Quaden sees no double dip in Europe". Sounds great but this is from the guy that didn’t even see the SINGLE dip coming.
Just after Northern Rock collapsed and in the midst of the unfolding blow up in the Credit markets, he said "The latest news from Europe is not bad. 2006 was an excellent year and prospects for this year and next year remain positive" (full speech here). To be followed in Oct 2007 with “As regards the short – and medium - term outlook, I would make a distinction between the main scenario, which is the most likely outcome, and the risk assessment. The most likely scenario remains favourable with growth still close to our potential but it is now surrounded by much more uncertainty than usual. And that applies to other regions of the world.”
But the worrying thing is that Mangler has spoken. And we know the correlation between Mangler speak and Euro fortunes and they are not positive. The market has grabbed hold of this story "Germany won't back Euro rescue fund for ever: Merkel" and is using it as new ammo. "Forever" of course is a very long time, but in the short run Germany doesn't really have much choice unless they want to speed up the introduction of the NeuMark. But the main concern TMM has is that she has broken ranks from the STFU policy and spoken out.
So where does this leave us? It still all seems too fast and too soon for Euro collapse Part Deux, and the 40 point round trip in German 10yr yields over the past week perhaps indicates that the market isn’t quite sure of itself either. And though we are fully onside with the macro concerns re Europe we feel the timing is wrong. As for Switzerland, unless they manage to rent more space to park all the money flowing their way, they are in danger of doing a Mr Creosote. "One more wafer thiiiin swieees franc, sir"?
Was that really the starting gun to the race we have been in training for all summer? We are hoping we haven't been left behind and it's a false start, the runners having to return for a restart in a couple of weeks' time.
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