More Valium for financial markets

Good morning friends,

US equities continue their march higher and Asian markets are slightly higher this morning as well. Italian auction was well bid yesterday (shows the effects of the LTRO…).

The big event of course will be the LTRO (also known as the big Valium injection) with expectations ranging anywhere between EUR 200bn and a trillion EUR. With some roughly EUR225bn maturing (3M, 6M and one-day tender), plenty of demand expected from Club Med countries (except Greece), expect a number in the EUR 500bn range. And a number in that range should probably continue to support risk taking—with my feelings being less positive feeling a more and more complacent market place. Fitch did an interesting piece yesterday indicating solid interest from southern Europe. (Financial Times)

In other news, ISDA to discuss Greek default Thursday with announcement out at noon (but they’ll probably only discuss the ECB shenanigans making them senior to everybody else and not the debt swap.) Don’t expect them to stop the love fest surrounding the Greek deal.

The Irish are moving to vote on the EU fiscal pact but since not everybody needs to be on board for the compact to move ahead, the Irish veto powers are vaporised. Be surprised to see a no vote and hence really something of a no-event (but do watch the polls—for now slim majority for the yes side). (The Wall Street Journal)

In another piece of positive news from the US, banks increased lending in Q4 by 1.8% compared to Q3—which was the biggest increase since 2007. Again underlines that corporate America is making headway (and once more shows the vast differences between the US and the Euro-zone). (The Wall Street Journal)

Europe is still missing a growth strategy (and Hollande’s idea to jack-up the marginal tax rate to 75% will help like a hole in the head.) Risk crowd continue to be in the driver’s seat for now but at the same bond yields are going south. If you need government bonds, stick to core Europe (but not long duration as you’re not paid nearly enough). Favour safe corporates, US equities (yes, they might take a hit but relatively safer), EM and precious metals.

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