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Intraday Market Thoughts: The Latest on Euro Debt Talks

Published 10/23/2011, 04:28 AM
Updated 07/09/2023, 06:31 AM
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Three more days of meetings and European leaders will have a decisive solution to the sovereign crisis or so they say. The euro opened the week lower as the broad risk trade suffers on a lack of concrete action. Details on latest Fridays Premium trades are below. Our EURUSD short hit all targets, while long oil stopped out. The EUR/JPY trades have hit all targets.

The three issues facing leaders are 1) bank recapitalization 2) increasing the EFSF 3) Greek debt restructuring. European Council President Van Rompuy said he is confident of an agreement on all three points on Wednesday. Sarkozy echoed his comments.

There were signs of a framework for a deal on some issues but work remains on others.

As was widely speculated last week, leaders appear to have agreed on a 100 billion Euro bank recapitalization plan. Analysts had been expecting a larger number and the early declines in the euro are partly reflecting this disappointment. Money from the EFSF will only be made available as a last resort.

France appears to have given up on a proposal to turn the EFSF into a bank that can borrow from the ECB. Two options remain on the table, using the EFSF to guarantee the first 20-30% of losses in bond sales or creating an EFSF-insured fund that would seek outside investment. China is said to be an interested investor if Europe alters trade documents to call it a market economy. The IMF may also boost its involvement.

The group negotiating on behalf of Greek debtholders said progress has been limited. According to one report, bondholders have offered a 40% voluntary haircut but the troika is pushing for 50%.

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