Rob's second instalment post on the market's reaction to the Euro crisis.
Greece Fails To Meet EU/IMF Deficit Targets.
Greece announced that it missed the deficit targets placed upon it by the EU/IMF as conditions for the next instalment of the agreed bail out package.
Went down like a lead balloon within the global markets and stock markets tumbled once again – FTSE down 2% to 5,025, with major European banks bearing the brunt of the fall out depending upon their perceived exposure to Greece.
On top of that, there is a rumour that a major European bank – Dexia – may have funding issues and may need another bail out, already having had one in 2008 to the tune of Euro 6.4bn.
On the FX markets, the Euro fell to 1.33 against the US$.
GBP holding up quite well at 1.5525 against the US$, and making up ground against the Euro, strengthening to 1.1625.
There is a rumour in the markets that the bank of England may force through another base rate cut to 0.25%, and inject another £50bn of liquidity via quantative easing in an attempt to head off further recessionary pressures in the UK.
Irrespective of whether Greece did, or did not, meet the targets imposed, the big question is whether or not the rest of the Euro zone will allow Greece to officially default and possibly bring the whole house of cards crashing down.
My fear would be that they fudge some kind of agreement that would still allow them to pay the next tranche of bail out money to Greece, and the world sees it for what it is a panic attempt by them to shore up a failed and inherently flawed concept. They would lose all financial credibility.
The markets would sense blood, and like sharks circling their prey, the speculators would swoop in for their pound of flesh at every opportunity and tear it to pieces.
I still stick with my basic views of the last post, the Euro zone would be better off conducting a financial "triage" exercise and cutting away the dead/dying members to allow the healthy ones to stabilise and recover.
A couple of months ago I suggested that as we approached year end things could come to a head, but I confess not to have seen it happening so soon.
A time for cool heads, or "devil take the hindmost" trading? I suppose it depends upon which side of the fence you are on – my experience says keep cool and lets see what happens, but the "trader" in me says "go for it", get the adrenalin pumping.
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The author, Rob (not his real name) is a treasury manager at one of UK's largest charities, he was formerly a trader.
Previous installment: Saving the Euro - Part 1
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