Perhaps these markets had become too pollyannaish, unreasonably or illogically optimistic despite conflicting evidence? Tuesday, for example, the important German ZEW Economic Sentiment report came in a positive 5.4, well above the previous period's negative 21.6, and much better than the negative 8.1 ZEW report for all of Europe.
On Wednesday
the reports give us a disconnect from this Teutonic optimism. The preliminary French GDP q/q number was a positive 0.2%, better than expected, an exception to the data flow. German Preliminary q/q GDP was a negative 0.2%, and the Flash GDP for Europe was a negative 0.3.
For those countries subjected to austerity, the troika's preferred economic solution to the previous decade's over spenders, the results are stark. The Preliminary q/q GDP for Italy was a negative 0.7%. For Portugal, there was a 1.3% quarterly contraction. In Greece, the fourth quarter quarter GDP was 7% less than the same quarter last year.
Netherlands is new member in the European recession club as their economy contracted 0.4% in the third quarter followed by a negative 0.7% in the final quarter. They join Greece, Italy, Portugal, and Belgium already in a recession.
Then the Greek saga took a new twist. The bureaucrats and finance ministers became aware the required signing of of a binding obligation to live up to terms of the bail out, by the current politicians will be meaningless since they are all about to be thrown from office. Postponing bail out funds until after the pending, but unscheduled election, while appealing to the creditors, does little for either the Greeks or the euro.
For the politicians and bureaucrats who are about to approve the transfer of €130B to Greece, they are apprehensive having their name on the latest bail out. Hence the continued down to the wire negotiations.
Constantin Gurdgiev, lecturer at Trinity College in Dublin , expressed his pessimistic view in the Globe and Mall today. He says eventually the loan will be made because:
"The EU elites and national governments will proclaim that the rescue
package was a sign of Europe’s ability to deal with the crisis, the
evidence of viability of the euro and will move on to draft more daft
high-sounding ineffective programs for the social-knowledge economy,
driven by wind-powered nanotechnologies."
Relief from the Greek crisis will be brief, Gurdgiev feels.
"By mid-May or early June, Greeks will post new data showing catastrophic
contraction in growth, continued rises in unemployment and poor targets
performance on the fiscal side. The crisis will be back. Greece will be
hurtling toward elections.
The reality of the Greek situation is very simple, and extremely grave.
The country will not deliver on the vast majority of its promises.
Frankly speaking, it never did deliver anything real or sustainable in
terms of growth and competitiveness in the past and it is not about to
start doing this in the near future. The only uncertain part of this
equation is just how long will it take the markets to realize that the
Greek economic recovery arithmetic is simply bogus, computed not to
reflect the reality of rising debt, falling tax revenues,
collapsing economy and destabilized society, but to fit the
Brussels-Frankfurt objective of pretending that debt to GDP ratio of 120
per cent is sustainable, lest admitting otherwise would trigger a run
on Italy. My guess, about two-three months will do. Possibly six.
Thereafter, the full-blown crisis will be back."
Failure to end the latest chapter in the Greek saga has taken its toll on the EURUSD, selling off from the 1.33 handle to slightly under the 1.30 area. We noted in the last COT Report that the speculative participation on the short side of the euro had gone down. They are still short but the net position was not quite as large,165,771 contracts.
During the past two sessions, open interest in the futures market has climbed over 12,000 contracts. This probably means there is new spec selling in the euro. Currently we are bouncing back from the 1.30 handle. Without a meaningful solution to the debt problems in Europe, we think rallies should be sold. Market that can't go up, go down.
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