The rules of the game have just been changed in Europe and it remains to be seen how the market will like an ECB which has just lost a great deal of its independence. My quick thoughts on markets are as follows: great for risk assets, terrible news for bunds, great news for southern European bonds, bad news for the flight to quality UST trade, and ultimately terrible news for the EUR. Maybe the EUR tries to rally on this, but it the end this bailout has done nothing positive for the EUR. The market will inevitably look at the ECB as being forced by the EU to monetize the debts of EU rogue nations…To sum up, this is TARP mach 2 (or le tarp), we now have a firm commitment by the Europeans to the reflation trade.”
David Zervos, WSJ
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