The most recent spike downward has been caused by a report from Reuters that Merkel will announce a ban on naked short-selling of stocks and European government bonds tomorrow. Short-sale bans on shares have been used as temporary measures in the wake of the Lehman collapse but this is the first ban on the sale of government bonds! It is a big negative from a macro perspective for reserve managers who want big, deep, free capital markets in the markets in which they invest. IF this is more than a temporary measure, if could be a major euro negative. This also changes my outlook in the fundamental analysis I just posted, but I’m stressed for time now so I won’t be updating that post. Let’s see how the market reacts during the rest of the NY session and tomorrow’s European one. Look for a break of 1.2260 to signal a further decline. It’s almost as if they won’t a weaker euro… Can’t imagine why…
UPDATE:
The ban on credit default swaps is not on short-selling but on buying credit protection for credits you don’t own. Traders are forbidden to buy insurance on bonds they don’t own.
This is prompting CDS spreads to contract across of Europe.
- Greece has come in 58 bp to 607 bp
- Ireland has fallen 10 bp to 199
- Portugal has come in 9 bp to 271 (all prices according to Reuters)
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