Car rental company Dollar Thrifty Automotive (DTG) has asked potential acquirers Hertz Global Holdings (HTZ) and Avis Budget (CAR) for their best and final offers for a takeover. Dollar Thrifty sent both companies a letter, asking for a final proposal by early October.
Merkel Describes Eurobonds as “Wrong Answer”
In an interview earlier today on German television, Chancellor Angela Merkel expressed her clearest opposition to date against the concept of a “eurobond”. The use of a eurobond – essentially a security backed by all the Eurozone economies – has been suggested as the means to raise capital to fight the European debt predicament. Merkel described the eurobond approach as “exactly the wrong answer” to solve the crisis.
“They lead us to a debt union and not a stability union,” Merkel said during the interview on German public television.
Because eurobonds would be backed by all Eurozone members including the two strongest economies of Germany and France, the cost to attract investors would be considerably less than debt backed by individual nations. For countries like Greece and Portugal which have suffered credit rating downgrades, the premium required to attract investors has increased dramatically. This premium represents an additional cost and remains a severe roadblock hampering efforts to recapitalize individual economies.
Earlier this month, Spain and Italy watched helplessly as the risk premium on their respective debt offerings rose to a record since the formation of the Eurozone. The spread difference for an Italian government 10-year bond climbed to 416 basis points (or 4.17 percent) over the benchmark German 10-year bond now trading in the range of 3.25 percent. The Spanish 10-year government bond jumped to a spread of 417 basis points.
French President Nicolas Sarkozy has also spoken out against the creation of a eurobond. Following an August 16th meeting with Merkel, Sarkozy described the formation of a eurobond as an ill-advised approach that would put “most stable countries of the Eurozone in grave danger”.
Given their hesitation to participate in the scheme, you can’t help but wonder if Merkel and Sarkozy have not already accepted that some form of default for a sovereign Eurozone member is inevitable. If that is the case, it may be the situation in Italy that led to the formation of this opinion.
Italy is the third largest economy in the Eurozone and is more than six times the economy of Greece as measured by GDP. So far, about 200 billion euros have been provided to Greece in emergency funding and even this level of commitment has not translated into an assurance that Greece can avoid bankruptcy. Image then, the pending quagmire facing Italy.
The Italian debt is estimated to be about 130 percent of the country’s GDP; this explains why Italy is now thought to be on the fast-track to its own financial meltdown. This may also explain why Merkel and Sarkozy are hesitant at this time to co-sign a loan for their southern neighbor.
Scott Boyd is a currency analyst and a regular contributor to the OANDA MarketPulse FX blog
Market Update Video By Adam Hewison August 22 2011
Bennenbroek Says Intervention May Not Weaken Yen, Franc
Aug. 22 (Bloomberg) — Nick Bennenbroek, head of currency strategy at Wells Fargo & Co., talks about the currency policies of the Japanese and Swiss central banks and investment strategy. Bennenbroek speaks with Scarlet Fu and Deirdre Bolton on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)
Week Ahead Market Report: 8/22/2011
Investors start off the trading session this Monday morning on a high note with news that the rule of Libyan dictator Muammar Gaddafi could be coming to an end, restoring the flow of Libyan oil into the global markets and driving down prices. However, investors will continue to fret about the economy, with recent weaker-than-expected data fresh on their minds, along with the ongoing sovereign debt crisis in Europe.
Deo Says `Strict’ Rules May Sway Germany to Euro Bonds
Aug. 22 (Bloomberg) — Stephane Deo, chief European economist at UBS AG, talks about German Chancellor Angela Merkel’s resistance to issuing common euro-area bonds as a means to solve the region’s debt crisis. He speaks with Maryam Nemazee on Bloomberg Television’s “The Pulse.” (Source: Bloomberg)
Lloyds’s Schmidt Says Pound May Be `Best Safe Haven’
Aug. 22 (Bloomberg) — Adrian Schmidt, a foreign-exchange strategist at Lloyds Banking Group Plc, discusses the outlook for currency markets and investment strategy. Schmidt, speaking with Francine Lacqua on Bloomberg Television’s “Countdown,” also talks about the outlook for Federal Reserve Chairman Ben S. Bernanke’s comments later this week at the Fed’s annual symposium in Jackson Hole, Wyoming. (Source: Bloomberg)
BOJ Intervention Expected, Yen Trading Higher in Interim
Investors are beginning to anticipate another round of market intervention by the Bank of Japan (BOJ) this week due to the unyielding rise in the value of the yen (JPY) these past few weeks. The move will need to be significant if it is to deter further yen buying in this depressed market, however.
Whether this intervention materializes has become a main point of debate for market analysts who have been expecting an intervention for over a week now. As the USD/JPY falls to new lows near 75.00 and beyond, speculators have begun to attempt a forecast at the impact it will have on Japan’s exports, thus increasing the pressure for another round of intervention.
US Mortgage Delinquencies Data on Tap
Expectations for today’s single bit of data are less than noticeable. The only figure to be published today will be the Mortgage Bankers’ Association’s (MBA) Mortgage Delinquency report at 15:00 GMT, and isn’t expected to impact market movements too heavily; especially considering the flurry of events out tomorrow.
Last month’s reading of 8.32% was less than many had expected and likely correlated with the string of housing reports over the past month which have shown similar optimism. If today’s report can meet such expectations, riskier assets like the euro (EUR) could find themselves moving slightly upward as traders seek out higher yields in this thin trading environment.
Low Liquidity Helps EUR Gain
With today’s early trading sessions lacking in liquidity, the safe-haven assets and their riskier counterparts were seen trading with little direction. The euro (EUR) so far has managed to capitalize on these maneuvers, with mild gains seen against its primary rival, the US dollar (USD).
The riskier assets of Europe and the South Pacific have been seen losing ground substantially these past few weeks as market pessimism leads to flights to safety; often found in the dollar and gold. With days like today, where market news is almost non-existent, a natural floating movement almost seems to favor riskier assets. Some might say this phenomenon is due to the free-floating value of assets in a market devoid of pessimistic data.
