Courtesy of John Nyaradi.
Expectations build that German Chancellor Merkel and French President Sarkozy, along with ECB President Mario Draghi, are loading their “big bazooka” to fire at the festering European financial crisis.
The news flow continues in a torrent today as the Financial Times reports that a second European rescue fund is in the making which would effectively double the “firepower” of the bailout fund.
Other news suggests an imminent rate cut by the European Central Bank and perhaps even more bond buying by Mr. Draghi and company or ECB loans to the IMF who would then backstop larger countries like Italy (NYSEARCA:EWI) and Spain (NYSEARCA:EWP) if they needed financial help.
All in all, this is a stunning series of developments that would have been unheard of just a few months ago and is ample evidence of the desperation and fear that is gripping the normally fractious European leadership. Of course the potential outcomes here are obvious. A huge global equities rally could ensue if Europe fires its bazooka and, as expectations grow, the potential for disappointment also grows.
Global markets were largely flat today as the world waits for the Brussel’s summit on Friday. The Dow Jones Industrial Average gained 0.4%, the Nasdaq 1oo slipped -0.2% while the S&P 500 and Russell 2000 was nearly unchanged. Overseas, the iShares MSCI Spain Index (NYSEARCA:EWP) gained +0.98%, iShares MSCI Italy Index (NYSEARCA:EWI) rose +0.2% and the Euro Dollar (NYSEARCA:FXE) was basically flat.
Spanish, French and German bonds declined after the S&P sabre rattling and, not to be left out of the action, U.S. Treasury Secretary Timothy Geithner was making the rounds in Europe, backing “Merkozy” and throwing the weight of the United States behind European reform, treaty improvements and decisive action. Never one to be afraid of printing money or engineering bailouts, one can be confident that Secretary Geithner is delivering his own prescriptions to the European Central Bank and the “Merkozy” coalition of central bankers.
And so the drama continues with major players betting that the European coalition will be pull out their “big bazooka” and blast away at the Eurozone’s debt problems. Watch for significant explosions, one way or other, on Friday.
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