What's Really Behind The Rally?August 3, 2012 @ 1:52 PM EST
Could it be a rare “Ja” out of Germany instead of the usual “Nein”?
You have seen all the news this morning and the stories of:
- better than expected jobs numbers
- some reported movement on the part of Spain to “take aid” from the EFSF
- a better than expected ISM reading this morning
- some decent earnings out of Europe and a few U.S. companies
But we have not posted anything yet on what might be one of the biggest drivers of all, some movement on the part of German politicians to “play ball”.
According to Bloomberg:
Members of German Chancellor Angela Merkel’s coalition parties signaled they won’t stand in the way of European Central Bank chief Mario Draghi’s plan to buy government bonds.
With Merkel on vacation for another week and parliament in summer recess, there was no official government reaction to Draghi’s announcement yesterday of a blueprint to ease bond markets and lower borrowing costs for Italy and Spain in return for strict conditions. Handelsblatt, in a front-page article, focused on the “isolation” of Bundesbank President Jens Weidmann, whom Draghi signaled was the only Governing Council member to oppose the bond-buying plan.
“This is a political form of bond-buying which Berlin can just about live with,” Nicholas Spiro, managing director of Spiro Sovereign Strategy Ltd., said in an e-mailed comment. “In German eyes there is no risk of unlimited and unconditional support for Spanish and Italian sovereign debt -- precisely the kind of intervention which the markets would deem credible.”
But frankly, we will echo what Dave M. was saying this morning earlier, the real story is likely that traders thought for more than two minutes last night and said to themselves, “Hey, the ECB might just be serious this time and the Fed is waiting in the wings.”
Of course that sentiment can change in about as much time as it takes to put this post up. And that is what makes this market so hard to trade, given all the news-driven whipsaw.
Have a good weekend.
David W. (aka The Underground Trader)