Ahead of Wall Street - December 14, 2011 - Ahead of Wall Street
December 14 2011 - 2:55AM
Zacks
Wednesday, December 14, 2011
With nothing major on the domestic economic calendar today,
Europe’s woes will remain front and center once again. The drop in
the exchange value of Euro against the dollar to its lowest level
in 11 months is another sign of the market’s lack of confidence in
last week’s EU deal. We are also seeing renewed uptrend in Italian
government bond yields today.
Italy paid a Euro-era high yield of 6.47% in a 5-year bond
auction this morning amid weak demand. At the other end of the risk
spectrum, demand in a 2-year German government bond auction was so
high that the yield dropped to a low of 0.29%. The yield on Italian
government’s 10-year bonds has moved back up to 6.7% and is
trending upwards.
The European Central Bank (ECB) was expected to play a more
active role in the government bond markets following the Friday
deal hasn’t come through yet. The bond market appears to be
unimpressed with the outcome of Friday’s summit and doesn’t seem
willing to let up the pressure in the absence of the ECB assuming a
more prominent role. Mario Draghi, the ECB president, had himself
helped build these expectations ahead of the summit, but his
institution has since been effectively been missing in action.
Mario Monti, the prime minister of Mr. Draghi’s home country
Italy, stated in a speech to the country’s Senate today that he had
argued vigorously in the Friday summit for the mutualization of
debt and the issuance of Euro-bonds. He stated that while
Euro-bonds were not mentioned in the final statement, they were
heavily discussed in the meeting and would be on the agenda of EU’s
March summit.
Euro-zone leaders have consistently been in a catch-up mode with
the bond markets since the start of the crisis almost two years
ago. But their halting responses have proved to be inadequate thus
far, though the move towards greater fiscal union seems to be the
first stage in the eventual federalization of the currency union.
With Euro-bonds on the EU’s March summit agenda per Mr. Monti, the
next steps in the union’s evolution are becoming clearer. But it
remains to be seen if the markets will be willing to give the
leadership the time to build consensus around those objectives.
In corporate news, Avon Products (AVP) is
looking to hire a new CEO, replacing Andrea Jung who will become
the company’s executive chairman. We also have a weak earnings
outlook from First Solar (FSLR) and the
announcement of a major secondary stock offering from
Cheniere Energy (LNG).
Sheraz Mian
Director of Research
AVON PRODS INC (AVP): Free Stock Analysis Report
FIRST SOLAR INC (FSLR): Free Stock Analysis Report
CHENIERE ENERGY (LNG): Free Stock Analysis Report
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