We observed a very choppy session with markets finally rebounding caused by a mixture of short covering & profit taking, bottom fishing, a clear statement of the French regulator about the sound conditions French banks are in and rumors about a short selling ban.
Given high Put call ratios, technically extremely oversold conditions and already well hedged market participants this was more something which had to happen then anything else – a category we want to classify the correction in Bunds & Gold in as well. Looking at Asia which trades in red territory again we see our impression confirmed that it s mainly about position closing before the weekend as the cut of the Japanese growth forecast to 0,5% from 1,5% this year remembered investors of the global growth fears.
With the established short selling ban, raising deposits from banks at the ecb & interbank rates rising as well as the Euribor – OIS 3M Spread we hear an increasing number of people talking about some Lehman 2.0 scenarios as such chatter cld become a self-fulfilling prophecy. While we have to agree that there may be some analogies we would even more underscore the differences which are by far more important:
* French Banks have a broad base of retail banking deposits they can use for funding which wasn t the case for most of the US IBs
* The dependency of overnight funding was reduced as consequence of the experiences in 2008
*Neither the central banks nor the politicians will let make a mistake like the 2008 one twice
Besides this, the well known macro problems persist and we see only one option to solve the European debt issue: common euro zone bonds under the principle of joint debt issuance or guarantees as a 1st step towards the federal states of Europe. Even if we recognize that a transfer union is an anathema in Germany right know we simply want to draw your attention on the past 15-18 months. There were so many things German politicians say they would never do and they did it as they realized they have no choice!
Nevertheless it s still a long way to go and we don t even see that Politicians really turned into that direction. Therefore we stay bearish waiting for the 1st step into the F(ederal)S(taates) of E(urope) to turn our mind