IIFT Daily Note with Peter Brown

The end of the Euro?

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EU leaders face a mammoth task this week. How to bring the markets back from the edge, and produce a credible plan which does not lead to Euro break up. Frankly I am of the opinion it’s too late. Their doesn’t seem an option the markets will buy at this stage. Greece has to default, followed by Ireland and Portugal. Italy paid 5.9% for funding last week and need to borrow 170bln between now and Christmas.

The problem is now so big, a new loan to Greece will not stop the market contagion. Any solution involves the Germans giving up something major.e.g. A euro bond – they loose their AAA status. Monetisation – leads to inflation.

The only credible plan is to get rid of the Euro, initially for the periphery. They will not say this of course, but I suspect any solution will lead in this direction.

From a trading stand point, it’s a sell on rallies. USD seems to have settled down so expect an attack on 1.4000. The US equity market has not priced in the seriousness of the situation both in Europe and US. I favour a break of 1300 on the S&P and a retest of 1255.

Markets will be very nervous this week so expect high volatility.

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