Sorry to bother you on vacation but…

Sorry to bother you on vacation but we have a problem on our hands. Merkel vacationing in the Italian Alps and Sarkozy sunbathing on the French Riviera are holding a conference call to discuss things and Olli Rehn, the EU economic commissioner, said the new and improved EFSF will be ready to go in early Sept. He also said he wants to widen its scope. The next major step that EU officials will announce is likely to be a pull forward to now of the 2013 ESM facility of 500b euros, not to replace the EFSF, but to supplement it. This was speculated yesterday and will likely gain more traction in the months to come. Italian and Spanish bonds are trading better today, CDS narrower and their stock indices are higher. The 3 month euro basis swap (the cost to banks to swap euros for $’s) is a bit lower after spiking this week and 3 month Euribor and 3 month euro LIBOR are down after the ECB initiated a new 6 month facility yesterday. US$ LIBOR though has risen to the highest since May, although is still very low. Germany and Italy both reported unexpected drops in June IP. The Canadian jobs report was below expectations but their unemployment rate fell to 7.2%, the lowest since Dec ’08. The 7 day RSI in the SPX cash closed at 12.7 and compares with previous market pukes of 14 in Oct ’08 and 16.5 in Feb ’09.

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