All the interesting news is in Europe

!! Outlook !!
The calendar this week includes today's Bank of Canada statement,
TICS report and Empire State manufacturing index. We also get the NAHB
housing market index for Nov and the start of the Chinese state visit.
Tomorrow it's housing starts and permits, and Thursday the Energy
Dept inventory report, existing home sales, Philadelphia Fed survey,
and Chinese Pres Hu addressing a business conference. Friday is equity
market options expiration and that sometimes causes fireworks. But
aside from Hu possibly instigating a controversy, all the interesting
news is in Europe. Germany seems resigned to re-arranging the bailout
deal to make it longer-lasting and big enough, even though its own
money commitment is presumably not going up. That the FX market is
assigning confidence to the resolve means the argument about
sufficiency is being won by the guys with the least amount of factual
back-up on their side. This is not really surprising, since
"sufficiency" is in part a subjective thing and to point out that
Greece, for example, "cannot" support debt at multiples of GDP is
only an opinion, not a fact. That no one has ever done it before
doesn't count…

We are confused about the attitude toward Spain. Everyone noted that
it cancelled bond auctions for Thursday but no one is reporting,
except Market News, that it was able to place €6 billion in 10-year
bonds with no trouble and a 2 to 1 bid –offer ratio by syndicating
it through banks instead of the usual mechanism of an auction at the
Spanish treasury. Why is this not simply wonderful news that supports
the euro?

Under the surface is the lurking monster named reserve
diversification. Everybody and his brother likes to throw a slap at
the US, the latest being Russia. According to Market News, there was a
rumor in the Spanish newspaper El Pais that Russia would buy Spanish
bonds for its sovereign wealth fund, akin to the Chinese promise. But
Russian FinMin Kudrin corrected the report, saying Russia may be
willing to buy EFSF paper once the details are out. Substituting the
"Europe" name for a single country name is really, really
attractive to international investors and we do not doubt the EFSF
offerings will be wildly oversubscribed.

It looks like the Teflon euro is escaping punishment for mismanagement
among members, and the market is willing to live with almost
unbearable contradictions and ambiguities (Germany won't enlarge the
amount but the German FinMin says "putting more money on the
table" is under consideration). It's a shell game and the world is
willing to keep playing. Well ,we guess the world is not entirely
irrational and the euro will not, in fact, test the Friday high at
1.3457, at least not today and perhaps not this week.
Source: Fxstreet.com