EU: Sceptics abound as Mario Draghi's ECB bond 'bluff' electrifies global markets

The Telegraph ^ | 7/26/2012 | Ambrose Evans-Pritchard

[bruinbirdman]

The European Central Bank has opened the door to emergency support for the Spanish and Italian bond markets, setting off a blistering rally on bourses across the world.

Picking codewords instantly understood by traders, Mr Draghi said the violent spike in bond yields in recent days was hampering "the functioning of the monetary policy transmission channels" - the exact expression used to jusfify each of the ECB's previous market interventions.

Yields on Spanish two-year debt plunged 72 basis points to 5.47pc in barely an hour, with comparable moves on Italian debt - easing the pressure before a string of debt auctions in Rome over coming days. The MIB index of stocks in Milan surged by 5.6pc. Madrid's IBEX rose 6pc, the biggest jump in two years, led by an explosive rise in bank shares.

Mr Draghi's comments came as Spain claimed backing from France and Germany for activation of the eurozone's rescue fund (EFSF) to buy Spanish bonds, though this would require calling the Bundestag's finance committee back from holiday for a vote. Action by the EFSF would provide "political cover" for the ECB to join the fray in a two-pronged attack.

"We're firing on all cylinders: that is what has ignited the markets," said Hans Redeker, currency chief at Morgan Stanley.

Joint statements from Madrid, Paris and Berlin said market turbulence "does not reflect the fundamentals of the Spanish economy, or the sustainability of its public debt". The wording seems scripted to clear the way for intervention.

The euphoria is unlikely to last long unless the ECB comes through with concrete action after its pre-holiday meeting next week. Angel Gurria, head of the OECD, honed in on Mr Draghi's caveat, saying the legal constraints are the nub of problem. The ECB must "explore the

[Varsity Flight]

= No Collateral

= False paper makers

= Higher oil

= Unemployment

[Uncle Ike]

Yesterday’s 200 point jump in the DJIA merely demonstrates that “No, really - we’re gonna come up with a PLAN!!” still works among the gullible....

[bruinbirdman]

"still works among the gullible...."

The ploy used to work for a couple of months. The time frame is down to less than a week now.

yitbos

[Varsity Flight]

= No Collateral

= False paper makers

= Higher oil

= Unemployment

And guess what leads the headlines today:

Spanish unemployment hits 24.6 %

[piytar]

Economic and historic illiteracy at play. Just like their claims of austerity, which failed to include any real cuts in government spending.

Short version: another attempt to kick the can down the road. But the can gets bigger each kick. And so does the inevitable correction/collapse.

This is going to get bad. As in bloody. Seas and messes of it. Again.