Euro Bonds Were Rejected By The Market

Market pairs

French President Sarkozy and German Chancellor Merkel held a press conference on Tuesday (August 16th) after two hours of talks, vowing to defend the euro, but did not put forward any specific measures.

Many investors including Soros, the financial predator, saw the euro bond as the ultimate solution to the European debt crisis, but the two heads of state rejected the proposal and thought there was no need to expand the size of the euro zone rescue fund (EFSF).

Economist Dennis Gartman said, "it's ridiculous to think EFSF is enough."

He thought it was a failed meeting, and the leaders of the two countries did not propose that euro bonds were "disastrous".

France and Germany propose to strengthen economic integration and create a "real euro zone economic government", which requires countries to balance their budgets into the constitution.

Mohamed El-Erian, chief executive of PIMCO, the world's largest bond fund, points out that the message sent by France and Germany is that we must first balance the budget and strengthen economic management before we can have Euro bonds.

When the Sarkozy and Merkel conference was held, European stock markets were closed, so the US market took the lead in responding to this information on Tuesday.

The euro fell against the US dollar, and the US stock market suffered a setback.

On Wednesday, Asian markets were mixed, the Shanghai Composite Index fell 0.3%, Hongkong's Hang Seng index increased 0.4%, and the Nikkei 225 index fell 0.6%.

Li Keqiang, vice premier of the State Council, confirmed Hongkong's status as an important offshore RMB market on Wednesday, and said the government planned to take new measures to support Hongkong's economy.

Li Keqiang believes that Hongkong has natural advantages in developing offshore RMB business.

He also said that it would allow investment in the domestic securities market in the form of RMB qualified overseas institutional investors, starting with a value of 20 billion yuan, and supporting Hongkong enterprises to use Renminbi to invest in the territory.

Bank of East Asia shares subsequently led banks and brokerages.

Disappointment with the outcome of the Franco German summit led European stock markets to fall in early trading on Wednesday, while the euro area Storck 50 index fell 0.8%, while London, Paris and the French market fell by more than 0.5%.

The stock exchange of London and Deutsche stock fell by 6.7% and 4% respectively, especially at the Franco German summit.

London market

And the Swiss franc, another safe haven that keeps abreast of gold, attracts more people's attention.

Since Napoleon I, Switzerland has been in a neutral position. Now it has to launch a war for its currency, and may even give up the independence of the Swiss Franc so that it can be linked to the euro.

In fact, the Swiss government's currency war has long started.

As early as August 3rd, the Swiss central bank intervened in the foreign exchange market by cutting interest rates, but failed to stop the Swiss Franc from climbing.

In August 10th, the Swiss central bank announced that it would increase the demand for deposits of 80 billion Swiss francs to 120 billion Swiss francs and carry out foreign exchange swap pactions in the autumn of 2008.

But the Swiss Franc continued to rise stubbornly after a brief fall.

In August 11th, Thomas Jordan, deputy governor of the Swiss central bank, said that "any measures to intervene in the market exchange rate in the short term are reasonable under the premise of maintaining price stability."

Associating with his earlier hint that the Swiss franc is linked to the euro, the market began to speculate that Switzerland might be prepared to sacrifice monetary independence for the war.

On Wednesday, the Swiss central bank finally announced its "package" plan, announcing liquidity injection, increasing the amount of deposits to 200 billion Swiss francs, and continuing to repurchase large quantities of central bank bills for foreign exchange swaps.

But the market is looking for more radical moves, such as launching the Swiss franc's target exchange rate or making it short term linked to the euro.

So the Swiss Franc began to rise sharply, rising nearly two percentage points to the euro and the US dollar.

Steven Saywell, head of foreign exchange strategy at Paris Bank of France, pointed out: "if the SNB decides to peg its currency to the euro, this means that they have to intervene indefinitely to ensure such a link.

It is very difficult for the Swiss central bank, which is almost impossible under the current market conditions.