As we approach yet another crucial European summit, the bargaining is becoming more intense. While the Merkel quote of "I don't see total debt liability as long as I live" got the headlines, there is no doubt a lot of jockeying behind the scenes. Various proposals are being floated, including a package of "banking union, a fiscal union and further steps towards political union", and intense pressure is being put on the Germans to yield.
The forecasts are all over the map. While the consensus is that Germany will have to eventually bend on the issue of eurobonds, though not necessarily at this summit, others like Ray Dalio (via Zero Hedge) say, "Don't count on it!"
While I am not expecting the Germans to change the lines of their national anthem to Europa, Europa über alles, nor do I expect an admission of failure this summit. Most likely, we will see the typical European fudge, or an announcement of "we have a secret plan to have a plan."
While I am mildly interested in the summit statement, I am much more interested in the market reaction. If I am right and we get a "we have a plan to have a plan" kind of announcement, will the market rally or sell off? Gauging the market to news gives me much more important clues as to whether the bulls or bears are in control of this market.
Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.
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