In The Lead – Crumbling Walls of Worry and Looming Fiscal Cliffs
The midweek session started with sizeable gains in the precious metals complex as bullish participants interpreted the ESM-related ruling by Germany’s top court as one more sign that all things official will only help their cause. Of course, as is normally the case, the headline is what caused the stir, while the details of the ruling evidently appear to have escaped the notice of the stock and commodity shopping-spree crowds.
To wit: the German court categorically insists that Germany must first secure Parliamentary votes in favor of any further increases to the ESM. The court has not delivered a full ruling on the complaint by the plaintiffs, but merely a temporary injunction of same. The court stressed that that the ESM treaty bans it from borrowing funds from the ECB (a violation of EU law). The court will not permit the ESM to deposit bonds to serve as loan collateral with the ECB.
Moreover, the court ruled that Germany must say that it won’t be bound by the ESM treaty unless the above conditions are fully met. The court said that Germany cannot be allowed to bear the burden of amounts that it cannot control and of liabilities that arise out of “decisions by the will of other states.” Just a few “details” –for starters, before we define the rally to $1.29 by the euro as the new “floor” and the new “normal.” In fact, Nomura Securities feels that the court ruling spells the end of the euro’s recent rally, and not a push to some wild new highs. Nomura said the euro has risen only because of a short-squeeze and that such a phase is nearing its end at this stage. The firm is “looking for fresh short[ing] opportunities from here.”