Monti Backpedals

Italian Prime Minister gave us mixed messages over the last few days. On Saturday he was worried about contagion from rising Spanish bond yields. Today he backpedaled and tried to calm the investors:

"I don't see the flames of a crisis like we saw in the last two years coming again. The fiscal contract now in place should calm concerns about future fiscal imbalances in European countries. The higher the firewall, the lower the probability that the money would ever be needed." 

So which is it, sir? We are confused...

Perhaps the following data (released today) will make things clear again. Eurozone is in recession. LTRO helped to alleviate banking crisis but is yet to boost private lending. Deposits growth increased (trillion of ECB euros is sloshing in a tub), but loans to private sector grew the least since June of 2010. I see two reasons: banks are hoarding cash (hence rising deposits at ECB), and loan demand cratered due to recession.

So, note to Mr. Monti: crisis has entered a new phase.

I will let the politicians do their double-talk, and will just track DAX futures chart, since it has been the leader throughout the entire EZ debt crisis ordeal. It is now backtesting the support. Should that give, look for lower trendline of the rising wedge/lower daily BB @ 6900-6920 to be tested next, followed by lower trendline of rising channel/gap fill/horizontal support @ 6670-6700, followed by a major horizontal support at 6470.

Euro Area

click on chart to enlarge