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| Where's the easing ECB? |
Now this is getting interesting. If the ECB is not comfortable to bail out EZ countries and banks, but IMF, China and USA either cannot afford to or do not see the point in spending their funds, the job has to be done by ECB. The latest rumor is that the IMF would loan money from the ECB and do the bailouts, thus leaving ECB’s reputation impeccably clean. Is this related to today’s news that the head of IMF’s European department just resigned, after just one year in the role, due to “personal reasons”?
In the markets the usual bloodletting is going on. The Spanish bond auction went miserably and ECB was again very active in the secondary markets. Today’s link fest is huge. Expect more of the same, as this is how beautiful it can get. Soon we will see the eyes of a dead market. And this is this.
– MoreLiver
News (Thu evening) – BTH
Morning Briefing (17 Nov) – BNY Mellon
FX option vols – Saxo
Markets Live – alphaville FT
Debt crisis: live – The Telegraph
EZ crisis Live blog – The World / FT
EURO CRISIS
Many very good observations, e.g.: UK and US have recapitalized their banks, no one else has, so their debt ratios will be worse once they do.
Eurozone: hitting CEE when it’s down – beyondbrics / FT
EZ banks rush to reach a tier 1 capital ratio of 9 per cent by June 2012, they will likely turn to selling assets – including credit portfolios, pension funds, insurance companies or banks themselves – in emerging markets, says a report on Thursday from RBC Capital Markets.
Deflationary crisis responses – Credit Writedowns
the public and private sector cannot increase their net savings at the same time because by definition the net savings of one sector equals the net dissavings of the other…this is exactly how it played out in the 1930s and that’s where we are right now.
Very nice summaries of recent news articles and columns..
Global Dollar Liquidity Freeze Leads To Pervasive Sell Off – ZH
Three charts (FRA-OIS 3M, FRA-OIS 3M LT, EUR Basis Swap)
Three charts (FRA-OIS 3M, FRA-OIS 3M LT, EUR Basis Swap)
An existential crisis in Eurozone rates – alphaville / FT
With the GC existential crisis potentially compromising collateralised rates, that leaves only the currency basis swap market as a liquid and truthful indicator of real funding costs in Europe. And the key reason it’s so much more useful than the OIS-Euribor spread is because it specifically identifies costs for banks with dollar exposures — which are not backstopped by the ECB to the same extent as those with European exposures.
With the GC existential crisis potentially compromising collateralised rates, that leaves only the currency basis swap market as a liquid and truthful indicator of real funding costs in Europe. And the key reason it’s so much more useful than the OIS-Euribor spread is because it specifically identifies costs for banks with dollar exposures — which are not backstopped by the ECB to the same extent as those with European exposures.
As France, Europe’s second-largest economy, becomes swept up in the market turbulence, it is calling for more radical steps. But Germany, by far the region’s largest economy and still viewed as a safe haven for investors, is far more cautious.
ECU's FX strategic insight: Eurozone: living the daydream! – tradingfloor.com
Merkel: “Germany ready to give up national sovereignty to the EU” and ECB’s SMP on Wed rumored to be 3bn.
SOLUTIONS
Emergency narrow treaty change now, political union later – euobserver.com
The euro crisis: Plan Asmussen – Free exchange / The Economist
The state secretary at the finance ministry, who is the government’s point-man on the euro crisis, allowed himself to be publicly grilled in Berlin by an assorted panel of financial experts. He stuck to the official mantras (not a currency crisis, no banking license to EFSF so it could do ECB’s work, ECB not the lender of last resort, and most specifically, there is no plan B.
EU commission to present eurobonds plans next week – euobserver.com
IMF “CONSPIRACY”
The ECB-IMF-Italy roundabout switcheroo – alphaville / FT
ECB could lend to IMF for euro zone rescue –officials – Reuters
Comments by Tyler Durden and Peter Tchir.
Cockamamie Scheme Du Jour: ECB to Lend to IMF to Lend to PIIGS – MarketBeat / WSJ
PIIGS
Futures Tumble, Spreads At Record, Euro Drops On Another Awful Spanish Auction; More LCH Margin Hike Rumors – ZH
Plenty of charts and roundup of comments on the Spanish auction.
Plenty of charts and roundup of comments on the Spanish auction.
Getting a little Spanish bond yield perspective – alphaville / FT
Official Denial Signals Spanish Bailout Imminent; Dreadful Result in Spanish Bond Auction, 6.975% Yield on 10-Year Debt; Merkel says "ECB Cannot Solve Euro Crisis" – Mish’s
Euro Bond Yields Still Going Higher – MarketBeat / WSJ
Rules set by LCH.Clearnet Group Ltd., the main clearinghouse for repurchase agreements, require higher collateral for repo trades involving government bonds that yield 4.5% more than a basket of triple-A-rated European sovereign bonds for five consecutive days. And market watchers say that Spain is well into that territory. If LCH.Clearnet raises collateral demands, that could result in a fresh bout of selling pressure.
The London Stock Exchange is becoming the lender of last resort for many banks in Italy as concerns over the country’s debt levels squeeze liquidity out of the Italian financial market.
Warren Mosler’s Big Fat Greek MMT Exit Strategy – L. Randall Wray / EconoMonitor
ECB
ECB intervention necessary but insufficient – Re-Define
All additional ECB intervention can do is to stem the immediate panic and buy 1-3 years for troubled sovereigns. The EU desperately needs growth and a growth strategy which ECB intervention can provide the economic and political space to implement. In addition it needs to credibly map out an end-game which addressed the biggest structural and institutional gaps in the construction of the Eurozone.
With a recession looming for Europe, monetary policy is effectively throwing gasoline on a simmering fire. The dysfunction is obvious when you see government bond yields rising amid heightened recession risk. Normally, capital would be flowing into bonds on the expectation that the central bank would favor an easier monetary policy. But this is Europe, where the concept of promoting financial stability is a radical idea and certain government bonds aren't quite what they appear to be.
The euro crisis: Rule by technocracy – Free exchange / The Economist
ECB is playing a dangerous game in allowing yields to rise when it suits them, for two reasons: rising yields are doing serious and lasting damage to sovereign bond markets, and sticking with the reforms in periphery requires legitimacy, which the installed technocratic governments do not possess.
The ECB could make things easier – Free exchange / The Economist
The monetary policy of the ECB that is forcing countries into disflationary recessions is equally, if not even more harmful, then the absence of a lender of last resort.
ECB in Balancing Act as Euro Tensions Escalate – The Source / WSJ
Perhaps the ECB can step up its efforts for a matter of days or a week or two to keep a lid on things, but we’re in the zone here for dramatic action of some kind to stop this from going all-out systemic due to risk of a hard default.
ECB Goes Hog Wild, Lifts Every Offer In Another Failed Attempt To Calm Market – ZH
The implicit motive is to get the Spanish Bund spread down from 500 bps which virtually guarantees a margin hike and a collapse into the toxic debt hole.
The implicit motive is to get the Spanish Bund spread down from 500 bps which virtually guarantees a margin hike and a collapse into the toxic debt hole.
GERMANY
On Printing Euros and the Real German Fear (hint, it’s not 1923) – Dan Alpert / EconoMonitor
But there can’t really be many, at senior economic policy levels in Germany, who honestly believe that forced internal devaluation in the Club Med nations will actually happen… they are planning to shrink the zone and have Greece [and Portugal?] exit (at least initially).
“We envision the strong objection of Germany to subside should it become painfully obvious that France could lose its AAA rating, thereby jeopardizing the AAA rating of the EFSF as Italy slowly loses access to the capital markets or their finance rate becomes increasing debilitating,”