Eurointelligence Daily Briefing, 27 de Junho de 2012. Enviado por Domenico Mario Nuti
and.....
http://www.zerohedge.com/news/europes-monetary-twilight-zone-neutron-bomb-nirp
Submitted by Tyler Durden on 06/27/2012 09:11 -0400
Just because ZIRP is so 2009 (and will be until the end of central planning as the Fed can not afford to hike rates ever again), the ECB is now contemplating something far more drastic: charging depositors for the privilege of holding money. Enter NIRP, akaNegative Interest Rate Policy.
http://www.zerohedge.com/news/goldman-changes-its-ecb-call-sees-25-bps-cut-repo-rate-july-5-075
Goldman Changes Its ECB Call, Sees 25 Bps Cut To Repo Rate On July 5 To 0.75%
Submitted by Tyler Durden on 06/27/2012 11:12 -0400
Central Banks Credit Conditions European Central Bank Germany Greece Gross Domestic Product Italy Market Sentiment Monetary Policy Recession Sovereign Debt Unemployment
And some thought we were only kidding that NIRP is soon going to be Europe's new best friend. Also, if the former employer of Mario Draghi is now saying a rate cut is imminent, it means that the fiscal pathway to resolution is dead and that Friday's summit will be an even bigger disappointment than everyone now expects.
Just out from Goldman:
Change to our ECB call: We now expect a 25bp cut in the repo rate in July, but with the deposit facility rate left on hold
http://www.zerohedge.com/news/europes-monetary-twilight-zone-neutron-bomb-nirp
Europe's "Monetary Twilight Zone" Neutron Bomb: NIRP
Just because ZIRP is so 2009 (and will be until the end of central planning as the Fed can not afford to hike rates ever again), the ECB is now contemplating something far more drastic: charging depositors for the privilege of holding money. Enter NIRP, akaNegative Interest Rate Policy.
Bloomberg reports that "European Central Bank President Mario Draghi is contemplating taking interest rates into a twilight zone shunned by the Federal Reserve. while cutting ECB rates may boost confidence, stimulate lending and foster growth, it could also involve reducing the bank’s deposit rate to zero or even lower. Once an obstacle for policy makers because it risks hurting the money markets they’re trying to revive, cutting the deposit rate from 0.25 percent is no longer a taboo, two euro-area central bank officials said on June 15... “The European recession is worsening, the ECB has to do more,” said Julian Callow, chief European economist at Barclays Capital in London, who forecasts rates will be cut at the ECB’s next policy meeting on July 5. “A negative deposit rate is something they need to consider but taking it to zero as a first step is more likely.” Should Draghi elect to cut the deposit rate to zero or lower, he’ll be entering territory few policy makers have dared to venture. Sweden’s Riksbank in July 2009 became the world’s first central bank to charge financial institutions for the money they deposited with it overnight."
There is only one problem when comparing the Riksbank with the ECB: at €747 billion in deposits parked at the ECB as of yesterday, the ECB is currently paying out 0.25% on this balance, a move which may or may not be a reason for the depositor banks, primarily of North European extraction, to keep their money parked in Frankfurt. However, once this money has to pay to stay, it is certain that nearly $1 trillion in deposit cash, currently in electronic format, would flood the market. What happens next is unknown: the ECB hopes that this liquidity flood will be contained. The reality will be vastly different. One thing is certain:inflating the debt is the only way out for the status quo. The only question is what format it will take.
More from Bloomberg:
“It won’t help the prospect of a functioning money market because banks won’t be compensated for the risk they’re taking,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. It would make more sense to lower the benchmark rate, thus reducing the interest banks pay on ECB loans, and keep the deposit rate where it is, Green said.The ECB has lent banks more than 1 trillion euros in three- year loans, with the interest determined by the average of the benchmark rate over that period. Societe Generale SA estimates that cutting the key rate by 50 basis points would save banks 5 billion euros a year.The deposit rate traditionally moves in tandem with the benchmark, which policy makers kept at a record low of 1 percent on June 6. Draghi said “a few” officials called for a cut, fueling speculation the bank could act next month.Sadly, because all this is merely operating in the confines of a broken system, just as the LTRO provides a brief respite only to commence crushing banks such as Monte Paschi, so any further intervention by the ECB will only lead to a faster unwind of an unstable system.Other institutions have opted against such a move. The Fed started paying interest on deposits to help keep the federal funds rate near its target in October 2008 and has reimbursed banks with 0.25 percent on required and excess reserve balances since December that year.Some Fed policy makers last August argued that reducing the rate could be helpful in easing financial conditions. While they discussed doing so in September, many expressed concern that such a move “risked costly disruptions to money markets and to the intermediation of credit,” the Fed said in minutes published on Oct. 12.The Bank of Japan (8301) introduced a Complementary Deposit Facility in October 2008 to provide financial institutions with liquidity and stabilize markets, and has kept the interest it pays for the funds at 0.1 percent since then. Governor Masaaki Shirakawa told reporters on May 23 there would be “large demerits” to reducing the deposit rate because it could lead to a decline in money-market trading.It gets worse: by trying to help banks, the ECB will actually be impairng them:“If the ECB cut the deposit rate, it would take an important profit opportunity away from banks,” said Tobias Blattner, an economist at Daiwa Capital Markets Europe in London. By doing so, the ECB would also be “encouraging banks to lend to the real economy” even though “there’s hardly any demand for credit,” he said. Blattner predicts the ECB will cut its benchmark and leave the deposit rate at 0.25 percent.ECB Executive Board member Benoit Coeure said on Feb. 19 that market interest rates of zero or lower “can result in a credit contraction.”That’s because banks, trying to preserve their deposit bases by paying customers a reasonable interest rate, may reduce lending to companies and households because the return is too low and invest in higher-yielding assets instead.Finally kiss money markets - which together with Repos are one of the core components of shadow banking - goodbye:“A deposit rate at zero will be of particular support to banks in southern Europe because it could help encourage some flow of credit,” said Callow. “A negative deposit rate can be damaging for money markets.”Negative rates would destroy the business model for money- market funds, which would face the prospect of paying to invest, said Societe Generale economist Klaus Baader.“But the ECB doesn’t set policy to keep alive certain parts of the financial sector,” he said. “Policy makers want to show that they haven’t exhausted their options yet.”Regardless of what the actual outcome is, one person who will be delighted however, is Hugh Hendry. As a reminder,'He’s made bets that he says will deliver a 40-to-1 return if the ECB cuts rates below 1% next year." Because in the end nothing pays off quite like levered bets on the stupidity and hubris of central planners.
and.....
Goldman Changes Its ECB Call, Sees 25 Bps Cut To Repo Rate On July 5 To 0.75%
Submitted by Tyler Durden on 06/27/2012 11:12 -0400
Central Banks Credit Conditions European Central Bank Germany Greece Gross Domestic Product Italy Market Sentiment Monetary Policy Recession Sovereign Debt Unemployment
And some thought we were only kidding that NIRP is soon going to be Europe's new best friend. Also, if the former employer of Mario Draghi is now saying a rate cut is imminent, it means that the fiscal pathway to resolution is dead and that Friday's summit will be an even bigger disappointment than everyone now expects.
Just out from Goldman:
Change to our ECB call: We now expect a 25bp cut in the repo rate in July, but with the deposit facility rate left on hold
Tensions in the Euro area financial system are increasing again, on the back of rising government bonds yields in Spain and Italy. This is building pressure on the ECB to act. One dimension for policy action is interest rates. We foresee a 25bp cut in the main refinancing rate in July to 0.75%, but forecast an unchanged deposit rate, implying a narrowing of the interest rate corridor.
* * *
and.....
http://ftalphaville.ft.com/blog/2012/06/27/1062091/spanish-bailout-divination/
Spanish bailout divination
Spanish prime minister Mariano Rajoy on Wednesday:
We can’t finance at current prices for too long. There are many institutions and financial entities that have no market access. It’s happening in Spain, it’s happening in Italy and in other countries, that’s why this is a crucial issue.
So, Spain is in danger-territory and everyone is listening hard for a full sovereign-bailout call. But what will precede it? Are there are any reliable triggers? (Apart from the above, we note. That’s too easy.)
Citi’s Willem Buiter argued on Monday (the note is in the usual place), that Spain is likely to require, possibly quite soon, another programme, this time with sovereign conditionality and troika participation.
(The shape of any programme remains far from clear with Buiter suggesting that the likely ingredients would be some degree of fiscal and structural reform conditionality on the sovereign, funding for the sovereign provided by the EFSF, or ESM, once it is born, and involvement of the IMF in the design and monitoring of the programme, with IMF co-funding possible but not essential.)
We have argued before that the real signs of stress for Spain show up in shorter term borrowing and in 2-year/ 5-year yields. The first chart shows the evolution of short term yields — which are still not where they were last November when the money markets seized up pre- three year LTROs – and the second is the now familiar 10-year (click to enlarge):
While the 2-year and 5-year yields are definitely hurting with analysts wondering how long Spanish banks can continue gobbling Spanish bonds the way they have been:
From Buiter (with our emphasis):
[W]illingness to buy Spanish bonds is, of course, only one side of the equation. Ability is the other. Continued liquidity outflows and concern about credit risks in respect of the Spanish sovereign are likely to weigh on Spanish bank appetite for Spanish government bonds. The very large bond purchases of the past six months were boosted by the two ECB LTROs and we cannot rule out another round of long-duration LTROs or another round of measures to ease collateral requirements, beyond even the collateral requirements relaxation announced by the ECB on June 22, 2012 – in fact, we expect it. But we consider it unlikely that Spanish banks – and other domestic financial institutions – will continue exhibit the extreme appetite to absorb ever-increasing amounts of domestic government debt displayed during 2011 and in Q1, 2012.
Citi argue that although the absolute yield level is beguiling (and much easier to track) it isn’t all that informative. They recommend looking for signals of a coming bailout in changes in spreads, and especially curves which they say exhibited consistent behaviours in the month before the previous three bailouts.
They look particularly at 3-month changes in spreads to Germany and also a short term indicator, 1-week changes in 5s10s and 2s10s (both measures of the spreads between bonds of different maturities, so the difference between 5-year and 10-year in the first case).First, to the 3-month change in the 10-year spread to Germany for Greece, Ireland and Portugal. All three widened over 150bps in the quarter before their respective bailout requests:And here’s Spain’s position, which has obviously been in the danger zone for quite a while:Then to the 1-week changes in 5s10s and 2s10s (again, click to enlarge):From Citi:Again, perhaps it is coincidental but 5s10s in all three bailout countries flattened around 40bps in the fortnight preceding the official request for assistance, and the 1-week steepening never rose above approximately 25bps. Again, Spain doesn’t yet quite fit the mould, but keep an eyeout for any sharp flattening.1-week changes in 2s10s in the month preceding the bailout are more variable, with flattening between 50 and 100bps, but they have all exhibited a pattern of significant flattening before re-steepening back to unchanged on the week. 2s10s Spain hasn’t yet seen the flattening that programme countries did before their bailout requests but we would watch this closely.
As they said, this could all be coincidence and the ‘patterns’ could be more Texas sharpshooter fallacy than real flags. But, considering the stakes, it is probably worth keeping an eye out anyway.
and note the flattening commented upon in the Alphaville piece below......
http://www.zerohedge.com/news/european-stocks-soar-and-so-do-peripheral-bond-yields
European Stocks Soar (And So Do Peripheral Bond Yields!)
It's another one of those hope-fueled days in Europe as European stock indices across evey nation close comfortably in the green as the EU Summit begins. Germany has taken all the substantive things off the table and Cyprus and Portugal threw in the towel but nevertheless, stocks are 1-2.5% higher (with Italy and Spain outperforming). We assume this is reflexive pricing of 'the crisis is now so scary that the ECB will have to do something' but it seems the FX and Sovereign bond market missed that pre-emptive hope-driven view as Portugal yields/spreads spiked, Spain pushed back up to 6.93% and saw further flattening in its yield curve (as short-dated LTRO-enthused bonds underperform dramatically) as 2s10s is almost back to six-month pre-LTRO levels. Italian spreads pulled off their worst levels to close mixed but remains over 40bps wider on the week. EURUSD closed down over 35 pips at 1.2450 and stocks were in a world of their own also relative to credit markets today.
Equities remain well down in the last week or so but bounced into the close today...
but Sovereigns remain extremely weak...
as Spain's 2s10s yield curve flattens to six-month pre-LTRO1 levels - leaving all those LTRO 'Sarkozy' trades underwater...
and stocks appear to be in a world of their own compared to credit markets once again...
Charts: Bloomberg
and while equities spike , Angie just keeps saying Nein ..... Finns also saying no to this bailout crap as well.....free lunch coming to an end.....
http://www.telegraph.co.uk/finance/debt-crisis-live/9358201/Debt-crisis-as-it-happened-June-27-2012.html
18.03 Henry Samuel has spoken to a French diplomat about the thorny issues of eurobonds, and Angela Merkel's claim yesterday that they won't be introduced while she's still alive.
Asked whether François Hollande would have to kill Angela Merkel as she said no eurobonds "as long as I live", a French diplomatic source said he presumed she meant "in her political life".
He said: "It’s a discussion. We’re at the beginning. There is no antagonism at all, you’ll see the discussions will be very serious, very methodological and there is no tension between them. Don’t over exploit declarations like that."
He added: "I never heard her say she is against the fact that in a reinforced, more integrated political and monetary union one needs solidarity. After that, mutualisation of debt, redemption funds, euro bills, other possibilities, they are all on the table. Let’s look at them. We can very well understand that Mme Merkel says if we have to mutualised all debt of all member states then it’s a totally different judicial context, and it can take time. But there are other instruments of budgetary redistribution."
17.25 Telegraph columnist Andrew Lilico agrees with Angela Merkel on the concept of eurobonds:
11.57 Merkel says that if Germany is over-strained, it would have unforseeable consequences for Europe.
11.56 Merkel says she strongly disagrees with EU proposals that join debt liability needed for bloc. She also reiterates that euro bonds are economically wrong and counterproductive. She says that joint debt liability can only come once controls on national states are in place. She will ask EU countries if they are ready for treaty changes and will tell other leaders that time is of the essence. Merkel expects controversial discusssion at the Brussels summit and eyes will be focused on Germany. She reiterates that Germany does not have unlimited strength.
11.47 Angela Merkel says she is pleased that at least nine EU countries are ready to go ahead with a financial transaction tax.
11.42 More from Mrs Merkel. She says that European Investment Bank capital must be boosted by €10bn. She adds that Europe needs credible banking supervision.
11.40 Merkel adds that Monti and Rajoy have taken important reform steps. She also says that Europe needs new incentives to help youth unemployed.
11.37 Angela Merkel is speaking now. She says there are no quick or easy solutions to the euro debt crisis. She also says that structural reforms must be at the centre of growth initiatives for Europe.
11.07 On the Finland note, there are signs that Finns are getting tougher on Europe as the crisis drags on. Reuters reports that Finnish Prime Minister Jyrki Katainen sounded almost apologetic a year ago when he demanded collateral in exchange for bailout funds for Greece.
But twelve months on, with the eurozone still in turmoil and Greece nearer to the brink, Katainen no longer sounds sorry for demanding austerity from other member states or for opposing major steps towards closer integration that Finland considers too risky or irresponsible, such as common euro bonds.
"Too many countries have gotten too many loans too cheaply for too long," Katainen told Reuters this month. "We don't want to institutionalise this unless we know everybody will follow the rules, which hasn't been the case before."
and......
http://www.eurointelligence.com/eurointelligence-news/archive.html
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