Archive - Feb 17, 2011 - Story

Markets down this morning today. Yesterday saw several significant releases, with housing starts at 596K, well ahead of consensus estimates at 539K. PPI rose 0.8% MoM, in line with expectations while industrial production decreased 0.1% v 0.5%E. Fed minutes from the January 25-26 meeting expressed continued disappointment in labor market conditions. FOMC reaffirmed QE2 despite dissent, but did not comment on future actions after the purchases. Overall, the Fed was more optimistic citing an increase in household spending late in 2010. Fed Policymakers also noted that long-term inflation expectations are stable as they had at the December meeting although this month they acknowledged rising commodity prices. Today’s CPI release is expected to show weak inflation numbers with consensus estimates at +0.3% MoM.

• Geithner Says Inaction On Debt Limit Would Harm Recovery (WSJ)
• Now Libya Set for ‘Day of Anger’  (FT)
• Police Break up Bahrain Demonstration, Military Takes Control of Capital (FT)
• Suez cancellation lifts Egypt diplomatic strain (Reuters)
• China Opens More Options for Yuan (WSJ)
• Is Your Job an Endangered Species? (WSJ)
• Germany's ECB Presidency Chances May Fade After Merkel's Bundesbank Choice (Bloomberg)
• Till Debt Do Us Part (American)
• Belgium Weighs New Coalition Proposal (WSJ)
• Osborne Eyes Looser Liquidity Regime (FT)

A lot going on today, beginning with the CPI and claims, followed by the Philly Fed, the index of leading indicators, and mortgage delinquencies, and testimony on implementation of Dodd-Frank and the FY 2012 budget at mid-morning, a few regional Fed presidents from noon into the early afternoon(Lockhart, Evans, Fisher, and Hoenig..not listed separately below), and winding up with the Fed’s latest balance sheet information this afternoon…And, most importantly as always, the Fed will buy 10 Years (05/15/2018 – 02/15/2021) in the amount of $6-8 billion between 10:15 and 11:00 am. Keep an eye on 912828PX2.

After hitting an overnight high of 1.36, the Euro has steadily declined overnight. The reason: a dramatic and unexpected spike in borrowings under the ECB's Marginal (and Punitive) Lending Facility. Over €15.8 billion was borrowed under the facility, the highest since June 2009, and a surge from yesterday's €1.2 billion. With a rate of 1.75%, there is nothing cool or fun about borrowing from the MLF, which is seen just as stigmatizing as borrowing from the Discount Window back when US banks didn't have trillions in excess reserves, and discount window borrowings actually mattered. The WSJ provides some perspectives for the surge: "The ECB declined to give any explanation for the high figure, which generally reflects acute, if mostly short-lived, liquidity problems at one or more banks. Use of the facility had been minimal at the start of the year, but had risen to around a daily average of over €700 million in the past week. The rise in the use of marginal lending by the ECB is all the more surprising as there were no generalized signs of stress in the money market Wednesday. The benchmark overnight rate for euros, Eonia, eased to 0.7% from 0.749% on Tuesday, its lowest fixing in more than a week." According to some traders the spike has to do with a technical error, or the failure of a bank to request enough cash during normal liquidity providing operation, but a €15 billion oversight is just too big. Perhaps one should look at the fresh all time record Portuguese 10 year bond yield for clues why this has happened. Should the MLF lending spike tomorrow as well, someone will have to answer questions.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 17/02/11