Archive - Sep 21, 2011 - Story

Today's existing home sales data, which will simply confirm that there is no hope for the housing market, will be completely ignored as everyone focuses on what gizmo Bernanke pulls out today from his magic bag of tricks.

Our thesis that global coordinated monetary stimulus is returning is playing out, first slowly, then very rapidly, with the Fed expected to announce at least Op Twist and an IOER cut at 2:15pm today, following a currency peg by the SNB, more printing promises by the BOJ, and the ECB now assumed to return to cutting rates shortly even as it purchases sovereign bonds in the open market. Sure enough, the latest entrant in the global resumption of printing is the BOE, which in minutes presented earlier, makes it clear it won't lag behind the Fed. From Goldman: "BOTTOM LINE: (i) The September MPC minutes revealed an unchanged vote (8-1 on asset purchases; 9-0 on rates). More significantly, however, for "most members" the decision was "finely balanced" and the committee was unusually forthright in signalling the likelihood of QE2. October now looks like the most likely date for a commencement of QE2. (ii) In other important news today, the ONS announced that public borrowing has been revised down by £6bn (0.4% of GDP) in 2010/11 and by £5bn (0.3% of GDP) so far in 2011/12. This potentially opens the door to a more gradual pace of fiscal tightening, with increased capital expenditure (the so-called "Plan A+")." And with that global relative FX devaluation continues, very much as expected, as does absolute devaluation of all currencies against gold, also very much as expected.

The French bank trio is once again on the ropes, with BNP leading the decliners at -5%, following the latest weekly Fed swap line release update from the ECB according to which one bank had subscribed for $500 million of dollars at emergency funding, confirming that anything coming out of the Libor market (where the average rate increased once again from 0.355% to 0.356% for the n^th day in a row) is pretty much irrelevant as no real dollar access is available at rates below the ECB's penalty rate which this week was 1.07%. The good news: this is not as bad as last week's two banks which needed $575 million. The bad news: we have reverted to the regime from a month ago when a bank, most likely the same bank, was forced to borrow from the ECB, and hence, from the Fed. Said otherwise, there has been no improvement in interbank liquidity conditions since August 17. Expect more weakness out of French banks especially if China steps up the war of rhetoric and announces that more (of its own massively levered) banks have cut liquidity connections with France.