3 Month Euribor Touches 0.9% For First Time In 2010
Another disconnect is forming out in Europe, where the much more popular overnight lending metric Euribor rose by 0.001% overnight and hit 0.900% for the first time in 2010. At the same time, EUR Libor dropped slightly to 0.83031 from 0.83156. Alas, the latter datapoint seems to be less relevant: as we have long observed, European interbank liquidity is contracting, confirmed by Market News: "On Tuesday, in the ECB's full allotment Main Refinancing Operation
banks tapped E155 billion of 1 week liquidity. With this operation
replacing a maturing E190 billion MRO, as economists at Citi noted the
reduction in overall liquidity in the euro area is continuing." Market News also points out the obvious lack of correlation between Libor and Euribor: "In theory this is likely to carry on feeding through to
higher short term money market rates. Euro 3 month LIBOR rates, however,
have not risen since July 29, after their prolonged move higher."We hope for Europe's sake that ever increasing reliance on the ECB for all sorts of liquidity requirements, both short and long-term, will be offset by the export boom, which is now unfortunately over, courtesy of a EUR which any day now will be back to the mid/upper 1.30s. The result will be a continuing game of currency devaluation ping pong, so that one quarter Europe can benefit from an export surge, the next one: the US. We also hope, there is someone left out there to import all this stuff. As we saw in China's trade balance data, the trade deficit was a one time affair, and for the third month running China is again running a trade deficit. So just who is this net importer?