Another Day, Another Liquidity Contraction In Europe: Fresh New Record In ECB Deposit Facility Usage

Tyler Durden's picture

Today's little snapback in the EURUSD may be more of a kneejerk reaction to Goldman's updated PT on the EURUSD from 1.35 to 1.15 (the whole market now knows to fade every Goldman call from initiation), than are a response to fundamentals. These, unfortunately, continue to deteriorate. ECB deposit facility usage has hit a fresh new all time record of €369 billion, an increase of €4.5 billion overnight. The scramble to put away euros continues.

Eur LIBOR and Euribor were flattish after yesterday's sharp move higher.

As to why Europe's liquidity situation is so very critical, Nomura's Paul Schulte explains via Bloomberg:

 A “liquidity seizure” arising from Europe’s worsening debt crisis could drag the global economy back into recession, according to Paul Schulte, head of multi- asset strategy in Asia excluding Japan at Nomura Holdings Ltd.

“As Europe’s problems unwind, liquidity is going to seize up. As liquidity seizes up, multiples are going to contract,” Hong Kong-based Schulte told reporters in Singapore today. “Equities are not necessarily cheap.”

“What we are having is a sort of liquidity seizure because of the dislocation in the euro,” Schulte said. “If we are not careful, that could tip us back into recession again.”

Schulte’s views contrast with that of the International Monetary Fund, which said yesterday the European debt crisis has been contained and that it still expects global growth of about 4.2 percent this year.

European Union governments this week vowed to police national budgets at an early stage and introduce a wider range of sanctions on excessive deficits to prevent a repeat of the Greece-fueled debt crisis that weakened the euro. They also pledged to press ahead with deficit cuts next year.

Still, Schulte said the euro may continue to slide as “debt restructuring in Europe looks inevitable.”

On the other hand, according to the World Bank, the IMF and Bernanke all is under control. Ignore their 100% spot on recommendations at your own peril.

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jbc77's picture

Whats the possible end game here. Debt restructuring for all of Europe? Where do we think this road ends.....??

John McCloy's picture

Bankers take haircuts? No way the end game is the the Fed coming enforcing 5 year rules for selling equities,permanent ban of short selling stocks, mandatory 401k contributions similar to social security and if needed them coming to your home and selling your dvd collection on Ebay for your own good and the stability of the state. 

   Sounds crazy right. About as crazy as the fact that in 1913 the average personal income of a U.S. citizen could purchase 277 boxes of cornflakes with their weekly salary. 

In 2009 they could buy 208 boxes of cornflakes wit their weekly salary but it does not end there since that 208 boxes is based on no income tax. Considering income tax we are now at 167 boxes of cornflakes. 

This also does not include such popular taxes in modern day america as:

* Property tax

*State sales tax

*New MTA .375% transit tax 

* Water tax, school tax

    This is prosperity? We make less than we did 100 years ago and only the nominal number has changed.


mephisto's picture

Very nice stat, thx Mr McCloy. Personally I got rich by skipping breakfast.


AUD's picture

Do these bankers know what assets the ECB invests their Euros in? The same ones it uses to create them in the first place?

A Man without Qualities's picture

Exactly, the ECB is becoming a clearing house for the interbank market.  Nobody wants to take the counterparty risk, so they use the ECB as an intermediary.  

weenus's picture

The euros are being stockpiled to exchange them for dollars via the fed's swap lines.  



UGrev's picture

"Currency Wars". A new board game by Milton Bradley.

VK's picture

This should be good for a 200 point rally.

Joe Shmoe's picture

Only another world war or similar scale response to some massive society-threatening natural disaster would be able to convince the skeptical public to spend enough to fulfill the Keynesian stimulus work order.  But wait... we have the makings for both of those already!  Perfect!

ALPO's picture

ZH is like drinking from the firehose.

I'm short EURUSD to the tune of $100k via DRR and I can't decide whether to leave it there or not.  (Sorry I'm only leveraged 2x - I can't run with the big dogs).


MaximumPig's picture

same here, I'm sticking mainly because I'm an undisciplined trader and I guess I have faith that fundamentals will win out over interventions, eventually . . . hopefully before my survival rate has dropped to zero.

RF's picture

Alpo, good morning.


You have bigger balls than most, having that kind of dough in a somewhat illiquid stock. Seriously, best of luck.



plongka10's picture

I thought these numbers indicated the amount being deposited with the ECB in their overnight facility? Tyler?