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ECB Completes Much Smaller Than Expected LTRO, EUR Jumps, OIS Spikes On Material Eurozone Liquidity Contraction
Today the ECB completed a €104 billion 84 day liquidity providing LTRO, which saw the participation of 182 banks, receiving an allotted 1% fixed rate as part of the refinancing. Importantly, this amount was far less than was expected to be refied, as nearly €225 billion of 3, 6 and 12 month ECB loans were set to expire today and tomorrow, implying that the eurozone saw the extraction of about €120 billion in liquidity out of the system. As a result OIS has spiked on liquidity concerns, as well as expectations of future interbank borrowing to cover the lost liquidity. As per Market News: "The three month euro LIBOR/OIS spread narrowed
sharply Wednesday, as a result in the spike of the OIS rate following
the much weaker than expected demand at the European Central Bank's
3-month Long Term Refinancing Operation. Banks borrowed much less than widely expected, borrowing E104
billion in the 3-month LTRO, and driving predicted future lending rates
sharply higher. There is E225 billion in ECB loans expiring this week,
and the low take up at today's 3-month implies, on the face of it, there
is going to be reduced liquidity in the euro area, although banks could
use alternative central bank financing to get through the year end or
wait until ECB conducts its 6-day fine-tuning operation on Thursday." The immediate result of this news pushed the EURUSD 50 pips higher, as it implied, at least on the surface, that European banks are in less need of ECB handholding than expected. Of course, it is also possible that European banks have simply found less obvious ways to use ECB backstops to prop their daily operations.
Elsewhere, and in confirmation of the last, the one single bank that we have been writing about for a month now, once again was the sole bidder in the ECB's "dollar swap" operation, once again bidding 1.19% for $60 million worth of funds, which apparently it still can not get access to in the unsecured interbank market.

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Now that is a start. ZH finally observes something remotely bullish about EU economy. Guess after having torn the EU system to bits till yesterday, atleast it is a start to say "as it implied, at least on the surface, that European banks are in less need of ECB handholding than expected"
Maybe as time passes and once EUR/USD cracks 1.6, ZH will atleast see the virtue of being a little bit more circumspect when analyzing EUR. It will tear GBP and YEN and AUD and most importantly its biggest bitch, USD.
1.6, eh? That'll do wonders for the only thing the EU has going for it at this point - exports. What was it that EADS said? For every penny over 1.35 they lose a billion Euro or something?
Thats the problem with the crowd. They dont think nor do they have the ability to analyse.
Homework for you. See the split of eur exports by geography. Hint for you: Someone answered that earlier today. Then see the split of EUR products that are exported. Then analyse who else makes it. And if you cant find answers to them, you should short EURO
Stronger EUR will definitely benefit Greece's tourism industry.
1.6 EURUSD = haha
Not unless a few pigs get kicked out will the EU be able to stabilize and truly become a powerhouse. Germany and the hardworking Eastern EU cousins aren't gonna make it alone.
Eastern EU cousins? :)
You mean western EU cousins.
The only thing that can save the Eastern EU states from defaulting on their debt would be if the Eastern bunny, Santa Claus and Batman would team up and fix their mess!
Hello sir
Western EU is fine (even Spain, somehow)
Im talking about Poland - WIN.
I don't know what kind of govt supplied medical marijuana the socialists have put you on, but you're definitely not getting higher, just lower on dope.
Is that what you contintentals have been using those FX swap lines for?!
Yes, indeed. EU banks found €120bn of funding from within themselves. Yesterday morning, I suppose. And now they're fine. And now borrowing is cheaper. Not that they need it. Because they found €120bn yesterday morning.
and again I will put only one reason behind it. Forget PIIGS.....it is all about China. and unfortunately the yellow headed nitiwcks here who are caressing Gold, will not understand EURO strength. Infact when the foolish Gold crowd realises that Gold will not be used in forsex reserves and nor will it have the anticipate role in trade, it will crash just like it did in 1980 to 2000. Till then, load up!!!!!!!!
No, no, the currency of Charminia will continue to outperform all other currencies. The Euro is yesterday's news.
Yeah, I'll bet JCT would love to forget all about PIIGS.
That shouldn`t be good news?
I mean, if a bank holds more capital and does not lend, doesn`t matter if we have a contraction in the money supply.
Splish splash; nice of them to take a whole 3 months off from refis.
http://www.fxstreet.com/fundamental/interest-rates/ecb-liquidity-to-tigh...
Dear Jean-Claude, sterilize this.
Or.... they don't want ECB loans, or fewer loans on their books over quarter/half-year end?
Whistling past the graveyard, while sucking in their gut.
At 1%, I would borrow for the time, if I were a banker.
I would know the economy has not recovered and I wouldn`t know when I would need money.
Would I? =)
But is possible, yes.
We could see eurusd past 2 by 2012 if the Eurozone keeps differentiating from the US to the austere side, but near term I doubt we'll even see 1.5 again. The euro strengthening is killing the German recovery and it's not long now till Ireland can't borrow and bets start being placed that Portugal and Spain will follow and the whole bailout mechanism will fail.
Isn't the key take away from this story the narrowing of the LIBOR/OIS spread, reflecting reduced perceived default risk in the euro banking system, rather than the nominal OIS rate, or does that deflate the negative spin that ZH seeks to impose on each news item?
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