EUR Surges After ECB Raises 2011 Inflation Outlook, Trichet Implies Only Unercapitalized Banks Prevent Rate Hike, May Raise Rates At Next Meeting

Tyler Durden's picture

At least one central bank refuses to drink the Kool Aid: following today's announcement by the ECB which kept its interest rate as expected at 1%, JC Trichet is now making waves in the FX market after announcing, or rather not announcing, that "rates are appropriate" in his opening statement line, a traditional opener to the press conference that follows. Just as notable is that the ECB staff has now hiked the low-end of its inflation expectations for 2011 by about 40%, from a range of 1.3% -2.3% to 2.0%-2.6%, and 2012 from 0.7%-2.3% to 1%-2.4%. Trichet also adds that now very strong vigilance is now warranted and it is paramount to avoid second round effects. Most troubling is Trichet's admission that the latest staff forecasts exclude the impact of the most recent oil jump. And while it is very clear that Trichet is dying to hike rates, the reason he won't is, that's right, Europe's insolvent banks, about which he said that they "should retain earnings, turn to market to strengthened capital bases, and take full advantage of govt. support measures." In other words, it is once again the banks fault that in the inflationary cycle people will be forced to pay more, as the alternative would see the bankruptcy of numerous financial institutions.

The result of all this: a surging euro which is about to pass the psychological barrier of 1.40

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MsCreant's picture

Here comes your dip. Gold is so clearly a fear play. WOW!

bankrupt JPM buy silver's picture

Chinese are now buying euros.  Trichet just doing what hes told now.  This idiot can rates rates as much as Ben can-ZERO.

unwashedmass's picture

trichet threatens rate increase

gold & silver go down... a bit

the dollar tanks hard

the US stock market goes up

goes up further tomorrow on the "good" fake employment news

Bernanke gets his out to stop QE (Gross was the last straw, his defection.....)

plus is if the ME explodes over the weekend -- market then goes down not on Bennie Boy but due to ME in the mainstream media,

dollar edges back from the abyss for a week or two

JPM gets to savage gold & silver under the air cover, and cover some of its shorts......

Henry Chinaski's picture

I don't see how "second round effects" can be avoided if interest rates and oil prices go up. 

DB Cooper's picture

But the stress tests were so good.  /sarc

alien-IQ's picture

I wonder what the value of the S&P is priced in Euros?...Because given the speed with which the dollar is plunging, I can't imagine much of anything being priced in dollars for much longer.

youALREADYknow's picture

Trichet just ate my portfolio up... the dollar will crash a mighty death if EU rates rise at their next meeting before QE 2 ends.

SheepDog-One's picture

And thats lights out for the dollar. Play taps and 21 gun salute. Equity jockies better hope they rocket up daily or theyve got nothin, still in the end theyll have nothing anyway.

Cash_is_Trash's picture

Weee! PM slip-and-slide

SheepDog-One's picture

Silver down .9 cents, big deal. Meanwhile dollar just tanked to 76.4...equity Gollems better hope stocks do rocket straight up or you've got bupkis.

Azannoth's picture

Are banks more important that food and watter ? (rhetorically speaking)

Oh regional Indian's picture

Interest rate = Rock

Currency Value = Hard Place

What is a man to do? Huge issue, what will oil be selling in (roubles? yuan?) in six months when the dollear finally coraks (at least as the oil currency).

Crazy days.


youALREADYknow's picture

Better take this opportunity to buy PMs on the dip. A sinking dollar and PM dip at the same time = huge disconnect.

MsCreant's picture

This is just how it is going to be. The computers slice and dice a second so finely that a whole crisis can be reacted to, ups and downs, with exquisite precision. Emotions and perceptions of emotions, and manipulations, all processed in milliseconds. 

More fear is coming. Each crisis will wash through and jack things worse. Then things will calm down as they will appear to be brought under control. Each crisis innures the system's reactivity to the next crisis, so there is less reaction each time. But not to worry, because the crises will keep coming and they will be uglier and uglier, providing shock after shock to the system. 

The bolts are groaning and shooting out of the seams, the plates are buckling. Plan for this.

Aductor's picture

Trichet at least openly admits that price stability "is most important for the poorest". Compared to the Bernank, it speaks volumes.

bingaling's picture

Talk doesn't pay the poor's bills call it what it is . A "lie".

bingaling's picture

I don't see how he can raise rates . The Euro is in the same position as the rest of the world they cannot raise rates and they won't . His tough talk is nothing more than a bravado to appease europeans who despise any inflation (they should  ) . Trichets choices are the same as Bernanke's  . Pump free money into the economy causing hyperinflation (extend and pretend ponzi for as long as they can) or a deflationary depression . Europe is choosing extend and pretend as much as the US is .

Sudden Debt's picture

Actually he has 1,7% more room to maneuver then Benny B.

But if he does Ireland, Spain, Greece and Portugal are doomed and they'll default causing more to print of push them out of the EU.



bingaling's picture

So in reality he can't raise rates ?

Shameful's picture

Yeah and the US is packed full of insolvent states, counties, and cities.  We'll top you Europeans in raw in your face insolvency!  USA! USA! USA!

What you guys do have is a large group of people that are horrified of following the Zimbabwe Ben playbook, all you need to do is turn off all news services to Germany and Trichet should be able to put throttle up the presses to full capacity.

SheepDog-One's picture

I dont see how he's 'not drinking the Kool-Aid', seems to me there was just another lie told at the big Kool-Aid guzzling competition.

falak pema's picture

You may be right on the monetary side as the sovereign debt is a nightmare. But on the fiscal side its reverse gear all the way in the EU as they move into austerity. Not so in USA. Big difference. USA has no fiscal policy except sing 'burn baby burn' to the on-marching deficit spend.

bingaling's picture

Austerity? Yeah right I don't think so . It is all talk and cover up. Gov'ts in the EU can get as austere as they want , the truth is their off balance sheet liabilities are just starting to come on to the books ,while their banks are no where near "bailed out" . They are as doomed as the US do not kid yourself into thinking they have it all figured out or your liable to be one of those in the streets of the EU in the near future with tear gas and bullets flying in your midst because you thought they took care of business .

props2009's picture



Homework for you: Please find ECB balance sheet size and FED balance sheet size. And compare. Give me your analysis then.Dont talk in air.

bingaling's picture

I am not saying the US is any better off -this isn't a competition both have fucked themselves to the point of no return .

pazmaker's picture

And if Trichet doesn't raise rates at next meeting?  What happens to the Euro?

It will plunge 200-300 pips. He has boxed himself into a corner because now everyone thinks it is a given that he will raise rates.

Are the european economies just booming now?  Greece, Portugal, Spain, Italy?

bingaling's picture

This will be forgotten news by then these guys know they can talk and create strength in their currencies . Greenspan was a master at keeping people off balance all of the while keeping rates extremely low .

Captain Kink's picture

And Germany, the great engine of Europe faces much slower growth as their exports to emerging wealth decline as those countries curb growth to fight inflation.  And the German banks probably hold more of the soveriegn debt issued by the EMU periphery than any other.  ClusterFluck.

youngman's picture

This is not the EU week....this is Apples week we will be back to the EU zone....Portugal anyone?????.....maybe Hugos week...the NEXT Nobel Peace Prize

falak pema's picture

Dow stays at 12000+ like the flagship of Admiral Villeneuve at Trafalgar while the British blaze away. Is it Nelson's ghost by his side or is he still the dumb french admiral who went down in history? Hope its Yorktown time for USD owners, not Pork Chop hill time.

Robslob's picture

Surprised Tyler isn't covering the "I Don't Pay" movement in Greece.

The people, when united peacefully, can bring the government down by simply not paying.

Long live Sparta!

SheepDog-One's picture

Exactly what we should be doing here instead of Stockholm Syndrome basketcase nation, marveling all day at our captors, simply dont pay them.

props2009's picture

U r wrong. He will hike rate in April. Bet ? 

We have seen ECB for 10 years and it has never ever succumbed to pressure not in 2003 nor 2011


bingaling's picture

What about 2008? as of TODAY march  3 ,2011 Trichet has just succumbed to pressure not to raise rates when inflation is over their threshold. You are blind to the reality of the situation . Inflation is not only inflation in the EU but it is also a rise in taxes with the VAT everywhere . Rising inflation = rising taxes

props2009's picture

This could well be the top in Gold (not Silver). The gold train was always running on borrowed gas and it had assumed that ECB and FED both will not hike. ECB has conveyed as expected that they are not with FED.

Gold is confused but clear technical signs that it is end for Gold for some time atleast till the time when EUROPEAN banks go bankrupt.

SheepDog-One's picture

Well its definitely death nell for the what you want! Personally I dont think gold or silver is anywhere near a 'top', why should it be? Technicals? Dont make me laugh.

bingaling's picture

The ECB is just hiding the FACTS a little better . They CANNOT raise rates and they are on a train to disaster . Read some of Reggie Middelton's work on here. Yes rate hikes will be forced on the EU at one point or another but it won't come from the ECB . Extend and pretend is the only choice they have until it can't be done then the crack up boom .

youALREADYknow's picture

The shift from the opaque central bank policy to transparency is dangerous. Now these guys (Bernanke, Trichet, etc) merely need to speak instead of act to get their desired result. Americans care more about employment than inflation, therefore Ben talks up QE and low rates. Europeans, who have more experience with hyperinflation, care more about inflation, therefore Trichet talks up price stability.

At the end of the day, neither has done anything. Neither has even had a small minority of dissenting vote to raise rates.

StychoKiller's picture

Neither the US or the EU have done any serious spending cuts!  Jawbone all day long jokers, NOTHING will change until spending is cut.

HTZMR's picture

NOT ONE ECONOMIST I KNOW IN EUROPE PREDICTED AN APRIL HIKE. The absolute earliest was in the third quarter. This is huge. Never seen the ECB be so explicit about a rate hike in one month - there is no going back on this one. Will be a parting gift from Axel Weber, who will attend his last ECB policy meeting. The only escape clause on this is if Saudi collapses into chaos sending stock markets into a 10 percent nose dive. My belief in the ECB's reputation to fight inflation is improving and could be restored if they follow up with at least a couple more subsequent hikes this year just to be on the safe side.

StychoKiller's picture

How about some speculation on the SIZE of the rise:  2 basis points do it for ya?

themosmitsos's picture

Tyler I respectfully disagree here. The ECB is the BundesBank. Germans love pain. Hikes are coming. EU is not the US, it's a different animal. In the end, it *IS* the banks that are going to get shafted in the EU.

bingaling's picture

trust me when I say this is NOT the pain Germany is looking for . This is NOT recessionary pain it will be the biggest fn depression seen . Merkel gets that ,Sarkozy gets that , Bernanke gets that even Trichet Gets that . They are ALL hiding from it by the worldwide printathon . The dollar doesnt survive it and neither does the Euro . Maybe all fiat is wiped off of the face of the Earth . The truth about this situation sucks ass because it is lose lose .

rhyzimmer02's picture

The Almighty Deutschmark lost 50% of its value under the stewardship of the Bundesbank.  That was definitly better than most other fiat currencies but during that time but it was not price stability in any meaningful sense of the word

I agree ECB is talking tough and will have to back down.  Even if they raise once or twice so what.  The developed world wants to contract and consume less, that means unemployment and structural adjustments.  If the ECB raises the Euro will skyrocket vs. USD and GBP and that simply means the contraction and unemployment will shift to the Euro zone.  When beggar-thy-neighbor meets ECB price stability ECB price stability will lose


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