Daily US Opening News And Market Re-Cap: December 8

  • Reports suggested that the G20 is considering USD 600bln lending programme for the IMF to help the Eurozone, however the news was later denied by the IMF and Japanese officials
  • According to sources, the EU is discussing EUR 200bln loan to the IMF with EUR 150bln from the Eurozone, and the  Eurozone is negotiating lifting EUR 500bln cap on the EFSF and ESM lending
  • Le Monde wrote, French banks need EUR 7bln of additional capital, however recapitalisation can be done without any state aid. Later, French ACP financial regulator declined to comment on the report
  • The Bank of England kept its key benchmark interest rate and asset purchase target unchanged at 0.50% and GBP 275bln respectively

Previewing The ECB's 7:45 AM Interest Rate Decision

Given pressure on the central bank continues to build, today the ECB is widely expected to cut the benchmark borrowing rate by another 25bps, with an outside chance that members will push for a 50bps cut. Apart from cutting the interest rate, press reports indicated that some members of the ECB governing council have been debating on providing bank loans lasting up to two or three years. An alternative solution would be to broaden the range of assets banks can use as collateral to obtain funds from the central bank. Highlighting deteriorating condition in money markets in Europe is the last data from the Bank of Italy, which showed that funding from the ECB to Italian banks rose sharply to EUR 153.2bln in November from EUR 111.3bln in October. In addition to that, the head of UniCredit has urged the ECB to increase access to ECB borrowing for Italian banks, while the Bank of Italy launched twice-daily overnight liquidity auctions to boost access to capital. Still, despite the persistent widening in the 3-month Euribor-OIS spread and the TED spread, the 3-month EUR/USD cross-currency basis swap has edge back towards -100bps mark, that’s after trading -152bps only few weeks ago (Note: post Lehman Brothers collapse in October 2008 saw 3-month EUR/USD cross-currency basis swap trade at -215bps).