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European Sub-zero Deposit Rates Imminent As Eurozone Inflation Tumbles To March 2009 Levels

Tyler Durden's picture




 

If Mario Draghi was waiting for the latest Eurozone inflation data to cement his decision to unleash negative deposit rates, if not more, in the Eurozone, he got it earlier today when Eurostat reported that May inflation tumbled to 0.5% - matching the cycle lows and the lowest since March 2009 - down from April's 0.7%, below the 0.6% expected, and less than half the ECB's target. In other words, despite everything tried in Europe nothing is working, and the most important chart - that showing the collapse in lending to private companies - not due to lack of supply but due to no demand, continues to be the most relevant one. Sadly, it is the one Draghi has shown over the past three years he has virtually zero control over.

Broken down by segments, the biggest drop in prices was in Energy and non-energy industrial goods, with food and alcohol rising a modest 0.1%, as services rose by the most or 1.1%.Still, even the core number of 0.7% came in below the 0.8% expected and down from 1.0% in April.

The commentators quickly commented:

“It’s a surprise, but not enough of a surprise to change materially the global economic outlook that the ECB will release on Thursday,” said Michel Martinez, an economist at Societe Generale SA in Paris. “What seems highly likely is that the ECB will cut key rates and probably also inject further liquidity.”

"Today's inflation numbers underscore the need for the ECB to act. The ECB has consistently underestimated the deflationary forces threatening Europe and now is the time for unconventional monetary policy," said Dominic Rossi, Global Chief Investment Officer at Fidelity Worldwide Investment.

The market response, as we already noted, was paradoxical, with Bunds selling off on the data:

German 10-year government bond yields, which hit 12-month lows last week, rose 3.1 basis points to 1.34 percent. Bund futures declined. Some traders said the weak inflation data was already priced into the market and prompted investors to book profits after a recent rally.

 

"That number was if anything bond-friendly. We expect the Bund to regain its momentum and start rallying again ahead of Thursday's ECB meeting," one trader said.

And now everyone looks forward to Thursday's ECB monthly announcement, curious what non-existant bazooka Draghi will pull out of his sleeve.  As Bloomberg summarizes, the ECB has prepared investors for the prospect of stimulus when it announces the rate decisions on June 5. “We are ready to act,” ECB Vice President Vitor Constancio said on May 30. “We are not complacent about the risks from a protracted period of low inflation.”

“The ECB will announce rate cuts, including the deposit rate into negative territory,” said Martinez, who was one of the few economists accurately to forecast the May inflation rate in Bloomberg’s survey. The ECB will probably also stop sterilization of its Securities Markets Program and announce a targeted longer-term refinancing operation, Martinez said.

However, a possible interest rate cut by 0.1 to 0.15 percentage point would have little impact, as the rate tool has been exhausted, former ECB chief economist Juergen Stark wrote in today’s Frankfurter Allgemeine Zeitung.

As for negative rates? Well, let's look at the example of Denmark which introduced negative rates nearly two years ago. Did it have an impact on lending? As the following chart courtesy of @GreekFire23 shows, the answer is: not at all.

None of this matters: what does matter is for the ECB to exude confidence and pretend like it knows what it is doing even as it is becoming increasingly clear that the reality is anything but.

 

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Tue, 06/03/2014 - 07:57 | 4819620 Mister Ponzi
Mister Ponzi's picture

Monetary insanity...

Tue, 06/03/2014 - 08:04 | 4819629 dryam
dryam's picture

I like how people who have never solved a real world math or science problem in their entire life are making decisions like this.

Tue, 06/03/2014 - 08:04 | 4819633 BandGap
BandGap's picture

You mean UNELECTED people, right?

They're all just sock puppets for people behind the curtain.

Tue, 06/03/2014 - 08:11 | 4819646 flacon
flacon's picture

You've got to hand it to the intellectuals with pH Dees to come up with the academic notion of "NEGATIVE DEPOSIT RATES".

Tue, 06/03/2014 - 08:25 | 4819666 NoDebt
NoDebt's picture

Swiss banks have been charging negative deposit rates to institutional clients and interbank deposits on Swiss Francs since 2012, I think.  Individual depositors are not charged negative rates, however (I assume they earn the lofty rate of zero, but never checked).

Deflation.  On everything but food and energy.

Tue, 06/03/2014 - 12:14 | 4820323 zaphod
zaphod's picture

The charts provided say food and energy inflation is zero, that's right zero.

How this data is accepted is beyond me.

Tue, 06/03/2014 - 13:48 | 4820664 cocky roach
cocky roach's picture

"Sorry slaves, you're not productive enough for our skimming standards, so we have to reflate and devalue to skim some more".

Tue, 06/03/2014 - 08:28 | 4819671 dontgoforit
dontgoforit's picture

Like 'dark matter.'  They 'know' it's there, just can't see it or prove it.  I believe the dark matter lies between the ears of the evil doers, behind the curtain or right up on the front row of the circus.

Tue, 06/03/2014 - 09:14 | 4819783 BurningFuld
BurningFuld's picture

My local Credit Union is paying 2.2% on savings plus profit sharing. (Canada)

Fuck the Banks!!!!!!

Tue, 06/03/2014 - 13:30 | 4820602 ohcanada
ohcanada's picture

100% Agree. I use a Credit Union too.

They cannot carry out fractional lending.
They cannot sell your mortgage debt to another institution.
Wait - and you are a shareholder and get a % of the profit each year.

I run my both personal and business finance through them. 
I have no idea why anyone would ever use a bank.  

Tue, 06/03/2014 - 09:23 | 4819807 JRobby
JRobby's picture

Let them solve the obvious: re-inflate as demand falls continuously.

Tue, 06/03/2014 - 10:48 | 4820024 robertsgt40
robertsgt40's picture

Something is seriously wrong when massive money printing can't translate to inflation.  Been to the grocery store lately or checked out a new home?  Inflation,at least using the classic definition, was an increase in money supply.  I guess they just haven't printed enough yet.  I guess if prices for everything doubled, we could declare victory?   What could go wrong?

Tue, 06/03/2014 - 11:47 | 4820222 zaphod42
zaphod42's picture

They're pumping like crazy, and the only thing expanding is the stock market / market for homes $1M plus.

Of course, when that doesn't work, their answer is to pump faster. 

Definition of insanity!

Craig

Tue, 06/03/2014 - 08:03 | 4819630 economics9698
economics9698's picture

Oh fuck another excuse to print more money for the top 0.01%.

Tue, 06/03/2014 - 08:50 | 4819721 Took Red Pill
Took Red Pill's picture

You bet! And now China will jump into the money printing game;

http://www.telegraph.co.uk/finance/china-business/10868381/China-explore...

What could go wrong?

Tue, 06/03/2014 - 08:00 | 4819626 AdvancingTime
AdvancingTime's picture

Modern Monetary Theory often referred to as MMT to its many believers removes much of the risk ahead and guarantees that we will always be able to muddle forward. MMT also known as neochartalism is a economic theory that details the procedures and consequences of using government-issued tokens and our current units of fiat money.  Newly acquired tools like derivatives and currency swaps  allow us to print and  manipulate away problems.

While reading an article about the growth of debt in China's non-financial sector I was forced to reflect on how debt is effected by the interest rates. In Europe the ECB had to step in to halt the economic collapse of Spain, Italy and several other countries that were on the brink. What you pay in interest on debt does matter accept in the manipulated land of MMT. Have we been lulled into complacency by the extraordinary actions taken by central banks and governments over the last six years? This is a key question we must face. More on this subject in the article below.

http://brucewilds.blogspot.com/2014/01/have-we-been-lulled-into-complace...

 

Tue, 06/03/2014 - 08:12 | 4819649 Fuh Querada
Fuh Querada's picture

reflect on this: fuck off from all the threads you are pimping your useless blog on

Tue, 06/03/2014 - 08:16 | 4819657 Tinky
Tinky's picture

I, too, am tired with your shilling. Oh, and you might want to look into the difference between "accept" and "except".

Tue, 06/03/2014 - 08:50 | 4819719 Gunn
Gunn's picture

also affect and effect...

Tue, 06/03/2014 - 08:31 | 4819678 dontgoforit
dontgoforit's picture

People who believe what you're saying are the reason we're in the fix we're in.  This 'pie-in'the-sky' 'you can borrow your way to prosperity' thinking - doesn't work.  Never has; never will.  BS on you AdvancingTime.

Tue, 06/03/2014 - 09:14 | 4819781 BadKiTTy
BadKiTTy's picture

Yeah well.... if you want your Magical Money Trees, you can keep them! 

I fail to see how more 'tokens' solve the problems we face.  Unless of course you get a pile of them first, and for free..... like the banks. Then it is a winner.  

I predict MMT will come to the fore as those in charge realise they are out of ideas to sell the proles and need to dress up the next stage of theft in something which sounds like it has a theoretical base. 

Yes you are right - a government which prints its own money can always pay its own demonimated debts.  Like Wiemar, Zimbabwe, France (Assingnats).... the list goes on and on and on and on and on and on and on (bit like MMT'ers) 

Tue, 06/03/2014 - 10:19 | 4819930 Greenskeeper_Carl
Greenskeeper_Carl's picture

I just don't see why these people can't grasp that while they can create an infinite amount of whatever currency they want, that infinite amount of currency is chasing a finite quantity of good and especially energy. It's created inflation. Always has, always will. The only people that benefit from it are the ones who get this newly created currency first, and they benefit at the expense of everyone else. In a just world, this would be criminal counterfeiting.

Tue, 06/03/2014 - 15:39 | 4821019 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

These fucking people are just not to be believed, MMT mi culo.

Money is not wealth. Goods and services are wealth, and money represents them. When you have more money representing the same quantity of goods and services, you have not magically created wealth.

No tricks will somehow change this reality. Adding a zero to the right of the SP 500 number will not somehow make those companies "grow" by 10X.

Banks rule the world. They tell their best clients, governments, what to do. Next rung down is corporations. At the bottom is you and me.

Tue, 06/03/2014 - 08:01 | 4819627 stocktivity
stocktivity's picture

The middle class here in the US is depleting their 401k and savings to live on. What happens when that money is gone? The answer in one word...DEFLATION. The one word  Old Yellen and the rest of those out of touch bankers fear most.

Tue, 06/03/2014 - 08:45 | 4819709 Peter Pan
Peter Pan's picture

Exactly, so imagine what places like Greece and Spain would be like if it were not possible to deplete savings for the purpose of sustaining GDP.

Tue, 06/03/2014 - 08:01 | 4819628 no more banksters
no more banksters's picture

Totally dominant lobbies in a downgraded Europe

http://failedevolution.blogspot.gr/2014/06/lobbies-absolute-domination-i...

Tue, 06/03/2014 - 08:13 | 4819651 Fuh Querada
Fuh Querada's picture

Geez yet another blog pimp.

Tue, 06/03/2014 - 08:03 | 4819631 valley chick
valley chick's picture

Bullish!

Tue, 06/03/2014 - 08:11 | 4819643 Sudden Debt
Sudden Debt's picture

Thank god most people are to dumb to realize hat gold and silver actually is...

they just know that gold is expensive and most weddingrings aren't even made from gold anymore.

Tue, 06/03/2014 - 08:14 | 4819653 Sudden Debt
Sudden Debt's picture

I'll respond a good to know on myself now :)

 

Does anybody know why weddingrings are usually 3.2 gr. each?

Because in the old day, when you wanted to get married, the dowery for woman in europe for common people was about 20franks. And that came in a single gold piece. And to divide the "wealth, the took the coin and made 2 rings from it by working the coin.

These are the 20fr. coins.

https://www.argentorshop.be/nl/goud-kopen/gouden-munten/belgische-louis

 

 

 

Tue, 06/03/2014 - 09:07 | 4819763 messymerry
messymerry's picture

Hey SD, interesting bit of trivia. Have you ever seen the 20 Franc French Roosters? Beautiful little coins and relatively cheap for numismatics:

http://www.amergold.com/vault/pageview.php?coin=France_20_Franc_BU_Rooster

They have writing all along the outer rim. Beeeeautiful!!!

OBTW: This is not an endorsement for amergold

Tyler, I did an inventory of the cookies that ZH shits on my machine. Revolting. Take heed, you too are being watched...

Tue, 06/03/2014 - 09:28 | 4819815 Sudden Debt
Sudden Debt's picture

I collect every latin monetary gold coin and have most of them. I recently found a 25fr belgium gold coin that is so rare you won't believe and now I'm talking the price down but it goes slow. I just need to have that coin :) Must!!

And after that I want one of the only 100fr gold coins from 1880 made in Belgium. And there's one for a sale in Swiss for a pretty "normal" price so that's also on the list. I'm not going to tell here where the coin is :) but it looks like this:

https://www.numisbids.com/sales/hosted/numisbe/may13/thumb00665.jpg

A bit less than 1 ounce.

 

And those 6 livres and the Leopold 1&2's are the most beautifull once and very common. I love'm :)

But, maybe because I'm from Beglium, the Belgium gold coins are the most beautifull from all over the continent.

I don't really buy 999 gold coins. And those 20's are also for sale in every bank in europe so easy to resell.

Tue, 06/03/2014 - 09:58 | 4819885 messymerry
messymerry's picture

If I had the dosh, I would probably be looking at some of the Asian gold coins. Butt, sigh, no dosh... I might as well be Jesus, taken a vow of poverty. ...or perhaps, Moses, take down Pharoah with a great dollop of faith. HA, fat chance!

Yellen would look right at home in Pharoah garb...

Tue, 06/03/2014 - 10:25 | 4819946 Greenskeeper_Carl
Greenskeeper_Carl's picture

It is revolting. Anti- big govt/bank/corp Tyler still has no problem taking googles money. I was shopping on a travel site and had to turn ghostery off to load everything, and forgot to turn blocking back on before coming over here, and it had to be 40 different things that popped up. Literally more than any other sight I've been to

Tue, 06/03/2014 - 11:57 | 4820255 messymerry
messymerry's picture

Yes, it's kind of putting me off coming here. I know ZH needs operating funds, but if Tyler is living in a 10,000 sq/ft house with five bimbos and a ten car garage full of exotic metal, then he is no better than the rest of the bloodsucking vampires. Tyler, chime in and defend yourself.

Tue, 06/03/2014 - 13:38 | 4820636 zuuma
zuuma's picture

Just add a HOST file blocker. Works for all browsers.

Redirects 98% of the stuff you're talking about into deep inner space.

http://winhelp2002.mvps.org/hosts.htm

Experience surfing peace.

Tue, 06/03/2014 - 08:14 | 4819652 ...out of space
...out of space's picture

no QE from Draghi to announce. Why will he do that. wheh They dont fully stereilization the smp they do print money.

 maybe rate cut 

but  eu do a structual changes and that in more important

Tue, 06/03/2014 - 08:16 | 4819656 11b40
11b40's picture

Pushing on a rope. Same as it has been since 2009. No demand.

EVERYTHING in consumer societies depends on demand.

The first time I heard the phrase 'supply side economics', I laughed, thinking it was a joke. Well it was a joke, and the joke was on us.

Tue, 06/03/2014 - 08:18 | 4819658 youngman
youngman's picture

The central bankers are going to print..it is the only thing they know how to do and can do....at 0% interest rates..printing is the only tool left....and it will go on for a very long time..until the collapse.....the politicians are not cutting spending...increasing it yes....every day is a new crisis that needs money thrown at it.....and they will....so get used to 1 to 2% growth....and a trilllion or more in debt every year increases

Tue, 06/03/2014 - 09:58 | 4819886 Debugas
Debugas's picture

they can not print if noone is borrowing

banks can not give away money for free - they need your obligation to pay back

Tue, 06/03/2014 - 11:32 | 4820181 11b40
11b40's picture

Central bankers can print and they can give to primary dealers to buy stocks, or whatever else they need to do to "direct" the market.

Tue, 06/03/2014 - 11:39 | 4820202 zaphod42
zaphod42's picture

If 0% money is good, then negative money must be Nirvana. 

Watch for it!  Central Banks paying the Banksters to take their money.  Banksters responsing by imposing negative rates on savings.  

It only makes sense.

Craig

Tue, 06/03/2014 - 08:23 | 4819661 buzzsaw99
buzzsaw99's picture

ECB Vice President Vitor Constancio...

ooh look, the jawbone of an ass of a different color!

Tue, 06/03/2014 - 08:33 | 4819685 dontgoforit
dontgoforit's picture

Good one, buzz!

Tue, 06/03/2014 - 11:35 | 4820186 walküre
walküre's picture

Prolly related the captain of Ms Fortuna or a long lost cousin of George Costanza

Tue, 06/03/2014 - 08:30 | 4819675 Eyeroller
Eyeroller's picture

So have we finally reached the point when stuffing cash in the mattress gives a better return?

Also, I have a feeling there will be an engineered pullback this week -- the banksters need a nice, deep dip to buy.

Tue, 06/03/2014 - 08:30 | 4819676 PeaBird
PeaBird's picture

The irony here, will be that by confiscating depositor's money with sub-zero interest-rates, the authorities in Europe, will create even moar deflation. But before that, we'll have moar bank runs, for anyone who doesn't want to expose their deposits to an annual hair-cut via the sub-zero interest rates, they'll be pulling their money out, and stuffing it NOT in a bank, thus money velocity will tank even moar. Anyone could be excused for thinking that this may be by design...hahaha

Tue, 06/03/2014 - 10:00 | 4819890 Debugas
Debugas's picture

absolutely - the reaction will be to pull money out and hide

Tue, 06/03/2014 - 08:43 | 4819690 Peter Pan
Peter Pan's picture

The world has been twisted into believing that the finance function is central to economic activity whereas it is central only to serving itself and its masters.

So much of what the finance function has produced needs to be destroyed because it is either useless or perpetuates imbalances and fraudulent activities.

If finance cannot serve the rest of the productive economy then it serves no real and useful purpose at all.

Draghi is deluded and will destroy Europe with his money formulas.

Tue, 06/03/2014 - 08:46 | 4819706 Dr. Engali
Dr. Engali's picture

The thing that gets me about this whole mess is that they claim that they want growth, however the politicians will do anything they can destroy any business opportunities. Cognitive dissonance with these assholes is ridiculous.

Tue, 06/03/2014 - 11:09 | 4820104 SofaPapa
SofaPapa's picture

I commented on this idea yesterday.  They have two choices: growth or maintaining themselves in full control.  As long as they "control" growth, there will be no growth.  The only way for growth would be for them to stop trying to control it.  Since that is impossible for them to even conceive of, given their hubris and narcissism, we are going to go to collapse before we get to growth.  End of Story.

Tue, 06/03/2014 - 08:47 | 4819714 Eyeroller
Eyeroller's picture

Get the popcorn ready -- negative deposit rates will cause a massive bank run.

Tue, 06/03/2014 - 11:35 | 4820189 walküre
walküre's picture

you got it. whatever is not nailed down will get bought

Tue, 06/03/2014 - 08:47 | 4819716 Fuh Querada
Fuh Querada's picture

"I admire Mario Draghi, he is a model central banker"
James G Rickards, galactically renowned financial author

Tue, 06/03/2014 - 08:58 | 4819735 Non Passaran
Non Passaran's picture

Keep printing, banksters!
I added to my PM stash today, with 1/3rd of this month's budget standing by for yet another "just in case, let me teach you a lesson" type of drop in PM prices when the eurotrashers announce how they plan to "help" us.
Who knows, if things get even crazier we may even be able to buy silver for $16-17/oz, although I don't think we'll get that lucky.

Tue, 06/03/2014 - 09:25 | 4819777 ejmoosa
ejmoosa's picture

Enough about inlation!

 

If they want their economies to grow, they will roll back the retrictive rules and regulations that have choked it off.

Same here in the stagnant US of A.

I guess if you cannot build, produce or hire, then you gotta show you are contributing somehow.  

And so they gravitate to the most easily manipulated number to show us they are doing their job. 

It's not inflation or deflation that has put the brakes ou our economies.  

People take risks when there is the appropriate level of return for their risks.  Inflation is not the ONLY risk.  Lake of profits for your efforts is the biggest risk any of us face.

 

Dumb asses....

 

Tue, 06/03/2014 - 09:21 | 4819800 fiboman
fiboman's picture

Treasuries ready for a small correction?and then continuation of the uptrend(deflation)?

http://goldenopportunitytrading.blogspot.co.uk/2014/06/treasuries-update...

Tue, 06/03/2014 - 09:41 | 4819857 The Merovingian
The Merovingian's picture

Looks like we're going to the mattresses.

Tue, 06/03/2014 - 09:47 | 4819868 p00k1e
p00k1e's picture

Even though monetary future seems to look bleak, this can go on for decades more.

Wed, 06/04/2014 - 02:15 | 4822350 cooky puss
cooky puss's picture

I so hope you're wrong buddy

Tue, 06/03/2014 - 09:53 | 4819878 NoWayJose
NoWayJose's picture

About the only thing deflating in Europe is the way overpriced housing market. Just like in the US the real prices of real products are going up. Any sense of deflation in those real products is due more to a stronger Euro which only affects the price of a few products. And do you think Russia is going to 'lower' natty gas prices anytime soon?

The real reasons for negative interest rates are so the big banks can start tapping the savings of the savers - even though those savings are little more than electronic obligations that the banks hope they can avoid paying back out to the savers.

Tue, 06/03/2014 - 09:59 | 4819888 Bay of Pigs
Bay of Pigs's picture

Inflation tumbled? Hahahaha...

Tue, 06/03/2014 - 10:01 | 4819892 FranSix
FranSix's picture

Taylor Rule.

Tue, 06/03/2014 - 10:19 | 4819932 luckylongshot
luckylongshot's picture

With the problem being the parasitic private banking sector having got so large it is killing the European economic dog perhaps Mr Draghi should try a plan that shrinks the parasite rather than proposing plans that grow it.

Tue, 06/03/2014 - 12:55 | 4820488 Martian Moon
Martian Moon's picture

BS

Real inflation, is reaching dangerous levels and economies are shrinking, stagflation

As for the drop in lending, it isn't just that the demand isn't there, the banks are also choking off supply

It's all engineered

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