This page has been archived and commenting is disabled.

Euro Spikes On JPM Prediction Of 1-Year LTRO, ECB Rate Cut

Tyler Durden's picture




 

Wondering what caused the sudden spike in the EUR? Wonder no more, for JPM's Greg Fuzesi merely put into words what everyone else had been speculating since this morning, namely more easing coming from the ECB. To wit: "We suspect the ECB's first response will be in terms of new liquidity measures. The committment to supply unlimited liquidity at the regular refis (1-week, 1-month and 3-month) expires in mid-July and an extension of this should be announced at the June meeting. Whether the ECB will also announce some LTROs (likely of maturites up to one year) at the June meeting is less clear. Its latest commentary suggested that it is not minded to move this early and that it will wait instead for the outcome of an internal review that it is conducting about the effectiveness of its policy tools so far. Waiting until July would also give the ECB a better sense of the political situation in Greece after the election. Hence, we pencil in the announcement of 1-year LTROs for the July meeting. Beyond this we expect the main refi rate to be cut 25bp at the September meeting, with the deposit facility rate remaining at 0.25%. This implies that the ECB will respond very incrementally to the current macroeconomic weakness." To summarize: help us Obi-Mario Draghi, you are our only hope.

From JPM:

Euro area: revising down growth after today's weak PMI and expecting more from the ECB

Today's business surveys were a big disappointment. The composite PMI declined 0.8pts to 45.9 in May and is now down 4.5pts since January. Composite new orders declined a bit less (0.4pts) but to a similarly low 44.5. Only the composite employment index nudged up to 48.3. Input price pressures eased a bit, while the output price index remained below its average. By sector, the output index fell 1.5pts in manufacturing to 44.7 and 0.4pts to 46.5 in services. New orders were roughly unchanged at 45.3 in services and they declined another point in manufacturing to just 42.5. The inventory indices rose a bit in manufacturing so that their ratio with new orders deteriorated a bit further. By country, the composite PMI fell 0.9pts to 49.6 in Germany and 1.2pts to 44.7 in France, while means that the rest of the region fell around 0.5pts to 42.7. Germany is still holding up better in a relative sense; its services PMI remained elevated at 52.2 but the output index in its manufacturing PMI dropped sharply to 44.6 (in January it was almost 10pts higher at 54.3).
 
Revising down Euro area growth

Given the PMIs so far in 2Q12, we now think that Euro area GDP will decline 1.2%q/q saar in 2Q, rather than the 0.8%q/q saar that we had pencilled in so far. The bigger question is about the subsequent quarters. The PMI's decline since January could reflect some transitory factors, such as the lagged impact of the credit tightening in 4Q11 and the fiscal tightening (the impact of which may be most intense in 2Q). But, the uncertainties and stresses in the Euro area are also taking their toll on domestic demand. This is more worrying given that the stresses are likely to persist for a few more weeks at least (e.g. the Greek election is still 3 weeks away). Hence, we have also decided to revise down our forecast for 3Q12 from -0.5%q/q saar to -1.0%q/q saar and for 4Q12 from +0.3%q/q saar to 0.0%q/q saar. This implies a full-year forecast of -0.4%oya for 2012.
 
How will the ECB respond?

The mild recession that the ECB had been expecting was supposed to be ending around now and be followed by a gradual recovery in 2H12. Today's PMI is challenging this view and we think the ECB will feel more pressure to deliver a monetary response, even though it feels that is has already done a lot to support the region. This response could for example be done through interest rate cuts or through further liquidity measures (e.g. 1-year LTROs). Given that the ECB has viewed the latter as a quasi-monetary policy tool, rather than as exclusively a way of dealing with financial market stress, there is some substitutability between these tools in the ECB's mind. This makes the mix between them and the exact timing hard to call.
 
We suspect the ECB's first response will be in terms of new liquidity measures. The committment to supply unlimited liquidity at the regular refis (1-week, 1-month and 3-month) expires in mid-July and an extension of this should be announced at the June meeting. Whether the ECB will also announce some LTROs (likely of maturites up to one year) at the June meeting is less clear. Its latest commentary suggested that it is not minded to move this early and that it will wait instead for the outcome of an internal review that it is conducting about the effectiveness of its policy tools so far. Waiting until July would also give the ECB a better sense of the political situation in Greece after the election. Hence, we pencil in the announcement of 1-year LTROs for the July meeting. Beyond this we expect the main refi rate to be cut 25bp at the September meeting, with the deposit facility rate remaining at 0.25%. This implies that the ECB will respond very incrementally to the current macroeconomic weakness.
 
Of course, should stresses build in financial markets, the ECB would respond much more aggressively. In that case further 3-year LTROs and a reactivation of the SMP would come back into play, and further interest rate changes could not be ruled out either.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Thu, 05/24/2012 - 09:10 | 2458460 Croatian Patriot
Croatian Patriot's picture

EURO neuro
Euro neuro
Euro neuro
Monetary brake dance
Euro neuro
Euro neuro
Euro neuro
Give me chance to refinance

Thu, 05/24/2012 - 09:14 | 2458474 Ethics Gradient
Ethics Gradient's picture

If the ECB drops their rate below 1%, Hugh Hendry will be the only person in the world with any money. If you want to refinance, start cosying up to him!

Thu, 05/24/2012 - 09:15 | 2458481 Max Hunter
Max Hunter's picture

In other words, outside of the 15m chart, the EUR/USD is still looking VERY heavy.

Thu, 05/24/2012 - 10:24 | 2458737 eurusdog
eurusdog's picture

Very heavy. I am not a USD bull but, the EUR will go below 1.2000 before it goes over 1.3000, if it ever gets back to 1.3000. If...shit, when Greece leaves, they will renounce all their debt. Ireland, Spain, Portugal, Italy all follow suit and issue parallel currency called PIIGSEURO.

Thu, 05/24/2012 - 10:37 | 2458771 Max Hunter
Max Hunter's picture

the recent bounce off of 1.2515 is directly from a 4H trend line. We'll see.. I agree completely with the 1.20 call.. probably over-shoot and hit 1.175  but i'd be VERY cautious from there.. The amount of shorts could trigger a cover spree...

Thu, 05/24/2012 - 11:45 | 2459047 Saro
Saro's picture

France and UK follow.  New currency known as the PIIGSFUK euro.

Thu, 05/24/2012 - 09:10 | 2458461 transaccountin
transaccountin's picture

how exactly is this euro positive? the moment bernanke announces something similar the dollar tanks. wtf?

Thu, 05/24/2012 - 09:19 | 2458495 GeneMarchbanks
GeneMarchbanks's picture

JPM is caught in an unwindable long Euro position. CAn it be more obvious?

Thu, 05/24/2012 - 09:20 | 2458500 LawsofPhysics
LawsofPhysics's picture

No, now how are we going to pile on and kill this bank once and for all?

Thu, 05/24/2012 - 10:09 | 2458675 nope-1004
nope-1004's picture

Correct, JPM is feeling the heat.  This connects the dots pretty good, suggested read:

http://news.goldseek.com/GoldenJackass/1337803200.php

 

Thu, 05/24/2012 - 09:21 | 2458502 hedgeless_horseman
hedgeless_horseman's picture

 

 

Gene, you crack me up. 

Thu, 05/24/2012 - 09:34 | 2458533 GeneMarchbanks
GeneMarchbanks's picture

;)

It's always good to laugh my friend.

Thu, 05/24/2012 - 09:23 | 2458509 SheepDog-One
SheepDog-One's picture

Right, and how is it JPM is now in the drivers seat of 'world economic problems' didnt they just make some massive trading blunders, and already hold trillions of debt in such blunders on top of it? Hey I know...lets ask Jamie Dimon what to do! 

Thu, 05/24/2012 - 09:26 | 2458517 LawsofPhysics
LawsofPhysics's picture

Haven't you been paying attention.  In the western world, failure is rewarded.  The bigger the failure, the more power and control you are awarded.  Can you think of any bigger failure than JPM?  Okay, that is an easy question.

Thu, 05/24/2012 - 09:42 | 2458552 Mugabe
Mugabe's picture

Can you think of any bigger failure than JPM? OBAMA ,do I win a cookie...........................weeeeeeeeeeeeeeeeeeeeeeeeeeee weeeeeeeeeeeeeeeeeeeeeeeee "pure adrenaline" weeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee

Thu, 05/24/2012 - 09:44 | 2458565 Mugabe
Mugabe's picture

http://youtu.be/Gf2AmA-Y50A

 

there you go!

Thu, 05/24/2012 - 09:11 | 2458465 brooklynlou
brooklynlou's picture

SPY, Euro, Gold up
NBG down

So they're waiting to see what happens after Greece explodes ...

Guys, this ain't bullish. It means they lit the fuse ...

Thu, 05/24/2012 - 09:15 | 2458482 BandGap
BandGap's picture

Wooo Hooo! Free MONEY!!!!!

Followed by fireworks? This is soooooo cooool!

Thu, 05/24/2012 - 09:18 | 2458492 brooklynlou
brooklynlou's picture

The liquidity isn't for 'day to day' crap (ie 'free money') but for the fire-hose ...

Thu, 05/24/2012 - 09:34 | 2458507 hedgeless_horseman
hedgeless_horseman's picture

 

 

THE BIG FUCKING QUESTION...

Will the Grexit be Euro positive, or Euro negative?

Place your bets, ladies and, uhm, err, gentlemen.

 

My SWAG?  Short term very Euro positive...long term very Euro negative as the other PIIGS are slaughtered, as and when needed, by the American/British Treasuries covering money printing operations...

WHO REALLY KILLED GREECE.

Thu, 05/24/2012 - 09:35 | 2458534 brooklynlou
brooklynlou's picture

Every LTRO is basically Germany calling a bet made against the Euro

Problem is Europe has no deposit insurance, if Greece gets REALLY out of hand (ie Spain gets twitchy) all the LTRO in the world is not going to put out the fire considering how leveraged the European banks are.

Yes its short term positive, but short term here is defined in the weeks till the Greek election. Europe may not make it to the July meetings to implement anything, which is why this is such an empty gesture. Basically Merkel is saying "Lets see how bad things get, then we'll have another meeting to decide on how much water to lend the fire hose". This is NOT a pro-active act if defense.

Thu, 05/24/2012 - 10:16 | 2458542 hedgeless_horseman
hedgeless_horseman's picture

 

 

Germany, like Japan, are post-war pawns.  Their currencies are DESIGNED to be debased, as and when needed, to achieve synchronized diving with the pound and dollar.  If Germany wasn't in the Euro, their prior experiences with inflation would prevent them from debasing when told to do so (obviously not a problem with the Nips).  The PIIGS profligate spending has ALWAYS been there, like a fat store, that can be used by the brain when needed to feed the body.

I am moving this to an article because I think it is really important and  Iwant to know others' opinions.

Thu, 05/24/2012 - 09:30 | 2458520 bdc63
bdc63's picture

Isn't the liquidity always for the fire hose?  At least it has been since 2008 ...

Thu, 05/24/2012 - 09:37 | 2458541 brooklynlou
brooklynlou's picture

It is, but you make sure you have water for the hose BEFORE the fire. Not pencil in a agenda item AFTER the fire starts.

Thu, 05/24/2012 - 09:11 | 2458466 Tsar Pointless
Tsar Pointless's picture

Okay. This solidifies it for me.

The S&P is going back to near 1400 very soon.

This can only be seen as being "bullish".

No other way.

Thu, 05/24/2012 - 09:22 | 2458504 LawsofPhysics
LawsofPhysics's picture

wrong, see comments above.  Plus, the central banks are sucking up gold again, never a bullish sign.

Thu, 05/24/2012 - 09:13 | 2458467 SheepDog-One
SheepDog-One's picture

'We're FEELING better now....because *sniff sniff* THATS the smell free money in the air! Wheeeeeeee!'

Freaking clown show.

Thu, 05/24/2012 - 09:14 | 2458476 Cdad
Cdad's picture

It is...a freaking clown show.  Here we go again, destroying market credibility.  The sociopaths are herding against any reasonable or rational thought.  After all...they have to try once again to get average Joe to buy the garbage.  

If you heard Dudley this morning, the source of the problem was quite clear...that being himself and his colleagues.  

Thu, 05/24/2012 - 09:19 | 2458497 SheepDog-One
SheepDog-One's picture

Hmmm, lets see....our planned fleecing of the retail sheeple FB IPO failed big time, WOW we didnt see that one comin... Holy Cow!

So what do we do now? Hey WTF lets go with 'free money comin' again? The algobots really LOVE it! Pass the Xanax Mr Dimon.

 

Thu, 05/24/2012 - 09:17 | 2458486 BandGap
BandGap's picture

But this time it MIGHT be different. The curtain is slowly being peeled back.

Another straw on the camel's back. 

Thu, 05/24/2012 - 09:12 | 2458470 junkyardjack
junkyardjack's picture

The trend is your friend...

Thu, 05/24/2012 - 09:12 | 2458471 Seorse Gorog fr...
Seorse Gorog from that Quantum Entanglement Fund. alright_.-'s picture

Not 'help us Ol' Bernanke, you are our only hope'?

 

http://www.youtube.com/watch?v=xIFJLMyUwrg

 


Thu, 05/24/2012 - 09:13 | 2458472 SmoothCoolSmoke
SmoothCoolSmoke's picture

Self-serving Criminal Elite bastards.  BLOW ME.

Thu, 05/24/2012 - 09:15 | 2458478 Deep79
Deep79's picture

And what is exactly this going to do? Buy us 1 month this time.

Thu, 05/24/2012 - 09:16 | 2458485 Silverhog
Silverhog's picture

Europathy, isn't that a fatal disease?

Thu, 05/24/2012 - 09:18 | 2458491 LULZBank
LULZBank's picture

GAME OVER!

Oh wait... I got one more life left...   PRINT! PRINT! PRINT!

Thu, 05/24/2012 - 09:20 | 2458499 Marginal Call
Marginal Call's picture

We're going to print more money, and lower rates = Euro up.  Thanks Morgan, you triggered my stops fucker.

Thu, 05/24/2012 - 09:24 | 2458505 Stackers
Stackers's picture

Said it before I'll say it again. Jim Rickards is dead on with his analysis that the Euro has been chosen to be the one currancy that stays strong (sarc.) in the Euro-Dollar-Yuan-Yen devaluation love quadrangle. they will support the 1.30 EURUSD level plus or minus 300 bps.

Thu, 05/24/2012 - 09:24 | 2458511 LawsofPhysics
LawsofPhysics's picture

Who is the "they" you speak of?  The BRICs are the only creditors left.  Everyone else is broke.  Please enlighten us.

Thu, 05/24/2012 - 09:28 | 2458514 Stackers
Stackers's picture

The people with access to unlimited amounts of electronic credit money. Fed ECB BoJ BIS .... you know them. You dont actually need real money to move the FX markets if you are a central bank.

Thu, 05/24/2012 - 09:22 | 2458506 MFL8240
MFL8240's picture

Who in their right mind would trust anything from JPM?

Thu, 05/24/2012 - 09:23 | 2458508 jjsilver
jjsilver's picture

This giant psyop is getting nauseating.

Thu, 05/24/2012 - 09:29 | 2458522 Byte Me
Byte Me's picture

Wonder how much this is costing the SNooBs?

Print more crap...

Thu, 05/24/2012 - 09:32 | 2458525 falak pema
falak pema's picture

lets face it Germany matches FED head to head with 2 year bonds at zero. Uber alles german finance is as ponzi as the FED so who cares who is more in debt; its ponzi does what ponzi feels like doing. Now the spikes are like the Shard of London, iconic symbol of unreal economic rate of "pissing unicorns from heaven" return, all flash in the pan in Boris's home baby potty pente cotty land; hoping the CIty scam will survive thanks to the Oligarchy expat clan of Londonmania land. Londonistan is dead, long live Londonvodkahalalista land. London is what london's expat clients say it should be. Its been that way since 1066. And don't tell me you be a Saxon; its land of the Windsors who are not local breed but Oligopoly itself personified indeed. Honni soit qui mal y pense! 

Thu, 05/24/2012 - 09:31 | 2458526 midgetrannyporn
midgetrannyporn's picture

OT - Q: Is Meg Whitman a woman, or a man?

A: It's a man baby!

http://www.youtube.com/watch?v=WgOIEGz7o_s

 

 

Thu, 05/24/2012 - 09:33 | 2458531 toady
toady's picture

So where does the inflation from this round of ctrl-P show up? Brent? Beemers? Olive oil?

Buy it now before the price goes up!

Thu, 05/24/2012 - 09:35 | 2458535 westerman
westerman's picture

it makes sense. The world has going through cycles that are a few months long for the past couple of years. First we have a phase like the one we are currently in where the economy shrinks and it looks like a recession. Then we get a tsunami of bailouts and money and prices on the financial markets rise and things look good (atleast on paper) for as long as the fiat tsunami has an effect. Then we go back to the recession phase. 

Since it was a few months ago the central banks handed out moneybags the size of an avrage countries GDP and since stocks are falling we could call this a recession phase. This means that soon we will enter the bailout phase. 

Thu, 05/24/2012 - 09:40 | 2458540 sudzee
sudzee's picture

How do you create demand (perceived value) for something of infinate supply? Why you just sit around and dream up  new demand.

More debt = more demand for currencies.  

Thu, 05/24/2012 - 09:50 | 2458591 NEOSERF
NEOSERF's picture

Amazing how economists, central banks, CNBC...anyone in a position to influence "confidence" puts out these perpetually over-optimistic completely wrong estimates and then is forced to take action after the fact.  No one ever loses their jobs over these misses because they are politicians first...the ONLY thing holding this mess together is confidence and that is why we got the hockey stick save rumor yesterday...ANY time you see the market get some down momentum expect the twitter crowd to start working...

Thu, 05/24/2012 - 09:52 | 2458596 kito
kito's picture

The mild recession that the ECB had been expecting was supposed to be ending around now and be followed by a gradual recovery in 2H12.......

 

pathological liars, or pathologically delusional, or?.............................

Thu, 05/24/2012 - 09:58 | 2458627 adr
adr's picture

What's that saying, you can fool some of the people all the time, but you can never fool all of the people all the time.

We'll it seems with Wall Street all the traders can be fooled all the time.

Printing more cash doesn't work, but they would rather die than admit they were wrong, so the printing continues until we the people decide to chop off their heads.

Thu, 05/24/2012 - 10:15 | 2458696 robertocarlos
robertocarlos's picture

It's confusing. Gold and silver are yo-yo-ing 1-3% a day.

Thu, 05/24/2012 - 12:57 | 2459279 Bastiat009
Bastiat009's picture

Euro "spike" ... it's when gold went up. It has gone down since the end of the spike ... I know it goes agains the gospel on this site, but gold and the euro are just the same, for now.

Do NOT follow this link or you will be banned from the site!