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Euro Tumbles As JPM Predicts ECB Rate Cut To 0.50%, "Deep Euro Area Recession"

Tyler Durden's picture


The ECB may soon have to change its policy of keeping a 1.00% rate floor if JPM is correct.In a note just released by JPM's Greg Fuzesi, the JPM analysts says that "with the Euro area economy entering a potentially deep recession, we now think that the ECB will cut its main policy interest rate to just 0.5% by mid-2012. We expect the interest rate corridor to be narrowed to +/-25bp, so that the deposit facility rate will be 0.25%. We recognise that the ECB did not cut rates below 1% during the 2008/9 recession. It never fully explained why it did not, but we think that the two most likely reasons will be less important this time." And when the ECB does cut which it will have no choice considering Germany's stern reluctance to allow it to print outright, Hugh Hendry will make some serious cash. As a reminder, 'He’s made bets that he says will deliver a 40-to-1 return if the ECB cuts rates below 1% next year." Lastly, and as fully expected, the EURUSD is tumbling on the news.

Full note: 

First, by the time the policy rate had reached 1% in May 2009, the Euro area economy was already beginning to stabilise – the PMI troughed in Feburary and had increased almost ten points by June (first chart). This made it easier for the ECB to stay patiently on hold at 1%. This time the recession is only just starting, which we think will keep pressure on the ECB to make incremental policy changes. We also note that the already low level of interest rates and the small-ish benefit of additional rate cuts have not to stopped the ECB from cutting rates this month.


Second, the main policy rate can only be cut below 1%, if the ECB narrows its interest rate corridor below the current +/-75bp (or if it cuts the deposit facility rate to effectively zero). Back in 2009, the ECB saw positives in keeping a wider corridor of +/-75 bp as it implied a bigger gap between the effective overnight interest rate (at which good banks trade liquidity) and the main policy rate (at which troubled banks borrow from the central bank) (second chart). Hence, it saw a wider corridor as encouraging interbank activity and giving troubled banks an incentive to recapitalise. But, today, the EU has launched a more effective bank recapitalisation plan. In addition, the sovereign crisis has created a much more fundamental problem for banks, which limits the scope for using interest rate penalties in the same way.


As we expect the Euro area economy to be in recession until late 2012, we think that a 25bp cut in December will not be the last. Hence, we have now pencilled in additional easing of 25bp at the policy meetings in March and June 2012. As the deposit facility will reach 0.25% already in December, the additional cuts may not lower the effective overnight rate much. In our view, those moves would nevertheless send important policy signals.


What about other policy measures? Following Draghi’s comments about the huge challenges facing banks in terms of funding, collateral availability and capital-raising, additional support measures could be forthcoming. The ECB could, for example, commit to additional longer-term refinancing tenders, with maturities likely out to one year, and it could loosen its collateral requirements again.


What about QE? To many, the ECB is already doing this through its SMP, and believe it will be forced to continue by the lack of a political solution. There are similarities between this and QE, as both increase the size of the central bank’s balance sheet by purchasing government bonds. But, there are also differences in terms of motivation, context, sterilisation, and choice of bonds that are bought. It appears quite unlikely to us that the ECB will launch a more traditional asset purchase programme, which would buy government bonds from all countries and would be aimed explicitly at tackling downside risks to inflation. In contrast, the SMP is aims to reduce market dysfunctionality.


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Wed, 11/23/2011 - 11:10 | 1906693 Gandalf6900
Gandalf6900's picture

ah yes genious, keep up the great work, you are earning all the gratitude of europe

Wed, 11/23/2011 - 11:22 | 1906754 BaBaBouy
BaBaBouy's picture

This is not a Crisis ...


It's a DEBACLE ...

Wed, 11/23/2011 - 11:27 | 1906772 Carlyle Groupie
Carlyle Groupie's picture

You can't eat a 0.50% Rate Cut!

Wed, 11/23/2011 - 11:38 | 1906809 DaveyJones
DaveyJones's picture

I love a lean cut

Wed, 11/23/2011 - 12:02 | 1906898 Richard Chesler
Richard Chesler's picture

Long live the eurDoh!


Wed, 11/23/2011 - 11:29 | 1906784 kito
kito's picture

not yet. the dow jones sheep-a-meter is still above 11,000. all it needs is one hint of a promise and bam, back to 12,000. finally my DOG shorts have been paying off. im nervous to keep the position open too long. the dow momo rocket is just waiting to blast off again...........

Wed, 11/23/2011 - 11:42 | 1906824 NumberNone
NumberNone's picture

Market tanks every time Obama speaks...tanking now on the Turkey Pardon speech. 

Wed, 11/23/2011 - 11:47 | 1906850 The Fonz
The Fonz's picture

momo's need profesional money to ride and without a solution with enough duration to make it worth the month of time it takes to get back in and then back out and enought time between to make a profit I don't think they'll be back in force. Half way measures won't be enough for them to get their fat asses in long enough for a profit. I do see professional money moving into gold sometime soon though. I wouldn't mind that one going momo :P

Wed, 11/23/2011 - 11:55 | 1906871 DCFusor
DCFusor's picture

A floor trader talking on BBerg this AM mentioned that everyone - particularly the big houses - is getting together dry powder for later.  Add to that the performance anxiety, and yes, I think you're right.  The market "wants" to go up, even if on fumes and hopium, and the money is gathering, looking for the right place and time.  There's been plenty comment here about that one already.  The question is "when".  I'm going to close most of my open trades today, most likely, including the very nice looking shorts, and at least get as net-neutral as I can, and have a nice weekend.  It's easier to get burned on shorts it seems, so taking some money off the table seems wise.

I'm willing to have some "opportunity costs" over the weekend, my US fiat won't collapse that quick.  Better that than to watch the nice green profits on my shorts go poof I think.


Wed, 11/23/2011 - 11:30 | 1906786 BandGap
BandGap's picture

You meant genius, correct?

Wed, 11/23/2011 - 11:10 | 1906694 Undecided
Undecided's picture

Bush and Blair found guilty of war crimes


Well its a start

Wed, 11/23/2011 - 11:14 | 1906715 GeneMarchbanks
GeneMarchbanks's picture

Yes. That's relevant. Uhhh ... thanks.

Wed, 11/23/2011 - 11:16 | 1906719 TruthInSunshine
TruthInSunshine's picture

"Deep Euro Area Recession" = JPM Wankin' F**kin' Banker talk for Depression

Wed, 11/23/2011 - 11:21 | 1906746 Manthong
Manthong's picture

Al least we don't have anything to worry about here.

According to Bloomberg this hour "US Stocks Slump".

A little slump isn't a problem.

Wed, 11/23/2011 - 11:55 | 1906867 Spastica Rex
Spastica Rex's picture

The US makes its own reality. Real reality is for Greeks and Euro-fags.

Just Do It.

Be like Mike.

You're worth it.

Wed, 11/23/2011 - 11:42 | 1906827 Caviar Emptor
Caviar Emptor's picture

1930s: Great Depression

2010s: Deep Depression

Wed, 11/23/2011 - 11:36 | 1906804 Undecided
Undecided's picture

So what you are saying is the past military spending has no influence on our current Monitary situation?

Wed, 11/23/2011 - 11:44 | 1906836 DaveyJones
DaveyJones's picture

history books get it

Wed, 11/23/2011 - 11:12 | 1906702 Ethics Gradient
Ethics Gradient's picture

edit: my comment was mentioned in the article. I'll shut up.

Wed, 11/23/2011 - 11:16 | 1906706 GeneMarchbanks
GeneMarchbanks's picture

Cue Draghi...

Good luck to Hendry collecting on his CDS or synthetics or whatever...

Wed, 11/23/2011 - 12:05 | 1906910 kaiserhoff
kaiserhoff's picture

I'll drink to that.  Who knows what will pay off or what firms will still be open in the new year?

Wed, 11/23/2011 - 11:13 | 1906711 MFL8240
MFL8240's picture

JP Morgan is a criminal enterprise and should never be trusted.

Wed, 11/23/2011 - 11:36 | 1906802 LouisDega
LouisDega's picture

Never had an issue with them. They were there when my tire popped and i needed a tow plus other emergencies. My Chase Mastercard never once refused a favor. I never had to deal with their darkside ( Yet)

Wed, 11/23/2011 - 13:17 | 1907226 Bansters-in-my-...
Bansters-in-my- feces's picture

Get off your knees.....Bozo.

Wed, 11/23/2011 - 11:15 | 1906716 Matt1973
Matt1973's picture

Parity bitches

Wed, 11/23/2011 - 11:16 | 1906722 Sockeye
Sockeye's picture

So bond/bund rates going up and policy rates going down? Seems pretty logical to me, NOT!

Wed, 11/23/2011 - 11:16 | 1906723 RobotTrader
RobotTrader's picture

All the boys on King World News must be puking up blood.

Dollar surging to new highs, all commodities across the board getting smoked.

Muni-bonds and Treasuries still rock solid, hardly any volatility whatsoever.

New highs for the move on TLT and MUB.


Wed, 11/23/2011 - 11:20 | 1906738 Josh Randall
Josh Randall's picture

Happy Thanksgiving RoboTrader -- here's to being thankful for your hindsight disguised as brilliance

Wed, 11/23/2011 - 11:20 | 1906745 magpie
magpie's picture

I'm good, Brussels Lira burning faster than PMs can drop.

Wed, 11/23/2011 - 11:22 | 1906753 Matt1973
Matt1973's picture

Doug Kass must be puking

Wed, 11/23/2011 - 11:46 | 1906842 Caviar Emptor
Caviar Emptor's picture

o yeah. He went very public

Wed, 11/23/2011 - 11:25 | 1906767 the not so migh...
the not so mighty maximiza's picture

its Miller time Robo

Wed, 11/23/2011 - 11:38 | 1906810 stormsailor
stormsailor's picture

and bac about .18 away from breaching the 5.00.  once that happens i think we will see a "fuckarow hoedown"

Wed, 11/23/2011 - 11:47 | 1906849 SHEEPFUKKER

Have a look at the debt clock my friend.  That's my leading indicator. 

Wed, 11/23/2011 - 11:56 | 1906874 Carlyle Groupie
Carlyle Groupie's picture

And to top it all off some idiots are actually excited about Bachmann. Lolz.

She stinks like a 881 pound tuna! Last thing we need in the Whitehouse.

Wed, 11/23/2011 - 22:02 | 1909159 Use of Weapons
Use of Weapons's picture



Paid Troll - blocking in effect.

Wed, 11/23/2011 - 11:56 | 1906876 tmosley
tmosley's picture

78.92 is a "new high"?

You really do have the attention span of a gnat.

Wed, 11/23/2011 - 11:57 | 1906881 Spastica Rex
Spastica Rex's picture

U buying dollars today?

Wed, 11/23/2011 - 12:20 | 1906969 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I have physical PM right in front of me and I do not care what its determined price is.  It is what I want to invest in at this price level.  $30 silver sounds great to me.  Let's keep it here for a few months so I can keep stackin'.

Wed, 11/23/2011 - 13:05 | 1907183 e-man
e-man's picture

And that would be because all the folks at King World News typically have a 4 minute investment horizon, right?  Complacency bias seems to be all you got, Robo.

Wed, 11/23/2011 - 13:20 | 1907241 Bansters-in-my-...
Bansters-in-my- feces's picture

"dollar surging to new highs"........


Are you drinking in moms basement again....???

Wed, 11/23/2011 - 11:22 | 1906724 GMadScientist
GMadScientist's picture

Will they understand even when Draghi is picking up Bunds (and other offal) by the 10B at 3% for lack of a bid?

Or perhaps they'll "stand strong" (teaching EZ sleazies a lesson each time) and I'll get to buy that castle I've always wanted.

Wed, 11/23/2011 - 11:17 | 1906728 jcaz
jcaz's picture

LOL- yeah, that's the key move- will solve all the problems.......

Wed, 11/23/2011 - 11:19 | 1906739 magpie
magpie's picture

If it doesn't have any bearing on rising yields, it won't happen. (Hint: Draghi "supporting" Italy with the previous one.)

Wed, 11/23/2011 - 11:20 | 1906740 JSD
JSD's picture

DB is next.

Wed, 11/23/2011 - 11:38 | 1906813 GeneMarchbanks
GeneMarchbanks's picture

Long time acomin' for that shitshow...

Wed, 11/23/2011 - 11:47 | 1906847 Caviar Emptor
Caviar Emptor's picture

DB toxic dumpsite will be declared off limits for 200 years

Wed, 11/23/2011 - 11:20 | 1906742 pmcgoohan
pmcgoohan's picture

At last, the EURUSD/SPY correlation working in my favour

Wed, 11/23/2011 - 11:22 | 1906752 topcallingtroll
topcallingtroll's picture

Doesnt matter what the euro does now, rise or fall.

The dollar will increase its market share.
All hail King Dollar!

Wed, 11/23/2011 - 11:41 | 1906816 LouisDega
LouisDega's picture

Is that you Tom O'brien? Is this me?

Wed, 11/23/2011 - 11:22 | 1906756 RobotTrader
RobotTrader's picture

SPY vs. FXE pushing the "outer limits" now....

We have had a 4% gap now for over 48 hours.

Wed, 11/23/2011 - 11:27 | 1906773 MFL8240
MFL8240's picture

For a few months then it too will collapse and Gold will be king.  Paper junk has no intrinsict value, try to think before you write.

Wed, 11/23/2011 - 11:27 | 1906774 LawsofPhysics
LawsofPhysics's picture

Tell us robo, how wide will the gap go?  Make a prediction without hindsight for once.

Wed, 11/23/2011 - 12:00 | 1906889 Spastica Rex
Spastica Rex's picture

You can't take any of his predictions seriously - his bra is too tight and it's cut off circulation to his brain.

Wed, 11/23/2011 - 11:23 | 1906758 Everyman
Everyman's picture

"In contrast, the SMP is aims to reduce market dysfunctionality."


Looks like the SMP has it's work cut out for them, the entire market universe is "dysfuctional"!


Can we get an SMP too for our dysfuctional markets????

Wed, 11/23/2011 - 11:24 | 1906763 Flounder
Flounder's picture

SocGen just made a new 52 wk low.

Wed, 11/23/2011 - 11:34 | 1906796 cowdiddly
cowdiddly's picture

BAC fixing to go sub-5, and a manditory dow exit. It was nice knowing you crooks. BYE-BYE

Wed, 11/23/2011 - 11:40 | 1906818 No One
No One's picture

it's only a mandatory exit until TPTB change the rules of the game yet again.

Wed, 11/23/2011 - 11:42 | 1906822 stormsailor
stormsailor's picture

yeah cow,  that could bring on a lock-down

Wed, 11/23/2011 - 11:49 | 1906858 SHEEPFUKKER

Can't they just do a 10:1 reverse split like Citi and all will be fine?

Wed, 11/23/2011 - 11:26 | 1906770 Matt1973
Matt1973's picture

I thought the short Euro trade was "too crowded" ?

Wed, 11/23/2011 - 11:29 | 1906782 LawsofPhysics
LawsofPhysics's picture

The exact opposite is true.  A centrally planned "soft landing" for all.  world parity, oh yeah, bitches.

Wed, 11/23/2011 - 11:30 | 1906785 PaperBugsBurn
PaperBugsBurn's picture

Come and get it, sheeple!!

The Doomsday Project and Deep Events: JFK, Watergate, Iran-Contra, and 9/11

By Prof. Peter Dale Scott

URL of this article:

Global Research, November 22, 2011
Asia Pacific Journal Vol 9, Issue 47, No 2, - 2011-11-21

"I know the capacity that is there to make tyranny total in America, and we must see to it that this agency [the National Security Agency] and all agencies that possess this technology operate within the law and under proper supervision, so that we never cross over that abyss. That is the abyss from which there is no return."

      -- Senator Frank Church (1975)

I would like to discuss four major and badly understood events – the John F. Kennedy assassination, Watergate, Iran-Contra, and 9/11. I will analyze these deep events as part of a deeper political process linking them, a process that has helped build up repressive power in America at the expense of democracy.

In recent years I have been talking about a dark force behind these events -- a force which, for want of a better term, I have clumsily called a “deep state,” operating both within and outside the public state. Today for the first time I want to identify part of that dark force, a part which has operated for five decades or more at the edge of the public state. This part of the dark force has a name not invented by me: the Doomsday Project, the Pentagon’s name for the emergency planning “to keep the White House and Pentagon running during and after a nuclear war or some other major crisis.”1

My point is a simple and important one: to show that the Doomsday Project of the 1980s, and the earlier emergency planning that developed into it, have played a role in the background of all the deep events I shall discuss.

More significantly, it has been a factor behind all three of the disturbing events that now threaten American democracy. The first of these three is what has been called the conversion of our economy into a plutonomy – with the increasing separation of America into two classes, into the haves and the have-nots, the one percent and the 99 percent. The second is America’s increasing militarization, and above all its inclination, which has become more and more routine and predictable, to wage or provoke wars in remote regions of the globe. It is clear that the operations of this American war machine have served the one percent.2

The third – my subject today -- is the important and increasingly deleterious impact on American history of structural deep events: mysterious events, like the JFK assassination, the Watergate break-in, or 9/11, which violate the American social structure, have a major impact on American society, repeatedly involve law-breaking or violence, and in many cases proceed from an unknown dark force.

There are any number of analyses of America’s current breakdown in terms of income and wealth disparity, also in terms of America’s increasing militarization and belligerency. What I shall do today is I think new: to argue that both the income disparity – or what has been called our plutonomy -- and the belligerency have been fostered significantly by deep events.

We must understand that the income disparity of America’s current economy was not the result of market forces working independently of political intervention. In large part it was generated by a systematic and deliberate ongoing political process dating from the anxieties of the very wealthy in the 1960s and 1970s that control of the country was slipping away from them.

This was the time when future Supreme Court Justice Lewis Powell, in a 1971 memorandum, warned that survival of the free enterprise system depended on “careful long-range planning and implementation” of a well-financed response to threats from the left.3 This warning was answered by a sustained right-wing offensive, coordinated by think tanks and funded lavishly by a small group of family foundations.4 We should recall that all this was in response to serious riots in Newark, Detroit, and elsewhere, and that increasing calls for a revolution were coming from the left (in Europe as well as America). I will focus today on the right’s response to that challenge, and on the role of deep events in enhancing their response

Wed, 11/23/2011 - 11:31 | 1906788 JJSF
JJSF's picture

Morgan Stanley $12...could get sucked down < $10

Wed, 11/23/2011 - 11:32 | 1906792 stormsailor
stormsailor's picture

not to muddy the water, but the /es has broken through 1166 chart support on the 4hr and the daily.  if she stays below this in either, technicals clear it down to 1075.


my underwater /es is beginning to see the light and perk up.

Wed, 11/23/2011 - 11:33 | 1906793 entropos
entropos's picture

I thought the world was supposed to end when BAC hit the 5 handle, and it's now at $5.17.  Nobody is saying boo. 


Wed, 11/23/2011 - 11:37 | 1906806 SheepDog-One
SheepDog-One's picture

DANG and they JUST declared all this totaly fixed! ARGhhhhhhhh!!!

Wed, 11/23/2011 - 11:38 | 1906812 CvlDobd
CvlDobd's picture

When was the last time we got this much bad euro news and European indexes outperformed the SP500?

Wed, 11/23/2011 - 11:47 | 1906848 pmcgoohan
pmcgoohan's picture

Before the bots started correlation trading SPY and EURUSD

Wed, 11/23/2011 - 11:43 | 1906834 rambler6421
rambler6421's picture

Recession.  They mean Depression.  Greek 1 year yield over 300%.  Holler.

Wed, 11/23/2011 - 11:50 | 1906860 bill1102inf
bill1102inf's picture

Deflation and Deleveraging means lower commodity prices across the board, especially GOLD

Wed, 11/23/2011 - 11:45 | 1906840 vegas
vegas's picture

Looking at the bigger picture, this scenario sets up 2 very interesting trades going forward.

1) eurchf - When SHTF and the Euro eventually plummets, what will the SNB do when this pair goes below 1.20?

2) xaueur - Gold priced in Euros goes through the roof.

Maybe, maybe not. Just something to think about.

Wed, 11/23/2011 - 11:51 | 1906862 RickyBobby
RickyBobby's picture

The people know whats going on now. Have you read the yahoo message boards lately? We are going through the anger phase of the grieving process. Next up, depression/reflection/loneliness...

Wed, 11/23/2011 - 11:51 | 1906863 readytoleave
readytoleave's picture

BAC at $5.19 on its way to a 4 handle.... 

How long can they possibly last like this?

Wed, 11/23/2011 - 11:55 | 1906869 Caviar Emptor
Caviar Emptor's picture

Finnish yields are soaring: that's all folks. Pot/Kettle, both black

Wed, 11/23/2011 - 11:57 | 1906880 Snakeeyes
Snakeeyes's picture

This is getting ugly. Look at Belgian and German intraday bond yields!

Belgium Dexia Debt Woes, Germany's Debt Issuance Debacle - Obama Spares Two Turkeys (NOT Belgium and Germany)

Wed, 11/23/2011 - 12:06 | 1906888 slaughterer
slaughterer's picture

Abso-fucking-lutely ugly day across the globe for bulls.  

1.  Will BAC ever see $6 again?

2.  Will GS ever see $100 agin?

3.  Will SPY ever see $125 again?

4. Will AAPL ever see $400 again?

Not in my lifetime...



Wed, 11/23/2011 - 12:30 | 1907015 TheSto
TheSto's picture

Looks like my 105 GS Dec call was a baaaad decision, ugh. I would really hate to be anyone working with investments now because this market is wild and unpredictable. We all know the eventual outcome, but predicting the various ups and downs on the way is impossible with all of these politicians and countries. 

Wed, 11/23/2011 - 12:04 | 1906905 1000pips
1000pips's picture

Watch the rabbit get pulled out of the hat this next week. Euro to $1.40.

Wed, 11/23/2011 - 12:17 | 1906959 Mr_Wonderful
Mr_Wonderful's picture

61.8% retracement at about 1160. If it falls easily through that, expect test of that 1070 low of early Oct.

Wed, 11/23/2011 - 12:26 | 1906997 pmcgoohan
pmcgoohan's picture

So it was just the carry trade that was keeping EUR USD up all this time. People just couldnt get enough of that 1% per annum return. Talk about pennies infront of the bulldozer.

Wed, 11/23/2011 - 12:27 | 1907000 Mr_Wonderful
Mr_Wonderful's picture

Isn´t this like Illegal? Does the Mob own the so called police?

Investors Bullish on Fed Tips

Hours after an Aug. 15 meeting with Federal Reserve Chairman Ben Bernanke in his office, Nancy Lazar made a hasty call to investor clients: The Fed was dusting off an obscure 1960s-era strategy known as Operation Twist.

The news pointed to a boom in long-term bonds.

It was a good call. Over the next five weeks, prices on 10-year Treasury bonds soared, offering double-digit returns in an otherwise dismal year.

By the time the Fed announced its $400 billion Operation Twist on Sept. 21, the window for quick profits had all but slammed shut.

Ms. Lazar is among a group ...

Wed, 11/23/2011 - 12:39 | 1907069 Bansters-in-my-...
Bansters-in-my- feces's picture


This is a crininal group.....


Wed, 11/23/2011 - 15:30 | 1907863 dizzyfingers
dizzyfingers's picture

...And so when will Europe wants its bailout from US taxpayers?

Wed, 11/23/2011 - 15:47 | 1907939 SRSrocco
SRSrocco's picture

crazy huh...


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