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Futures Slide On Euro Service PMI Miss, Lower China Growth Target, New Irish Bailout, ECB Deposit Facility Surge

Tyler Durden's picture





 

That red color on your screen this morning is not a failure in the green pixel channel but an indication of three main things. First, European composite PMIs came in at 49.3, down from 50.4 in January, and below the preliminary print 49.7 released on February 22. The main reason was the slide in the Eurozone Service PMI which printed at 48.8 on expected 49.4. This included a deterioration not only in the peripheral countries but in the core stalwarts France and Germany too. Elsewhere, China reduced its growth target to 7.5% this year, the lowest goal since 2004. The government will also aim for inflation of about 4 percent this year, unchanged from its goal in 2011. China also announced that it will target a deficit of 800bn CNY for 2012, a rather surprising change from its previous stance. Rounding out the dour note is a Moody's announcement that Ireland is likely to need a second bailout when its current aid program ends, rating agency Moody’s warned today, and that it too may need a PSI just like Greece. Then again, scratch may and replace with will. From the Irish Times: "In its weekly credit outlook report, Moody’s also warned a No vote in the upcoming fiscal treaty referendum would bar Ireland from receiving further funds from the European Stability Mechanism (ESM). The agency predicted the Government would have to rely on the ESM for additional funding after the existing bailout program expires in 2014. "We expect Ireland to face challenges regaining market access in 2013 and it will likely need to rely on the ESM, at least partially, when the current support  programme expires,” it said." As a reminder, if Ireland proceeds with a referendum on the Fiscal compact, and the referendum fails, it will have no ESM support, and thus no second bailout potential. Finally, the ECB deposit facility usage soared to an all time record of €821 billion overnight, confirming that the LTRO 2, contrary to some wrong analysis, is not being used for Carry trades at all.

European ISM summary:

ECB Deposit Facility Usage:

Furthermore, on the Deposit Facility, contrary to what may have been written elsewhere, a spike in usage does not mean that the money is being used for carry purposes and somehow re-deposited at the ECB at the same time for two simple reasons. If the sovereign bond purchases are simply in the secondary market and the cash is being recycled, it means that one bank's carry trade gain is another bank's loss; it also likely means that risk is intensifying as banks that don't need the carry trade are offloading bond exposure risk to weaker banks, however in the aggregate it changes nothing at the consolidated bank level where €3 trillion in deleveraging needs to happen over the next 3 years.

Second, where this is far more important, at the primary, government issuance level, it would make sense that the ECB facility is rising if European government were turning around and redepositing the cash at banks and other intermediaries, if said countries were merely hoarding the cash, which they aren't, as they are using debt issuance proceeds for such mundane tasks as funding debt rollovers and funding a primary deficit. So, yes, the use of funds is most certainly not ECB, and, no, a surge in the ECB deposit facility usage to unprecedented trillions does not mean one can have their cake and eat it too, no matter how convoluted the repo mechanism within the European uber-ponzi experiment.

What is most distrubing is that since December 21 when the net funding from LTRO 1 hit the bank system, total ECB deposit usage has risen by €556 billion, or more than the net liquidity benefit from LTRO 1 (€210 billion) and 2 (€311 billion), so not only has the entire net LTRO cash been internalized but another €35 billion has been added from operations!

 


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Mon, 03/05/2012 - 08:17 | Link to Comment oogs66
oogs66's picture

Let some baks fail!!! This is ridiculous

Mon, 03/05/2012 - 08:29 | Link to Comment King_of_simpletons
King_of_simpletons's picture

But But... The growth story is the increasing price of oil. To the moon, I say. Economy has recovered, unemployment has been 'eliminated' from the vocab, ZIRP .... what more can the black swan ask for ?

Mon, 03/05/2012 - 08:32 | Link to Comment resurger
resurger's picture

"Bitchez, this is your captain speaking.. the Turbulance has ended and the aircraft has "stabilized"

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"Air Pockets" Sorry

Mon, 03/05/2012 - 08:19 | Link to Comment firstdivision
firstdivision's picture

(CTL+P)^infinity

Mon, 03/05/2012 - 09:28 | Link to Comment JPM Hater001
JPM Hater001's picture

In fairness to (CTRL+P) - It didnt ask for the abuse.

Mon, 03/05/2012 - 08:18 | Link to Comment Moneyswirth
Moneyswirth's picture

...a surge in the ECB deposit facility usage to unprecedented trillions does not mean one can have their cake and eat it too,


Clearly this is a harbinger of better days ahead

Mon, 03/05/2012 - 08:21 | Link to Comment Ghordius
Ghordius's picture

"the ECB deposit facility usage soared to an all time record of €821 billion overnight, confirming that the LTRO 2, contrary to some wrong analysis, is not being used for Carry trades at all"

I'm not sure for which carry trade it should be used. Any big currency with higher rates around?

----

I get the mental image of Draghi just filling up the basement with liquidity until the basement windows gush into a little pond on the lawn, so that he can let his rubber duckies float...

Mon, 03/05/2012 - 08:27 | Link to Comment Josephine29
Josephine29's picture

Also should the Chinese slow or even stop the appreciation of the Yuan we could see another outbreak of "currency wars" as pointed out below.

Here we move to a problem which has echoes of the competitive devaluations of the 1920s and 1930s. The recent weakening of the Yen adds to this as we now have one less strong currency. If we look at China we see that her government is now talking of a “stable Yuan (renminbi)” after the rise it has permitted. Since the summer of 2010 the Yuan has risen from 6.83 versus the US dollar to 6.307 now.

 

So here is today’s question whose currencies are going to appreciate in future? In a game which has  a zero sum we plainly have a problem going forwards.

 

http://www.mindfulmoney.co.uk/wp/shaun-richards/the-slowdown-in-the-chinese-and-japanese-economies-opens-a-new-front-in-the-currency-wars/

Mon, 03/05/2012 - 08:29 | Link to Comment resurger
resurger's picture

 

The European camel has a strong back, how many reps he does for his lats? lifting 1 Trillion kilos of fiat Euro Paper thats no joke .

Troika-90-X FTMFW

 

 

Mon, 03/05/2012 - 08:44 | Link to Comment Ghordius
Ghordius's picture

well, another currency war task for which the euro has been designed:

Q: "WTF are we going to do if a FED chairman and the US Treasurer print some 8% of the US GDP in one year? we need exports for oil, dammit!!"

A: "we somehow match it with something similar and wait and see"

Q: "but if we do it, the speculative pressure on the DM and the Lira etc. will be immense!!"

A: "yes, we need a common currency that matches the key characteristics of the reserve currency"

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that LTRO "overhang" is a bit like the oil reservoir gauge: as long as it's full (after matching the US printing with the EZ lending) it's saying "still ahead in the game".

it's a sick war, a currency war

Mon, 03/05/2012 - 09:24 | Link to Comment resurger
resurger's picture

+1 Ghord

it like the U.S is saying "Hey we are not the only ones printing money! Europe, China & Everyone is printing money so lets keep the shit even"

But then it all comes to an end when the debt levels are too high to sustain, and GOLD is the only winner.

it a race to the bottom...

Mon, 03/05/2012 - 08:41 | Link to Comment Zgangsta
Zgangsta's picture

Not that much red.  The market's going through the motions, but I don't think people are really feeling bearish just yet.

Mon, 03/05/2012 - 08:50 | Link to Comment resurger
resurger's picture

you must be fucking kidding me!

Mon, 03/05/2012 - 08:51 | Link to Comment ndotken
ndotken's picture

The appropriate question is not how much the banks are putting into the deposit facility ... the real question is how much are the euro banks drawing on the marginal lending facility and what kind of crap collateral is the ECB taking as security ... that would be an interesting number ... Tyler?

Mon, 03/05/2012 - 08:53 | Link to Comment Tyler Durden
Tyler Durden's picture

No, because when flooded with Discount Window cash there is no need for emergency cash as it simply means that a given bank has absolutely no collateral - even in Europe this is a difficult task to accomplish. As for the "quality" of the collateral, just as Jens Weidmann.

Mon, 03/05/2012 - 09:44 | Link to Comment resurger
resurger's picture

100 Tonnes of Gold is the Collateral

Mon, 03/05/2012 - 09:08 | Link to Comment youngandhealthy
youngandhealthy's picture

Rethink Tyler....

"... it means that one bank's carry trade gain is another bank's loss; it also likely means that risk is intensifying as banks that don't need the carry trade are offloading bond exposure risk to weaker banks..."

a) You assume that just Banks are involved

b) You assume it is a Gov Bond "carry trade" only....Could be any asset.

Again...you don't know where the money has been by looking at the ECB deposit numbers.

 

"...Second, where this is far more important, at the primary, government issuance level, it would make sense that the ECB facility is rising if European government were turning around and redepositing the cash at banks and other intermediaries, if said countries were merely hoarding the cash, which they aren't, as they are using debt issuance proceeds for such mundane tasks as funding debt rollovers and funding a primary deficit.."

Again an assumption on what the banks and goverments are doing. You don know  by just looking at the deposit numbers from ECB.

Pure speculations from ZH is my verdict.

 


Mon, 03/05/2012 - 09:09 | Link to Comment Tyler Durden
Tyler Durden's picture

Your verdict is irrelevant - this has nothing to do with who is doing it, or what instrument is being used. It is simple math. You can't have cash parked with the ECB and be used for investment purposes unless it is some nested rehypothecation chain which merely accentuates shocks to the system. Period.

Mon, 03/05/2012 - 09:15 | Link to Comment youngandhealthy
youngandhealthy's picture

No its not just pure math. But I stop here because you have an opinion which seems difficult to enlight. 

Mon, 03/05/2012 - 09:33 | Link to Comment Tyler Durden
Tyler Durden's picture

See below

Mon, 03/05/2012 - 09:17 | Link to Comment Ghordius
Ghordius's picture

"man, you make my head hurt!" ;-)

now seriously, Tyler, your point still eludes me (might be my fault): some banks (800?) are taking up the LTRO loans - some others might be parking the cash in the ECB. Could this not just be an unintended consequence of the LTRO or just another pointer to how bad interbank lending is?

from a political point of view, Draghi has "done something" to be "sure" that the next shock is met by liquidity AND is keeping the EURUSD from flying to the moon. And that might just be the whole story, couldn't it? At least from the intent part.

Mon, 03/05/2012 - 09:32 | Link to Comment Tyler Durden
Tyler Durden's picture

Here's the math: European banks as a group need to delever by €2.5 trillion over the next 3 years (read the Morgan Stanley piece from last September).

By parking €820 billion at the ECB, they are collecting 0.25% while paying 1% on €1 trillion. They are levering up - very simple. And you can't be collecting X% and Y% at the same time on a given cash amount, absent some serious rehypo magic.

Also, in 3 years they will need to have paid out not only the €2.5 trillion to conform to Basel (which will of course delay implementation as it has no other choice), but add another at least 1 trillion.

And of course, there are those who will assume this recent action fixes things. After all this is a mirror image response to the first LTRO from 2009. Nothing more and nothing less. The delusion will work only until tide turns and sovereign spreads start widening again.

Mon, 03/05/2012 - 09:20 | Link to Comment TrustWho
TrustWho's picture

Does anyone else believe that the purpose of LTRO 2 was to prepare the banks for Greece default?

Mon, 03/05/2012 - 10:23 | Link to Comment ThatThatcher
ThatThatcher's picture

Hence, the non-comittal statements and blatant 'can kicking' proposals we've been subjected to since we first heard Greece existed in May 2010

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