Two months ago it was the Schrodinger market, best exemplified by China [8]where the economy was both rising and contracting at the same time depending on what data one looked at. Now, that the global contraction is confirmed and one can no longer claim anyone is decoupling from anyone else (especially not with a fiscal cliff looming), it is the Copperfield market: everything and anything all about distraction. Because while stocks gallop ever higher, corporations are generating ever worse results, on the bottom, but especially on the top line, central banks are doing everything to redirect attention from the underlying reality and to the possibility, repeat possibility, that they may print at some point soon. With Germany's blessing of course. Naturally the biggest distraction that is needed is in Europe, where various Spanish regions, and Sicily, have already confirmed they are insolvent, not to mention the Spanish banking system, and where there is nothing in place to provide the over €1 trillion in liquidity needs (financial and sovereign debt maturities, roll overs and interest payments) over the next year.
Today we present the latest math-based fact that will need the loudest distraction from the ECB yet (or maybe, the reason why Draghi, for three days in a row, was posturing with promises of inevitable intervention). As the ECB has just announced, and as the Fed will disclose on Thursday [9]with the usual 4 day lag, 10 European banks [10], via the ECB's swap line with the Fed, have demanded a whopping $8 billion in 7 Day FX swap operations for the week starting July [11], double the prior week's $4.2 billion (by presumably the same 10 banks [12]), and the most so far in 2012. Looks like not only is Europe not fixed, but banks suddenly have developed a huge appetite for USD - could it have something to do with forced over-repatriation of all EUR-based assets, in a desperate attempt to keep the EUR higher, even if it means ending up with far less USD than capital levels demand? No worries, there is always the ECB to cover the underfunding if and when needed.
[13]
And for a brief yet quite hilarious tangent: as the chart above shows, the marginal rate charged for liquidity swap borrowings was at 0.66% in the past week just shy of its 2012 highs. So what does that "unmanipulated", self-reported indicator of interbank availability of US Dollars, the 3 Month USD Libor, show?
[14]
As of this morning we just hit 2012 lows of course, or more or less the inverse of what the ECB and the Fed are saying is the true cost of dollar availability.
What can one do but laugh at this point.