Trichet

Market Snapshot: Reaction To Trichet - We Are Not Impressed

Out of the gate, credit and equity markets seemed happy that Trichet was offering CBPP2 and a Euro-TLGP II program in Oct/Dec but that quickly subsided (what no rate cut?) as rather surprisingly the market realized for itself - with little cajoling from us - that while short-term roll risk was reduced, capital still remains a 'problem' as the seemingly known (haircuts/exposures) unknowns and we assume unknown unknowns (contagion impact) remain tangible and this does nothing solve the underlying problem of insolvency. We were pleasantly taken aback by this reaction (and not in a Schadenfreude manner) but more simply that the market is 'getting it' - kicking the can by extending more and more credit (as Peter Tchir alluded to earlier) simply has its limits - and perhaps we are there.

Watch Trichet's Last ECB Press Conference Live

Update: Trichet announces two fixed rate LTRO tender operations, one 12 month in October, and one 13 month in December, very much as expected. In other words, the ECB will repo even more crap than it has already.

Update 2: Trichet announces CBPP2 - a new €40 billion Covered Bond Purchase Program, i.e. a new €40 billion QE program as the ECB will purhcase covered bonds in primary and secondary markets.

A historic press conference is about to unfold, in which the current ECB president, in a state of complete denial about the imminent implosion of his continent, will mumble for 45 minutes one last time and attempt to preserve his "legacy" after which he will hand over the "printer" briefcase and secret codes to none other than Goldman's Mario Draghi. And Goldman, as is well known to Zero Hedge readers, is certainly not nearly as shy as ole' Tricky to print when needed. Expect some vague promises of more liquidity, possibly the reopening of a 1 or 2 year repo line in which the ECB will accept even more used banana peels and sexual prophylactics in exchange for euros, and an overall deflationary bias. It doesn't matter. It is too late. More importantly, today's "shot rules" are a shot of Jager every time the words "price stabeeleetee" are uttered. Trichet's full prepared remarks transcript can be found here.

Watch Jean Claude Trichet's On Air Meltdown

Think the ECB is unable to maintain the illusion that central planning works? Think again. Some unlucky sod dares to ask Trichet how the central bank plans to defend its failure as a monetary authority, to which the French president proceeds to have an unprecedented (for a central head banker) on air meltdown with literal foaming in the mouth. "You want the lies?... You can't handle the lies. It is all about ze price stabeeleetee." Hilarity ensues, especially after JCT proceeds to bash his one and only nemesis: Germany. Prepare to watch many more such episodes over the next 2 years as the world voodoo economist PhDs have so carefully constructed for themselves in their ivory towers comes crashing down.

As ECB Monetizes Another €7 Billion In PIIGS Debt, Trichet Says A Prudent ECB "Is Not The Fed"

Earlier today we speculated that the latest ECB monetization tally of insolvent PIIGS debt would be between €10 and €15 billion. Well, the final number was below the bottom end of the range or €6.7 billion (with €1.3 billion maturing). This follows €22 billion and €14.3 billion in the past two weeks, bringing the total under the ECB's debt monetization facility to €120.3 billion, a number that Germany must be simply ecstatic about. Keep in mind this is debt that local banks can not pledge to the ECB in return for 100 cents on the euro, and in essence removes liquidity from the system. What was hilarious, however, is the immediate defensive posture by the ECB's Trichet who said on the subject of whether ECB taking on too much risk, that the increase in ECB's balance sheet not as large as Fed or BoE. He also said that "Everybody understands that particularly in the present situation that the ECB would maintain a solid anchoring of inflation expectations,” Trichet told the European Parliament’s economic committee during a special session called to discuss the debt crisis. "All countries would be hampered” if they became unanchored, Trichet added. Bottom line - the most modern spin on an old maxim: "the ECB is not the Fed" - we are not sure if that is a good or a bad thing: frankly it is all central planning. What we are concerned about is that contrary to what self-aggrandizing economist PhD's, somehow the ECB did not refute the fact that there is central bank risk. Yes, even with all that fiat printing capacity.

Watch The Jean Claude Trichet Teleconference Live

The 8:30 EDT press conference is due to start any minute. The key questions which Trichet will not answer this time around are i) whether the ECB will reactivate its secondary bond buying program or maybe even expand it and ii) why the ECB continues to sacrifice the peripheral countries courtesy of high rates just to keep so called "transitory" inflation in check. The rest will be anger-inducing mumbling and bureaucrat rhetoric.

Watch The Jean Claude Trichet Teleconference Live

Those who wonder what JC Trichet has to say about the future of ECB monetary policy can do so below. So far the euro is not happy, in line with expectations that future rate hikes now appear very much in doubt.

Trichet: Debt Crisis Is Flashing “Red” - Marc Faber Continues To Like Gold And Silver And Accumulating

The European Central Bank President, Jean-Claude Trichet, was not as optimistic as he usually is, when he raised the alarm level on the debt crisis to “red” late yesterday. After the meeting of the European Systemic Risk Board in Frankfurt, Trichet who chairs the ESRB, said that risk signals for financial stability in the euro area are rising and flashing “red”. He said “on a personal basis I would say yes, it is red”. Trichet warned market participants that the crisis is nowhere close to be resolved. Trichet warned of “potential contagion effects across the union and beyond.” Overnight Marc Faber, publisher of the Gloom, Boom & Doom report, told Bloomberg this morning (see interview below) that he still favours gold and silver. He said there could be short term weakness but that he will keep accumulating gold. Faber warned against shorting the precious metals as they are likely to keep going up. He also warned regarding recent incidents of fraud and corruption by newly listed Chinese companies and said this was indicative a bubble. In his usual contrarian and witty manner, he said that “not to own any gold is to trust central bankers and that you do not want to do in your life.”

Trichet: "Strong Vigilance" Needed, ECB Raises 2011 Inflation Range From 2.0%-2.6% To 2.5% to 2.7%; July 1.50% Rate Hike Coming

Soundbites from the Trichet conference:

  • TRICHET: ECB SEES "UPWARD PRESSURE" ON EURO AREA INFLATION
  • TRICHET: "STRONG VIGILANCE" NEEDED ON INFLATION RISKS; ECB WILL ACT IN FIRM AND TIMELY MANNER; ECONOMIC UNCERTAINTY REMAINS "ELEVATED"
  • SEES 2011 INFLATION AT 2.5% TO 2.7% VS PREV 2.0% TO 2.6% *TRICHET SAYS HIGHER INFLATION FORECASTS REFLECT ENERGY COSTS
  • TRICHET: COMMODITY, ENERGY COSTS DRIVING PRICE PRESSURES; UNDERLYING PACE OF MONETARY EXPANSION RECOVERING
  • TRICHET: UNDERLYING PACE OF MONETARY EXPANSION RECOVERING; MONETARY STANCE IS "ACCOMODATIVE"
  • TRICEHT: GREECE NEEDING ABOUT EU45B OF NEW LOANS; GREECE WILL GET EU57B OF LOANS UNTAPPED FROM 2010; RAISE EU30B FROM ASSET SALES THRU '14
  • TRICHET: ECB TO SECURE FIRM ANCHORING OF PRICE EXPECTATIONS; ECB "WILL DO ALL THAT IS NEEDED" ON INFLATION
  • TRICHET: NON-STANDARD MEASURES ARE TEMPORARY
  • TRICHET: ECB TO KEEP FIXED RATE ALLOTMENT TENDER FOR 3 MONTH LTRO OPERATIONS FOR Q3
  • TRICHET: ECONOMIC ACTIVITY EXPECTED TO BE SOMEWHAT DAMPENED BY BALANCE SHEET ADJUSTMENT

The EURUSD chart looks like an EKG

Euro Jumps, Risk Is Bid, Following Strong Spanish Bond Auctions, Trichet Promises For EU Finance Ministry

Risk is solidly bid this morning as the EURUSD has jumped to overnight highs of just under 1.45, and the DXY has just dropped to a one month low, following two Spanish bond auctions which saw yields surge yet came at far higher bids to cover than previously. From Reuters: "Spain saw strong demand for 3.95 billion euros ($5.67 billion) of medium-term bonds on Thursday, though a broad drop in risk appetite and lingering uncertainty over how talks on fresh aid for Greece will pan out kept yields high. In a litmus test of investor appetite for peripheral euro zone debt as policymakers thrash out a plan to avert a Greek default, the 2014 bond, with a 3.4 percent coupon, sold 2.75 billion euros at an average yield of 4.037 percent. That compared with 3.568 percent at the previous auction in April, while the bid to cover rate rose to 2.5 compared with 1.8. The 2015 bond, last issued in September of last year and with a coupon of 3 percent, sold 1.2 billion euros at an average yield of 4.230 percent, slightly lower than yields on the secondary market. The bond was 2.9 times subscribed after being 1.6 times subscribed at its last auction. "Since the (2014) launch early April, we've had an escalation on the peripheral side, so a firm selling since then, which is why (the yield) jumped so much," economist at 4Cast Jo Tomkins said. "You'll see plenty of buyers coming in at that level, especially since the Greek deal seems to be moving in a positive direction." Also adding to the risk appetite are statements from Trichet that in the longer term, he could suggest forming a finance ministry of the European Union, adding there is no crisis in the EUR. Lastly, he added that if aid programs fail, as a second stage he could consider deeper integration of economic policy, more central command of domestic policies. Of course they will: once all is plundered, the ECB will become the defacto "protector" of its colonies. And falling solidly into the trap is Greece where according to a government source the privatization plans may run faster than expected.

Euro Plunges On Dovish Trichet Comments, Says ECB Has Credibility Because Hiked First (What Does That Leave For The Chairsatan?)

Trichet says:

  • CPI rates likely to stay above 2% in coming months
  • Risks on economy from Japan disaster
  • Geopolitical tensions pose growth risks
  • Paramount that rise in HICP inflation does not lead to second-round effects
  • Risks to medium term inflation outlook are on upside
  • Inflation expectations must remain firmly anchored
  • Monetary analysis indicates underlying pace of monetary expansion picking up but moderate
  • Confirm banks have continued to expand lending to private sector
  • Governments need to achieve their fiscal consolidation targets in 2011

Most importantly: he says nothing about a June hike which was largely "priced in" by the Wall Street lemmingraty.

Watch Jean Claude Trichet Give Guidance On Future Rate Moves By The ECB Here

The ECB rate decision (unchanged) has come and gone, and now everyone is focusing on the follow up conference at 2:30 CET (in less than 40 minutes), at which Jean Claude is expected to announce whether he will continue at the current rate of tightening with a June rate hike, or, since the global economy is once again contracting, will declare all those who called his rate hike decision idiotic, correct, and proceed to keep liquidity flat, if not loosen once again.

The Annotated Trichet

Goldman's Natacha Valla has compiled this useful paraphrase of the Trichet press conference conference. In a surprising turn of events, the ECB head pulled a Greenspan and left many scratching their heads just what he means. We will take a quick stab at predicting the implications of today's rate hike: once the EFSF runs out of capital, or outright fails, the ECB will be back in loosening mode right fast.

EUR Surges After ECB Raises 2011 Inflation Outlook, Trichet Implies Only Unercapitalized Banks Prevent Rate Hike, May Raise Rates At Next Meeting

At least one central bank refuses to drink the Kool Aid: following today's announcement by the ECB which kept its interest rate as expected at 1%, JC Trichet is now making waves in the FX market after announcing, or rather not announcing, that "rates are appropriate" in his opening statement line, a traditional opener to the press conference that follows. Just as notable is that the ECB staff has now hiked the low-end of its inflation expectations for 2011 by about 40%, from a range of 1.3% -2.3% to 2.0%-2.6%, and 2012 from 0.7%-2.3% to 1%-2.4%. Trichet also adds that now very strong vigilance is now warranted and it is paramount to avoid second round effects. Most troubling is Trichet's admission that the latest staff forecasts exclude the impact of the most recent oil jump. And while it is very clear that Trichet is dying to hike rates, the reason he won't is, that's right, Europe's insolvent banks, about which he said that they "should retain earnings, turn to market to strengthened capital bases, and take full advantage of govt. support measures." In other words, it is once again the banks fault that in the inflationary cycle people will be forced to pay more, as the alternative would see the bankruptcy of numerous financial institutions.