Another Day, Another Liquidity Contraction In Europe: Fresh New Record In ECB Deposit Facility Usage

Today's little snapback in the EURUSD may be more of a kneejerk reaction to Goldman's updated PT on the EURUSD from 1.35 to 1.15 (the whole market now knows to fade every Goldman call from initiation), than are a response to fundamentals. These, unfortunately, continue to deteriorate. ECB deposit facility usage has hit a fresh new all time record of €369 billion, an increase of €4.5 billion overnight. The scramble to put away euros continues.

Eur LIBOR and Euribor were flattish after yesterday's sharp move higher.

As to why Europe's liquidity situation is so very critical, Nomura's Paul Schulte explains via Bloomberg:

 A “liquidity seizure” arising from Europe’s worsening debt crisis could drag the global economy back into recession, according to Paul Schulte, head of multi- asset strategy in Asia excluding Japan at Nomura Holdings Ltd.

“As Europe’s problems unwind, liquidity is going to seize up. As liquidity seizes up, multiples are going to contract,” Hong Kong-based Schulte told reporters in Singapore today. “Equities are not necessarily cheap.”

“What we are having is a sort of liquidity seizure because of the dislocation in the euro,” Schulte said. “If we are not careful, that could tip us back into recession again.”

Schulte’s views contrast with that of the International Monetary Fund, which said yesterday the European debt crisis has been contained and that it still expects global growth of about 4.2 percent this year.

European Union governments this week vowed to police national budgets at an early stage and introduce a wider range of sanctions on excessive deficits to prevent a repeat of the Greece-fueled debt crisis that weakened the euro. They also pledged to press ahead with deficit cuts next year.

Still, Schulte said the euro may continue to slide as “debt restructuring in Europe looks inevitable.”

On the other hand, according to the World Bank, the IMF and Bernanke all is under control. Ignore their 100% spot on recommendations at your own peril.