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. Finally, 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 regardless 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. 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 source 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 uber-ponzi experiment that is Europe.
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!
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 regardless 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. 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 source 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 uber-ponzi experiment that is Europe.
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!
No comments:
Post a Comment