Hi,
Is the words Carney (BOE) will continue on Wednesday by Ben Bernanke?
Yesterday's data from the euro area economy shows that economic growth in the two largest economies of the zone begins to delaminate. PMIs for the economy of France show that the country can not cope with the problems (it is hardly surprising looking at the role of trade unions and labor market flexibility) and begins to increasingly gravitate and so weak recovery in the euro area. Indices for the German economy has shown once again that the euro zone's biggest economy looks pretty good.
However, in the context of the situation in the euro zone more and more importance should be rising short-term market interest rates. Looking at them, and on weak data from France can not be excluded that the ECB will want to continue strongly to support the economy through further monetary stimulation. ECB at the last meeting was not enough "pigeons". Hence, it is possible that at the next meeting of the ECB "hit with redoubled force".
LTRO:
Concerning the translation paradox of the strong euro in the post <here>. I suggested then falling liquidity in European interbank market, which resulted in an increase in short-term market interest rates (despite the intentions of the ECB).
Investment and Retail banks every week have the opportunity to repay the funds borrowed earlier from the ECB's under the operation LTRO1 and LTRO2. So far repay these funds in symbolic sums (about 3-7 billion EUR) per week. Now, however, the argument appeared to accelerate this process. Well, the ECB intends to carry out stress tests of European banks before they take supervises them in November next year. To do well in these tests, the banks started to reduce balance sheets and pay back the loan faster. The ECB just announced that tomorrow the banks repay the loan in the amount of 22.65 billion EUR. What's more, banks will have more opportunity to repay in next week and traders in the market interest rate may fear even greater repayment, as banks may wish to improve balance sheets before December 31. Such large repayment carry with obvious consequences: lower supply of deposits put pressure on the interest rate, and for that some banks may borrow short term to make the repayment. As a result, month LIBOR for EUR is 5 bps over the U.S.despite the fact that still just talked about negative rates in the euro zone.
If the situation calms down by itself (which is very likely in late December or early January), the ECB will add additional liquidity to prevent unwanted tightening of monetary policy.
In addition, the ECB will download from the market even 152.3 billion EUR under sterilization purchase bonds under the SMP program. ECB assumed recovery of more than 180 billion EUR. The lower amount means that the banks with the ECB funding measures are not willing to, indicating that liquidity problems and further raises short-term rates LIBORu in EUR and Euribor.
U.S. CPI:
Today we met data about inflation in the U.S. for November, as measured by the CPI. Inflation in monthly terms virtually non-existent, while in annual terms amounted to exactly 1.22%, rising from 0.9%. It is, however, a smaller increase than the market expected (1.3%).
On the other hand, core inflation, although unchanged on an annual basis, was 0.15% on a monthly basis, while the market is not expected to change. It is clear that lower inflation is the result of a total lack of changes in food prices on a monthly basis. The strength of demand reflects better core inflation from April is in a very narrow range of 1,64-1,77%!
But keep in mind that the Fed also looks at the dynamics of the retail price. Here data for November yet we do not have, but in October the base PCE was 1.1% y/y in April here we were in the range of 1,11-1,22% (1.11 in October). Absence of inflationary pressures in the United States emphasize the import prices, which, after a decline of 0.6% m/m in October, decreased by 0.7% m/m in November. This is in part the effect of cheaper oil, but in a year on a negative territory prices are also imports from Japan (-3.2%).
Inflation may start to fall due to high inventories, which the company wants to sell off. Remind that the last great result GDP was largely the result of rising of inventories.
trade safe tomorrow,
regards,
oscarjp
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