The twists and turns of the Euroland crisis are happening on an hourly basis. Greece (once again) is apparently the big issue. However, it’s fairly certain that the banks the ECB have announced it’s lending dollars to tomorrow will not be Greek. That’s not a typo, the ECB is lending dollars to two European banks, not Euros, a certain sign, if needed, these banks are finding it difficult to borrow the U.S. currency from the markets.
The ECB has allotted $575 million in a seven day liquidity-providing operation at a fixed rate of 1.1 percent. It’s the first time since August 17th that a lender has requested dollars from the ECB. An ECB spokesman declined to comment (for now) on which banks have earmarked the borrowed funds. This support highlights growing suspicions that the ‘Greek problem’ is simply misdirection in comparison to the real problems still to come out of the rotten woodwork.
Reuters are reporting that European finance ministers have been warned confidentially of the danger of a renewed credit crunch as a “systemic” crisis in euro zone sovereign debt spills over to banks. In a report prepared for ministers meeting in Poland on Friday and Saturday, senior EU officials said the 17-nation currency area faces a “risk of a vicious circle between sovereign debt, bank funding and negative growth.”. This meeting is to be honoured with Tim Geithner’s presence.
Stocks have rallied due in principal to France and German officials issuing statements that they’ll ‘stand behind’ Greece. This news helped the SPX to close higher for a third day. The euro extended gains as both German and French leaders agreed support for Greece to ensure it remains in the euro monetary union. The Chinese whispers refuse to dampen despite Chinese officials offering no transcript of support to act as the global bank of last reserve.
The SPX gained 1.4 percent to close at 1,188.68. The STOXX Index added 1.5 percent. The euro rose versus 15 of 16 major pairs, climbing 0.5% versus the dollar. Oil futures fell 1.4 percent to $89.91 a barrel. There are theories amongst market commentators that this rally could in fact be a ‘relief’ rally. The fragile nature of the relief rally was amplified by the poor retail figures published in the USA. Sales stagnated in August, presumably the bleak employment outlook and limited income growth has finally encouraged Americans to keep their cards in their wallets. In an economy so heavily dependent on consumerism (70%) this news would have normally signalled negative market sentiment. USA inventory figures also fell, indicating that companies, particularly retailers, are extremely wary of stock piling with consumer confidence currently inconclusive.
The developed world’s economies have become ensnared in a growth slowdown that threatens to turn into recession, at a time when room for manoeuvre with bold policy responses has narrowed significantly, Reuters polls have showed. Surveys of more than 250 economists in North America, across Europe and Japan portend steadily increasing chances that central bankers will need to fire any weapons they may have left to stave off disaster. The median probability of a second recession in the United States, euro zone and Britain has climbed to roughly one in three, which is dangerously close to where such predictions have been correct in the past.
Traders should be aware of the raft of data relevant to the London opening and morning session which is published tomorrow morning. That data blitz extends through to the USA session in New York.
UK retail figures are likely to disappoint, no doubt the excuse will be rioting and or poor weather as opposed to bleak employment prospects and falling incomes (in real and inflation adjusted terms). Bloomberg economists polled expect a fall to -0.3% from +0.2% in July. The ECB report is unlikely to overshadow the overwhelming Euroland news most investors and speculators are aware of. Employment figures could be of interest given Germany’s sudden arrest of growth earlier this month. The CPI figures for Europe are expected to be 2.5% year on year.
09:00 Eurozone – ECB Monthly Report
09:30 UK – Retail Sales Aug
10:00 Eurozone – CPI Aug
10:00 Eurozone – Employment Change Q2
13:30 US – CPI Aug
13:30 US – Current Account 2Q
13:30 US – Empire State Manufacturing Index Sept
13:30 US – Initial and Continuing Jobless Claims
14:15 US – Industrial Production Aug
14:15 US – Capacity Utilisation Aug
15:00 US – Philly Fed Sept
The ftse daily future is indicating a positive opening as are most European indices. Gold and Brent crude appear relatively flat.