The June Bank of England minute for June were released showing a vote of 5/4 to keep asset purchases (QE) at the current level of $325bn, the surprise in the minutes was that 4 people had voted to increase QE as the market had only thought 2 had called for additional asset purchases.
The market is waiting for the Greek coalition government to be sworn in which is expected today or tomorrow.
As has been expected partly as collateral damage, Italian yields are at the unsustainable level which gave rise to yesterday's rumor/rampfest which was based on the headlines that Italy had proposed at the G-20 conference in Mexico that the EFSF and ESM bailout mechanisms should effectively be used to replace the ECB's SMP program and that Germany had taken the proposal favorably and it was being discussed. Broken down in to English, this would mean the traditional role of supporting sovereign yields by the ECB buying in the secondary market through their SMP mechanism would be taken up by the ESM and EFSF, as we found out later in the day this was pure rumor and had been denied as only an idea, no discussions were held regarding implementing anything and at VERY BEST, it was simply an idea proposed by Italian PM, Monti, but the real news was that Italy was in a round-a-bout way, asking for a bailout of shorts confirming the notion that Italian debt burdens were reaching the critical stage with the denial of the rumor leaving Italy with no recourse or hope of their bonds being supported to hold down unsustainable yields.
Overnight this idea/rumor was put to rest once and for all by the real authority and decision maker in the EU, Germany.
BERLIN (MNI) - The German government on Wednesday reaffirmed that
the European bailout funds EFSF and ESM won't be able to buy bonds of
EMU member states on the secondary markets without these countries
applying formally for such aid and accepting the conditions tied to it.
"Such secondary market purchases are foreseen as one of several
instruments in the EFSF as well as in the future ESM," government
spokesman Georg Streiter said at a regular press conference here. "They
are naturally tied to conditions and there won't ever be any purchases
without conditions."
On Greece:
Commenting on Greece, Streiter said Germany expected that the new
government there will abide by the fiscal consolidation and reform
program agreed with the EU, the ECB and the IMF.
German Finance Minister Wolfgang Schaeuble told German weekly Die
Zeit in an interview to be published Thursday that "we did not ask too
much of Greece and we won't ask too much of Greece."
From Bloomberg:
VENIZELOS SAYS CONDITIONS FOR COALITION BEING MET, He adds that the key issue will be to form a bailout renegotiation team. - Says ND, Pasok, Dem Left will take on burdens; caretaker finance minister to go to Eurogroup
- Greek party leaders to meet Finance Minister Zanias tonight
- Venizelos says EU summit will be battleground for bailout talks
This is not really overnight news, but the term financing for inter-bank lending has seen an inverted curve, meaning it is more expensive to fund short term loans like overnight loans that are used to meet withdrawals of deposits. In essence the cost is rising as we are seeing the same counter-party risk we saw in the US in 2008-2009 that locked up our credit markets. This is a sign of 2 things: 1) The flight of deposits capital in EU banks is accelerating 2) the distrust of counter-party lending is increasing. All in all, not a good sign for the already severely undercapitalized European banks. Longer term loans are being nearly avoided altogether.
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Just around the time of the US open, we get the following news:
GREEK NEW DEMOCRACY LEADER SAMARAS SWORN IN AS PRIME MINISTER
In the US:
The F_O_M_C policy decision comes at 12:30 with F_E_D forecasts at 2 p.m. and the Bernie presser at 2:15.
There have been tons of projections from QE to Twist to LSAP purchases, in a pol about 70% of market participants expect some F_E_D easing, I'll not speculate any further than what was said yesterday.
As for ES/FX...
Since this morning's 9:30 open...
Market Updates up next
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