European banks are preparing for a potential worsening of the region’s sovereign and banking crisis, with many firms stockpiling cash and cutting back on loans to new clients as they seek to protect themselves against a possible seizing-up of financial markets.
Faced with 650 billion euros of debt coming due this year – almost 40 percent of which matures before the end of March – lenders are choosing to build up a cash cushion to ensure they can cover redemptions, creating a squeeze on the wider economy in the process.
“The big concern is that things might get worse,” said Bernd Hartwig, treasury manager at Nord/LB. “Political decisions are taking too long and most banks are building up liquidity just in case something happens. They are very worried that a new crisis could be a bigger than 2008.”
Source: Reuters
European finance ministers will today seek to meet a self-imposed deadline for drawing additional aid to the debt crisis and to form new budget rules as investor confidence that a comprehensive solution is achievable wanes.
Euro-area finance ministers will hold a conference call at 3:30 p.m. Brussels time to discuss 200 billion euros ($261 billion) in additional funding through the International Monetary Fund and the mechanics of a so-called fiscal compact that was negotiated at a Dec. 9 European Union summit, according to two people familiar with the planning.
“They’ll try to get as much done as they can before Christmas, but it’s doubtful they’ll put markets in a Christmas mood,” Carsten Brzeski, an economist at ING Group in Brussels, said in an interview. “There is still so much uncertainty.”
Source: Bloomberg
There are signs that the long string of depressing news from the Eurozone is starting to have an effect on the region’s main economy. A sale of German bonds earlier today was marred by weak demand and higher yields and in the end, the Bundesbank had to withdraw nearly half of the 6 billion euros ($8.1 billion) worth of bonds slated for sale.
The poor showing comes just one day after Fitch Ratings released a report suggesting that France was on the verge of losing its triple a rating. As a result, the euro declined to $1.3385 just before 9 am in New York.
Source: Reuters
Markets were buoyed this morning on news that European governments were prepared to provide a package of incentives to help ease the financial crisis threatening to take down yet another European country. Insiders say the plan under consideration for Portugal includes up to 60 billion euros ($78 billion) in debt buybacks and low interest loans.
German Chancellor Angela Merkel has also stated her country’s intentions to support Portugal saying “we will do whatever is necessary and everything will be discussed step by step,” Merkel told reporters today in Berlin. “Germany will do whatever is necessary so that the euro remains stable.”
Source: Bloomberg
In a sign of increasing confidence in the state of the Irish economy, Ireland successfully sold 1.5 billion euros ($2 billion) of bonds in yesterday’s auction. The extra yield that investors demand to hold 10-year Irish debt over the benchmark German bunds, which exceeded 400 basis points for the first time yesterday, narrowed 21 basis points to 381 points after the auction.
Ireland sold 1 billion euros of 2018 securities at a yield of 6.023 percent, up from 5.088 percent in June, the National Treasury Management Agency in Dublin said. It sold 500 million euros of 2014 debt at an average yield of 4.767 percent, compared with 3.627 percent at an Aug. 17 auction.
Source: Bloomberg
At the last Federal Open Market Committee meeting, Fed Chairman Ben Bernanke hinted that further spending in the form of quantitative easing had not been ruled out. This triggered a stock sell-off as investors saw the comments as a signal that the Fed was expecting the economy to weaken during the second half of the year. With the FOMC meeting again this week, critics are calling for a forthright discussion on what the Fed has planned for the next six months.
“They (the Federal Reserve) have to do a better job of centering expectations of what ultimately the policy intention is and how will they reach that,” said Duy, an economist at the University of Oregon. “Given that we are in uncharted waters for policy, the risks of getting it wrong will be magnified.”
Source: Bloomberg
The European Commission said today that recent efforts by Greece to reduce its deficit has warranted releasing the next round of emergency funding. Greece has already received 20 billion euros (US$25.7 bn) of the 91 billion euros (US$145 bn) pledged in rescue loans.
“Greece has managed impressive budgetary consolidation during the first half of 2010 and has achieved swift progress with major structural reforms,” said European Economic and Monetary Affairs Commissioner Olli Rehn.
Source: BBC News
Over the last few days, Spain, Ireland, and Greece have combined sold nearly 10 billion euros (US$13 billion) of debt. There is even growing demand for more short-term bonds from these high-deficit countries and this is easing concern for the rest of the euro zone.
“Overall funding pressure is losing steam,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London. “We expect the peripheral markets to enjoy even more potential outperformance against the core. Obviously we still have this event risk looming with the banks’ stress tests.”
Source: Bloomberg
The European Central Bank said today that it is making up to 131.9 billion euros ($161.5 billion) in loans available to European banks for the next three months. This is considerably less than expected and suggests that banks are in better financial shape than thought originally.
Banks tomorrow need to repay 442 billion euros in 12-month funds, the biggest amount ever awarded by the ECB and a key plank in its efforts to fight the financial crisis last year. Demand for the three-month cash today was a litmus test for the health of Europe’s banking system, economists said.
Demand was “surprisingly low and certainly a lot less than markets expected,” said Nick Kounis, chief European economist at Fortis Bank NV in Amsterdam. “It suggests that while there are certainly stresses in the system in some regions, it’s not as bad across the board as many people thought.”
Source: Bloomberg
Statistics Canada reported that after seven straight monthly increases, GDP remained unchanged in April. Retail trade fell during the month, but these losses were offset by increases in mining, wholesale trade, the public sector and construction.
Source: The Canadian Press
