Europe cheered and then shrugged
The momentum from yesterday’s session carried into Asia overnight and Europe was building up steam (the DAX Index was up 0.9 per cent) ahead of the much anticipated 10:15 GMT announcement from the European Central Bank about allotments on its new three-year Long-Term Refinancing Operation, a programme to ease funding constraints in the banking system.
The reaction was initially positive sending stocks and the EURUSD higher in what looked like a frenzy of short-term optimism as the allotments reached EUR 489 bn. compared to the around EUR 300 bn. expected. Interestingly enough the first reaction was positive despite being able to interpret more loans as a signal that the banking system is weaker than initially estimated.
Since the early excitement sent the DAX Index up 2 percent for the session, the index has come down hard and currently trades 0.5 percent lower for the session. Reality might have struck investors as the LTRO programme only solves the liquidity side of the equation; and may also only partly recapitalise the banks through sovereign debt carry trades. However, the overall solvency problem is not solved by this which should be no surprise to anyone. The current deleveraging process and solvency problems in a low growth environment will take years to solve.
Next up in Europe is advance figures on consumer confidence for December expected (15:00 GMT) to come out at -21.0 down from -20.4 in November.
Will U.S. Existing Home Sales continue the momentum in housing?
Housing starts have been surprising to the upside lately and today’s existing home sales will see if the momentum is more broadly based than only in housing starts. Consensus looks for 5.05 mn. in November, up from 4.97 mn. in October.
Peter Garnry
SAXO BANK