EUR 530 bn LTRO
The ECB announced it is lending banks EUR 530 bn in the much anticipated 3-year LTRO. This was slightly above consensus estimates and above the December offering both in terms of the gross number and the number of banks participating (800 this time around). The initial reaction was of Euro-Risk cross selling. EURUSD fell marginally but the main moves lower came through the likes or EURAUD, EURCAD and EURNZD. The clear dynamic here is a stable risk environment, with some of the tail risks removed, but also an increasingly expansionary monetary base. Therefore the reaction in the euro-risk crosses is understandable and we see scope for a further move lower over the medium term. Our European bank analysts expect the Spanish banks to be the biggest takers. They note that the private sector has largely switched off funding for most domestic players and the sector isn’t being reformed. This is “chronic” central bank funding. For now, the potential longer term problems behind the LTRO are likely to be overlooked, especially in a context of a better macro environment more generally. ISDA made a second announcement on the subject of Greek CDS. Two days ago it received a question relating to a potential credit event in Greece and overnight, it decided to accept that question for further consideration. The committee is due to meet on Thursday at 1100 GMT to decide whether a credit event has occurred. Even if the committee rules that a credit event has not happened yet, the possible invocation of CAC clauses in a few weeks could lead to a credit event being declared at a later date. Elsewhere Swedish GDP numbers were weak, but SEK was later dragged higher in line with other risk assets. Fed Chairman Bernanke begins the first of two days of Congressional testimony today. Overnight, EURUSD traded 1.3422-1.3486 and USDJPY 80.26-80.69.
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