Chillin' out till it needs to be funded
Even as 9 downgrades drown out peace and quiet in the US on Martin Luther king Holiday ( His birthday was yesterday) ECB deposits are about to hit the EUR 500 bln mark more than the loans made thru LTRO, but include corporate deposits in this figure from all the big European companies who are being paid by banks to restore confidence thru deposits to national banks. I don’t know if I want the extra money, I have a business to run?
However, the decoupling in equities is obvious, despite S&P timing it to a 3 day weekend, for France and Austria’s downgrade. The four AAA rated countries in the ring which need to fatten the EFSF now are Germany, Luxembourg, Netherlands and Finland. Luxembourg does not have
much by way of a contribution to the EFSF, Netherlands probably can, Germany shouldn’t in these times of need, and Finland won’t Thus the days of EFSF as a AAA are on a open countdown whose clock is already ticking. However as of now the EFSF is a AAA rescue fund, making every Euro Dollar count from the EUR440 facility and the $600 bln LTRO. The lower rating would meana RWA degradation and the amount of collateral required for each Euro of support will go up choking the fund’s current billing.
In the US, the week includes three days of bank earnings and no one cares where Europe is during this week. European corporate performance will liely be on the lines of how US banks behave as US defines the median growth performance of 2012 and the Euro deigns the year in the dust bin worth the effort to stabilise..
The 17-nation currency has fallen 8.6 percent against the dollar since October, while the Standard & Poor’s 500 Index has gained 2.4 percent, and the correlation between the two dropped to 58 percent from a record 91 percent in November, according to data compiled by Bloomberg. The euro had moved almost in lockstep with investments linked to growth, including stocks and the Australian dollar, since January 2011. (B’berg)
The Euro’s fall is also making sure the European recession is nothing more than a mild scratch on the region’s economies and it may yet stay out till it is 1.19.
Meanwhile European bank investors were glad the downgrades had finally happened and as the banks get ready to June readiness , they started crawling back 2% in the exchanges incl Deutsche Bank, Commerz Bank while Stanchart and HSBC resist the fall in UK. SocGen and Unoicredit are down 2.5% and 4% UK banks would be hit on performance by the strongly ranged Pound sterling according to analysts coming out of the downgrade weekend