Chillin' out till it needs to be funded
Though the Fed Balance sheet data announcement is still an hour away as I start writing this piece today, it is the inevitable updates on size this week from both sides of the pond. The Eurosystem is up to EUR 2.975T in the latest book and some would still like to believe the Eurosystem would fund each of its own banks and get some funding from the markets but as of now there is a big hung jury verdict on the Eurobonds or the loose Euro formations serving Greece and Spain for a few years as options circulating now. (which would catch fire among economists as the Grexit option too or “the inevitable move towards Drachmatization” as Alexis Tsipras makes his rounds)
The Euro’s Survival
The Fed was already at a $2.88T last week and counting, while the Eurosystem has started an incomplete countdown in the Financial markets as financial loosening just at the thought of Bankia alone being funded a little less than EUR 10 B makes the currency shudder all the way down into the lake , of course it is a very touristy trip , for most a trip comparable to the train across Interlaken or the ICE to Cannes or Venice from Paris.
Of course the Euro will survive, even though German manufacturing and thus EU manufacturing indices are at an all time low falling to 45, even below China for the better part of one year now. but then this column is just to avoid repeating everything else the data obviously throws at you and just let a choice path emerge from the bewildering array of choices before the Developed governments.
Also because of this nation’s ignorance of the motorsport, F1 will be opening to the public in 2012 with the IPO worth $2.5B and $1.6B already with anchor investors in the Citystate of Singapore. More commodity giants ave been considering a move to Singapore and the city state has been angling for the Dodd Frank belittled US Bank business in derivatives too. (Currencies especially) investments in Europe are down by 20% and more than 67% of Greece’s bank deposits have left the country
The Recovery in the United States
The TIPS auctions apart, there are disturbing signals about the declining demand in the USA and the unlikely but true impossible odds of adding more Consumer debt in the Economy as time to increase the development expenditure pie has come near for Obama. Of course a gridlocked Congress does not allow him to correctly allocate his new spending while managing the higher taxes on the wealthy that could do the trick. The Republicans’ show and tell is unlikely to fool anyone especially with a market friendly business tycoon as Obama’s taxfree opponent in the elections
Jobless claims as mentioned earlier are closer to 400k than to 350k or then a lower number that was supposed to come but manufacturing has had a busy April and likely May too as the indices foretell every week.
The Fed Balance Sheet
The Fed Balance sheet had retracted $13 B last week bu tthis Wednesday (May 23) report release a few minutes back shows a minimal expansion of $8.5 B of which Reserve Bank Credit picked up by $2.1B that brought it to $2.842 T Central Bank Liquidity Swaps that will stress the Fed further when the Euro is stressed are a total of $26 B of the above total and there were no additions this week MBS totals added another $9.23B to just $862 B, Maiden Lane securities still accounting for $19B for a $2.903 T total on daily average basis and $2.903,275 T as of COB Wednesday. US Currency is another $1.1 T leaving $1.5T on balance with the Fed Reserve banks
MBS balances are down $60B on the year and Maiden Lane balances are down $43 B from the same week in 2011 (May 25)
Meanwhile across the pond the Eurosystem gets ready to tackle a big BOP crisis, however the culprit commonly assigned to them GReece and all of Target 2 outstanding balances are a mere $ 50 B while the LTRO is more than $1.35T even at the now discounted Euro rate of $1.25 (for today)
T2 outstandings are caused by Greece or other South nations not paying for Exports and this may be a small amount to pay for stability thus making Germany not very keen to push for settleement while in ordinary course it could have invested in GReece to settle out the T2 imbaalance. The BOP crisis however exacerbates from a ballooning deficit in Current transfers to nearly EUR 20 B (part of the Current Account Deficit) while overall Current Account Surplus of nearly EUR 5 B is supported by a surplus in Manufacturing and Services albeit both have been decreasing
US on its ‘Balance sheet’ manages a continuing Current Account Deficit and is still growing Exports while Services provide the Trade surplus and Manufacturing the Deficit and Eurozone despite teh surplus has been degrowing its International trade as Exports plummet