Intraday Market Thoughts

LTRO Falls Flat, New Zealand GDP Upbeat

by Adam Button
Dec 22, 2011 1:22

The huge take up in the ECBs 3-year lending operation jarred the euro to nearly 1.32 but it slipped to 1.3050 at the end of the day on some weak details. CAD was the top performer on better-than-expected retail sales; CHF lagged after the fin min signaled the potential for new measures to weaken the franc. New Zealand GDP figures released early in the Asia-Pacific session were a touch better than expected. A note on our Premium Wednesday trades is below.

The LTRO morphed into an opportunity to sell euros after a brief short squeeze and reports of trouble at Dexia. News that Italian banks issued 40B in government-backed debt for the purpose of investing in the ECB program undermined the LTRO result somewhat.

We take a more constructive view. Even if the banks exploit ECB lending operations it may still help to solve the sovereign crisis, so long as the proceeds are reinvested in government debt and/or used to shore up capital levels. During the US credit crisis a number of emergency Fed programs amounted to no more than a massive subsidy to cash-stricken banks. It was undoubtedly back-door corporate welfare but the market is more concerned with stability than principle at the moment.

With a whopping 489B of LTRO funds now in the hands of the banks, some of the money will surely find its way into sovereign debt issues. If not, the euro will crumble.

Elsewhere, the moves in markets were relatively tame. CAD outperformed with Nov retail sales rising 1.0% compared to the 0.4% expected. EUR/CHF rose as high as 1.2240 after fin min Widmer-Schlumpt said a panel is considering new measures to weaken the franc, including capital controls and negative interest rates. The S&P 500 gained 0.2% to 1244.

New Zealand GDP climbed 0.8% in Q3 compared to the 0.6% expected but the details of the report painted a considerably less positive picture. Downward revisions to earlier quarters put the y/y rate of growth down to 1.9% compared to the 2.2% expected. Also the rise in Q3 appeared to be due to unsustainable inventory rises and consumption boosted by the Rugby World Cup.

There are no other events scheduled for the Asia-Pacific session.


Wednesday's Premium trades were titled "Favouring CAD & Oil", a theme that will surely re-appear quite few times. It was another day of seeing several trades go unfilled despite moving in our predicted direction. None of the AUDUSD shorts were filled, Only 1 of our shorts in silver was filled, while only 1 of the US crude longs hit all targets, with the other long unfilled. Here are is direct access to those remaining trades including, gold, ES and AUDNZD Non subscribers can start a trial here


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