ECB buys Irish Bonds

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This latest announcement of the purchase of Irish bonds shows the ECB is continuing its policy of buying national govt bonds to facilitate solvency:

EU Headlines:
Europe’s bankers in talks over bail-out fund

Support for European spending cuts strong

European Bank’s Economist Is Optimistic on Sovereign Debt, but Critics Are Wary

EU Ministers Pressured to Give More Stress Test Data

ECB’s Bini Smaghi Favors Lower Deficit Limit for Stability Pact

ECB Buys 8 Billion Euros of Irish Bonds, Sunday Tribune Says

ECB Buys 8 Billion Euros of Irish Bonds, Sunday Tribune Says

July 11 (Bloomberg) — The European Central Bank bought about 8 billion euros ($10.1 billion) of Irish government bonds in the last seven weeks, the Sunday Tribune said, without saying where it got the information. The purchases account for as much as 10 percent of outstanding Irish bonds, the Dublin-based newspaper said.

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Why is North Dakota doing so well?

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I looked into the North Dakota State Bank and didn’t see any reason that would make much of a difference, so I check out their ‘export’ industries:

https://www.dmr.nd.gov/oilgas/stats/DailyProdPrice.pdf

https://www.dmr.nd.gov/oilgas/stats/gasprodsoldchart.pdf

https://www.dmr.nd.gov/oilgas/stats/DrillStats.pdf

all found here:

https://www.dmr.nd.gov/oilgas/

And all with under 500,000 people.

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ECB’s Trichet Says European Economy Showing ‘Encouraging’ Signs

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The ECB has ‘written the check’ by buying national govt bonds in the secondary market in sufficient size to allow the national govs to fund themselves, and equities are coming back as solvency fears abate.

There is still solvency risk, but now that risk is the risk of the ECB cutting off any nation in question.

And with exports firming the same forces are causing the currency to strengthen to the point where net exports remain relatively stable.

The ECB is also in full control of the banking system liquidity, as it too is dependent on ECB funding, and dictates terms and conditions there as well, where there need be no failures (even a bank with negative capital can be sustained by liquidity provision) unless the ECB decides to let a bank fail.

EU Headlines:

ECB’s Trichet Says European Economy Showing ‘Encouraging’ Signs

Trichet dismisses fears over eurozone

Trichet Says European Capacity to Decide Always Underestimated

Trichet Says Bond Market Developments ‘Going in Right Direction’

Trichet Calls for ‘Appropriate’ Action on Stress Tests

Banks Will Need More Cash After Stress Tests

EU ‘Stress’ Tests Shrouded in Secrecy

EU Commission’s Barroso Says Bank Stress Tests Are ‘Credible’

ECB’s Bini Smaghi Says Greece Must Maintain Consolidation Effort

Bini Smaghi Says Market Rate Increase Won’t Affect Bank Loans

Stark Says ECB’s Monetary Analysis Enforces Discipline

Annual German Inflation Slows in June to 0.9 Per Cent

German Upper House Approves Naked Short-Selling Ban

French Manufacturing Rose in May, Lifted by Exports, Car Output

Italian Production Climbs as Weak Euro, Recovery Lifts Exports

Spain to allow cajas to sell 50% of equity

Greece Approves Austerity Plan Amid Outcry

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Maersk lifts full-year profit guidance

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Fits with yesterday’s chart and the theme of modest positive growth until private sector credit expansion kicks in

Maersk lifts full-year profit guidance

July 7 (Reuters) — Danish group AP Moller-Maersk upgraded its earnings guidance for the full year, saying on Thursday its container shipping business had rebounded faster than expected. “The upgrade is due to a combination of [freight] rates and cost reductions,” chief executive Nils Smedegaard Andersen told Reuters. “The improvement of especially the container business has since then been greater than envisaged and the company now expects that the profit for 2010 will exceed the profit for 2008 [which was $3.5bn corresponding to DKr17.6bn at the time], provided that freight rates, oil prices and the USD exchange rate remain stable at current levels,” it said. Andersen added: “We know the development in the second quarter, and have a degree of certainty about how the third quarter is going, and there are prospects for good utilisation [of the fleet] in the peak season.”

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mtg apps for new purchases fall again

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Seems the fall off after the tax credit ended April 30th has yet to fully run its course:

US Mortgage Applications Soar on Refinance Demand

July 7th (Reuters) —Refinancing drove total U.S. mortgage applications to a nine-month high last week, while demand for loans to purchase homes sunk to a near 13-year low as buyers remained sidelined after the expiration of federal tax credits.

Mortgage rates stuck around record lows, the Mortgage Bankers Association said on Wednesday, giving homeowners another chance to cut monthly payments by refinancing.

Refinancing requests jumped 9.2 percent in the week ended July 2 to the highest level since May 2009, lifting total applications by 6.7 percent, seasonally adjusted, to the highest level since early October 2009.

Demand for mortgages to buy homes slipped 2 percent. It was the eighth weekly drop in the nine weeks since the federal tax credits for homebuyers expired on April 30.

“For the month of June, purchase applications declined almost 15 percent relative to the prior month and were down more than 30 percent compared to April, the last month in which buyers were eligible for the tax credit,” Michael Fratantoni, MBA’s vice president of research and economics, said in a statement.

The average 30-year mortgage rate was little changed in the week ended July 2, climbing 0.01 percentage point to 4.68 percent.

The borrowing rate lingered just above the record low of 4.61 percent set in March 2009, according to the MBA’s records that date back to 1990.

Fifteen-year mortgage rates rose to 4.11 percent last week from the record low 4.06 percent set the prior week.

Refinancings accounted for 78.7 percent of all applications last week, the highest share since April 2009, the industry group said.

Tepid employment growth and a surprisingly steep slump in pending home sales kept interest rates low.

Home purchases will stay weak over the next few months as the housing market adjusts to the end of government incentives, and prices should bottom around the third quarter, said Robert Andrews, senior research analyst at IBISWorld in Santa Monica, California.

Fallout from record defaults and foreclosures are also likely to sway many younger buyers from making such a big commitment in the near term, he said.

“People in my generation, people 20 to 30 years old, saw the downside risk associated with housing, so I think there’s going to be a bit weaker demand over the next few years,” said Andrews.

Refinancing, likewise, is unlikely to approach the levels seen last year when mortgage rates were near current levels.

Borrowers who could qualify for refinancing have in most cases already refinanced, most analysts agree.

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Sector Analysis Update

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Looks like the deficits got high enough in the US and Euro zone to reverse things, and I’d guess UK and Japan as well even though the charts don’t yet show the reversal because past deficits of this magnitude would have been more than sufficient and there recent data is showing signs of a turn.

This is all usually indicative of a multi year upturn, who magnitude depends on the extent private credit expansion kicks in.
In the past the ‘borrow to spend’ private credit expansions have been helped by a variety of ‘peculiar’ events, including the credit expansion due to sub prime and other housing frauds most recently, the dot com era’s borrowing to fund impossible business plans, the credit expansion driven by the S and L frauds in the 80’s, emerging market credit expansion before that, etc. etc.

This time might be different/less robust if credit expansion channels are kept honest and fiscal policy tightened.

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Non-Mfg ISM

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With deficit spending running at about 7% of gdp modest growth should continue, with the ‘hand off’ coming when private sector credit expansion kicks in, which could be a while.


Karim writes:

Slowing, but still firmly in expansionary mode.
15 industries expand, 2 contract, 4 unch.


What respondents are saying…

  • “The general upswing in the economy, albeit minor, has had a positive effect.” (Arts, Entertainment & Recreation)
  • “Pricing pressures continue to increase as we see the economy begin to improve. Orders are still lagging in our industry.” (Professional, Scientific & Technical Services)
  • “Slow pace, but better than last year at this time.” (Accommodation & Food Services)
  • “Funding issues and cash flow issues continue to affect public sector procurement. Almost all capital acquisitions have been suspended.” (Public Administration)
  • “We have seen a slight improvement in business activity over the past month.” (Wholesale Trade)


June May
Composite 53.8 55.4
Activity 58.1 61.1
Prices Paid 53.8 60.6
New Orders 54.4 57.1
Employment 49.7 50.4
Exports Orders 48.0 53.5
Imports 48.0 56.5
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ECB bought 4billion last week

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Looks like my story is unfolding. OK Spanish auction as well. Assuming equity markets were down say 20% from the highs pricing in half the risk of default, they should adjust upward by most of that as default risk fades:

The European Central Bank bought €4bn ($5bn) in eurozone bonds last week, the same as in the previous two weeks, indicating it had fallen into a pattern of low-level intervention in sovereign debt markets, the FT reports.

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