Posts by "macrosam"

It is difficult to do a short on anything other than an intraday basis with the results of the stress tests arriving on 23 July.

By Esteban Duarte
July 14 (Bloomberg) -- Spanish banks borrowed a record
126.3 billion euros ($161 billion) from the European Central Bank in June as investors shun the debt-ridden nations lenders.
Spanish banks increased borrowing 48 percent from 85.6 billion euros in May, according to daily averages compiled by the Bank of Spain. That compares with a drop of 4 percent to
496.6 billion euros provided to lenders by the ECB in the whole euro area.

I am overall bullish on GBP and have been adding positions on dips, not as a short-term trade, but with the expectation that it will outperform USD, EUR, and JPY. The UK has had its elections, there is no political uncertainty in that regard, and the coalition has firmly committed towards fiscal consolidation. They get it. I subscribe to the amalgam of theories (Keynes, Von Mises, Fisher, Friedman) but believe that fiscal consolidation in hindsight will have been the correct application and that the market is rewarding this both in the current time and will do so in the future. Currencies like GBP, AUD are my strong hands.

realize you understand, just wanted to expound for other readers

The expiration of the 12-month repo drains the excess liquidity from the system, though this will still take some time are there is still the 3-mo LTRO and weekly MRO available.

Since the full-allocation repos were introduced, banks took more liquidity than needed, evidenced by the recycling of this excess at the ECB deposit facility. This drove EONIA down close to the Deposit Rate. When liquidity is equal to need (no excess), EONIA should trade close to the refi rate. Banks pay 75bps in negative carry when depositing at the ECB. Banks will only be willing to incur the 75bps of negative carry for so long.

This all assumes there is no looming catastrophe that reinforces the demand for excess liquidity. A big assumption to make.