Intraday Market Thoughts

ECB Lends E530 bn to 800 banks, US GDP Revision Next

by Patrik Urban
Feb 29, 2012 12:56

Second round of LTRO allots EUR 529.53 bln; Swiss KOF improves; German unemployment steady; Eurozone CPI declined; UK mortgage approvals rose. Market turns to GDP revision, Chicago PMI and Bernanke testimony.

The greenback is mixed today. It is stronger against EUR, weaker against JPY and CAD and unchanged against the rest of the majors. European equities are higher by about 0.4%. The relative strength winners are CAD and NZD.

Markets were consolidating but remained firm ahead of LTRO. In the second round, the ECB allotted EUR 529.53 bln, above median estimate of EUR 500 bln and more than EUR 489 bln allotted in December. There were 800 bidders, compared to 523 in the first round. According to IFRMarkets, the extra net liquidity will reach EUR 313.7 bln. No other LTRO is planned as of now so banks had their last chance to get funding at below market rate. After a nasty whipsaw EURUSD trades lower around 1.3440.

From a long list of European reports we learned today that:

- Swiss KOF leading indicator improved in January to -0.12 from -0.15

- German unemployment was unchanged in February after declining in January by 26K. The unemployment rate remained steady at 6.8%.

- Eurozone CPI declined in January to 2.6% from 2.7% y/y (core CPI 1.5% from 1.6%).

- UK mortgage approvals rose to 59K in January from 55K which is the highest result since 12/2009. Mortgage approvals have been rising steadily for 10 months highlighting the resiliency of the UK housing market.

- ECB deposits rose to EUR 481.14 bln on Tuesday from ER 475.5 on Monday.

The US session starts at 8:30 am ET with a second read of 4Q GDP which is expected to remain unrevised at 2.8% y/y. GDP price index and Core PCE are also seen unrevised at 0.4% and 1.1%.

Chicago PMI is due at 9:45 am and is anticipated higher in January at 61.6 from 60.2.

The main event of the NY session will be FED chairman Bernanke's semi annual testimony to the financial services committee that starts at 10:00 am where he is likely to downplay the recent improvements of US data in order to keep the door to the possibility of QE3 open.

Beige book is due at 2:00 pm but is unlikely to have a lasting impact on the market.


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