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Message: Tomorow's ECB's stimulus is good timing for US treasury bad for gold
ECB set for record ‘stimulus by stealth’
By Ralph Atkins in Frankfurt and David Oakley in London Published: June 22 2009 18:27 | Last updated: June 22 2009 18:27 The
is on track to deliver a record-breaking "stimulus by stealth" to the eurozone economy on Tuesday, as the first-ever offer of unlimited one-year funds could see demand running into several hundred billion euros.
The size of the ECB’s
, which was announced last month, is expected to be bolstered dramatically by the belief in financial markets that eurozone official interest rates will not fall – and the opportunity to borrow on such favourable conditions will not be repeated.
Analysts said demand was likely to exceed the previous record €348.6bn ($483bn), injected in a single ECB operation in December 2007. "This could be a big final easing – by stealth," said Erik Nielsen, European economist at Goldman Sachs. "If I were a bank I would be gathering up all the furniture to use as collateral to take part." When the
first erupted in mid-2007, the ECB led the way among the world’s central banks in pumping in extra liquidity to ease tensions. After the collapse of Lehman Brothers last year it expanded its armoury substantially by agreeing to match in full demand for liquidity for periods of up to six months.
Although such steps have attracted less attention, ECB policymakers argue that the effects on the recession-hit eurozone economy have been similar to "quantitative" or "credit" easing measures unveiled by the Bank of England and US Federal Reserve. May’s decision to offer funds for one-year – which in Tuesday’s offer will be available at the ECB’s main interest rate of just 1 per cent, the lowest ever – marked a further escalation of the ECB’s offensive. Unlike previous operations, however, banks are not expected to hold back in the expectation that interest rates will subsequently fall. Creating an additional incentive, the ECB has reserved the right in future one-year operations to charge an interest rate above its main policy rate. Strengthening the case against further ECB interest rate cuts, Germany’s Ifo "business climate" index on Monday added to evidence that the eurozone’s largest economy is stabilising. It rose for a third consecutive month, from 84.3 in May to 85.9 this month – the highest since November. However, the rise was due to companies taking a more favourable view about the outlook for the next six months. Businesses’ assessment of current conditions deteriorated even further – dropping in June to the lowest since the survey began in 1991. Meanwhile, Ewald Nowotny, Austria’s central bank governor and an ECB policymaker, said he saw ECB interest rates remaining unchanged until at least 2010. "If the economy is developing in the way that we expect, I do not see a perspective for this year and we will need to look again next year," he told Bloomberg in an interview. Analysts said Tuesday’s ECB move would depress market rates for short-term funding, from maturities ranging from overnight to a year, Don Smith, economist at interdealer broker Icap, said: "A lot of banks will see this as a good rate to lock in funding for a year."
The Financial Times Limited 2009
Personal Comment : It all seems like a pretty good timing for the US treasury's auction this week as big commercial european banks might have some available cash to get into the auction . On the other hand it does'nt sound so good for gold wich could have taken advantage from the auction and since it will bring down short term rates it's another negative for gold , yet more liquidities in europe will ease tensions in most markets allowing for liquidities inflow and an upward pressure on stocks prices but maybe not so much on commodities unless we see some more optimism about the economic outlook . Tec
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