Mario Draghi holds court
The chase by Frances Horodelski:

The euro is like a bumblebee. This is a mystery of nature because it shouldn’t fly but instead it does……Within our mandate, the ECB is ready to dowhatever it takes to preserve the euro. And believe me, it will be enough. – Mario Draghi, July 2012

Today, we find out what is enough. Since the “bumblebee” speech, the Fed’s balance sheet has continued to explode (+50%) while the ECB has seen a 30% contraction. The euro +13%. Mr. Draghi’s options include (from the Guardian) – cut rates, support more lending, stop sterilizing, revive the asset backed securities market, print money, do nothing. As expected the bank has reduced its three major lending rates including the first ever negative deposit rate (to -0.1%) and cut the Benchmark rate to 0.15% (from 0.25%). These cuts were basically in line with expectations – no shock and awe here. At his 8:30 press conference, Mario Draghi announced a long-term refinancing operation for European banks that will start with 400B euros. The European Central Bank's long-term refinancing operation is a process by which the ECB provides financing to eurozone banks. The stated aim of the LTRO is to maintain a cushion of liquidity for banks holding illiquid assets, and thus prevent interbank lending and other loan origination from seizing up as they did in the credit squeeze of 2008

Until early 2008, the longest LTRO maturity was three months. Since then the ECB has successively introduced six-month, 12-month and 36-month terms for LTRO finance. Each of these new issues has been heavily subscribed, with eurozone periphery banks in Ireland, Italy, Spain and Greece taking the majority of the first 36-month issue in late 2011. The second 36-month issue in February 2012 was closely watched as an indicator of the health of eurozone banks.

In Germany, the DAX reached 10,000 points for the first time ever. Futures are modestly positive in New York after another closing high for the S&P 500 yesterday and the highest close in Toronto since June 18, 2008. 54 new highs were made on the TSX yesterday including Enerplus, Intact, Shaw, Bell Aliant, CNQ, TD, BNS, Magna, BCE, CP and Telus. This week, only one new low – Empire (opportunity?).

In other news, the U.S. might be moving to three wireless competitors if rumours are true that Sprint is nearing an agreement to buyT-Mobile from Deutsche Telekom. The deal would be valued at about $31 billion in cash and stock deal. Based on the speculated price of $40/share, thisequates to about 9x ev/ebitda which compares to about 8.5x for Telus and 7.2x for Rogers; Deutsche Bank is raising capital through a rights subscriptionwith the stock priced at 22.50 euro (versus last night’s close of 29.23); German factory orders came in well above expectations in April (+3.1% versus 1.4% estimated); the earnings calendar includes U.S. names Navistar, JM Smucker ($1.21 vs $1.16), L Brands and Ciena reporting as well as heavy equipment manufacturer Joy Global (reported a beat at 76 cents vs 71 cents, in line revenue and affirmed outlook). In Canada, we will hear from cheese maker Saputo, Canadian Western Bank and ComDev. Finally, General Motors will be releasing an internal investigation today on its problem cars. Just Energy announces a dividend cut from $0.84 annually to $0.50 (and will now be paid quarterly).

Beyond central bankers (the Bank of England left its benchmark rate and buyback program unchanged), there is other economic data including the joblessclaims and Challenger layoff data in the U.S. and building permits for April in Canada. All of this is ahead of the big day tomorrow (jobs in Canada andthe U.S.) Bond prices are generally a little stronger this morning (yields a little lower). The G-7 continue their meetings in Brussels.

Sentiment is rising. While some discredit the Investors Intelligence numbers as being not useful of late, at extremes, I believe they still hold merit. Andwe’re moving into extremes. This latest week shows bulls at 62.2% (highest since January 2005) and bearish sentiment ticking lower to 17.3%. Thesesentiment indicators are most useful when they shift direction – watch closely.

Stay nimble.