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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (8765)	1/23/2008 7:22:21 AM
From: John Pitera	Respond to of 33421

The European Central Bank and the Bank of England continue to talk tough and see inflation as the bigger threat to their economies. I have to agree with this comment that he made to the European Parliment, although he can take the highroad since the FED has just done the heavy lifting of making sure that reinflationary fuel is available in the form of lower rates. One of the biggest developments of the past few days is that one of the big strategist firms just pointed out that half of all US mortgages are now able to be refinanced with rates down here. ``Particularly in demanding times of significant market correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations to avoid additional volatility,,'' Trichet told the European Parliament in Brussels today. ----------------------------------------------------- Trichet Says ECB Still Focused on Fighting Inflation (Update3) By Christian Vits Jan. 23 (Bloomberg) -- European Central Bank President Jean-Claude Trichet said he's committed to fighting inflation even after stock markets plunged and the U.S. Federal Reserve cut interest rates to avert a recession. ``Particularly in demanding times of significant market correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations to avoid additional volatility,,'' Trichet told the European Parliament in Brussels today. The Fed yesterday cut its benchmark rate by three quarters of a percentage point to 3.5 percent after global stock markets tumbled on concern a recession in the world's largest economy will curb global growth. ECB policy makers have indicated they're unwilling to follow the Fed, expressing confidence in Europe's economic outlook and stressing their focus on curbing inflation. Still, Europe's service industries this month grew at the slowest pace in more than four years after credit tightened and the euro neared a record, an industry report showed today. ``Europe is not going to get special dispensation from a global slowdown,'' Stephen Roach, Chairman of Morgan Stanley in Asia, said on a panel discussion at the World Economic Forum in Davos, Switzerland. ``Europe is not this dynamic, rapidly growing economy.'' Room for Maneuver? Investors have increased bets on the ECB cutting rates. The implied rate on the three-month Euribor futures contract for June fell to 3.77 percent today from 3.94 percent before the Fed's move. Trichet on Jan. 10 threatened to raise the bank's key rate from 4 percent if unions push through wage increases that take the jump in inflation into account. Euro-region inflation was 3.1 percent in December, the fastest in six years and well above the ECB's 2 percent limit. Trichet suggested today that slowing growth may give the ECB more room for maneuver on rates. While the bank is sticking to its base scenario that the economy of the 15 euro nations will expand about 2 percent this year, there are ``downside'' risks to the outlook, he said. ``We'll see how the real economy develops in the future because it can have an affect on inflation.'' Policy makers next meet to decide on rates on Feb. 7 in Frankfurt. ``Despite the Fed's bold action, we feel that the ECB is still unlikely to ease policy in the short term,'' said Joachim Fels, co-chief economist at Morgan Stanley in London. ECB council member Axel Weber said last night that while a U.S. slowdown would ``certainly affect the world economy,'' the effects in the euro area ``could emerge with a time lag'' and may ``be less strong than in former times.'' ECB Vice-President Lucas Papademos and Executive Board member Juergen Stark also said yesterday that economic fundamentals in Europe remain sound. ``Our mandate consists of ensuring price stability for European citizens in the medium term,'' Trichet said today. The ECB has to be ``credible in guaranteeing price stability.'' To contact the reporters on this story: Christian Vits in Frankfurt at cvits@bloomberg.net ; ------------------------ UPDATE: Bank Of England Voted 8-1 To Hold Rates; Inflation Fears Remain Wed, Jan 23 2008, 11:29 GMT djnewswires.com UPDATE: Bank Of England Voted 8-1 To Hold Rates; Inflation Fears Remain By Simon Kennedy LONDON (Dow Jones) -- The Bank of England's policy committee voted 8-1 to hold interest rates unchanged earlier in January, indicating the central bank still has significant concerns over the outlook for inflation, meeting minutes published Wednesday show. The short-term outlook had "worsened markedly," the Bank of England said, citing rising world energy and food prices as well as weakness in the British pound, which has put upward pressure on import prices. U.K. inflation is currently running at a 2.1% rate, only marginally above the government's 2% target. But a majority of officials sitting on the Bank of England's monetary-policy committee highlighted the need to keep inflation expectations in check after a sustained period of above-target price rises early in 2007. The bank held its key rate steady at 5.5% at its Jan. 10 meeting after having cut rates by a quarter of a percentage point in December -- the first reduction in over two years. The lone voice opposing standing pat on rates was perennial dove David Blanchflower, who called for a further quarter-point cut. The U.K.'s FTSE 100 index edged lower after the minutes were released before recovering in part. The benchmark lately stood 0.1% lower on the session. In currencies, sterling briefly ticked higher before slipping 0.1% against the dollar at $1.9577. "The key element of these monetary-policy minutes was the voting split. The market was looking for a very close call, maybe five in favor of keeping rates on hold and four in favor of a cut, but eight to one is a nasty shock," said Martin Slaney, head of derivatives at GFT Global Markets. "Although global financial events have taken a turn for the worse in the two weeks after the meeting that these minutes refer to, this is further ammunition for the equity bears. The MPC clearly has much higher concerns over inflation than the market had perceived," he added. February cut still expected The meeting's minutes came the morning after a speech by Bank of England governor Mervyn King. It was interpreted as an indication that rates may well come down again in February but that any cuts will be far more gradual than those made by the Federal Reserve. King reaffirmed the need to keep market inflation expectations low -- to help keep a lid on wage demands -- but he also said the current 5.5% rate is "probably bearing down on demand." Citigroup economist Michael Saunders said King's comments on demand were a clear signal that a cut in February is likely. At the same time, a reduction on the order of the Fed cutting key U.S. interest rates by fully three-quarters of a percentage point is "extremely unlikely," he said. "It is conceivable that financial market strains could worsen dramatically further enough in the next two weeks to bring a half-point cut in February into play, but we are probably not there yet," Saunders added.

To: John Pitera who wrote (8765)	1/23/2008 8:04:16 AM
From: stomper	Read Replies (1) \| Respond to of 33421

<<And the Markets and the Governmental Regulators do not know where the so called bodies are buried.>> <<CounterParty Risk is the big shoe that has not dropped >> This is the crux of the credit crunch. The banks wouldn't give a hoot if the Overnight was at zero. None of the institutions trust each other b/c they all know each is carrying quantities of CDS/derivative exotic dreck that makes them all functionally bankrupt. They'll monetize it eventually like everything else. The hue and cry over the last week for us to nationalize the monolines is embarassing. In one week, it has turned from a wacky Cramer idea to being openly discussed as if it shouldn't even be debated. -david

To: John Pitera who wrote (8765)	1/23/2008 9:09:13 AM
From: robert b furman	2 Recommendations Read Replies (2) \| Respond to of 33421

HI John, Where/who does this counterparty risk lie? Or is that the question. Bob