The key result of the ECB’s LTRO was a dramatic decline in the bond yields of Europe, especially Italy and Spain. Speculation of course was that the borrowing banks were playing the carry trade with the 1% financing but with 500b euros still being deposited overnight with the ECB we’re not exactly sure. The CEO of the Italian bank Intesa did say today though “We will use part of ECB funds to buy Italian government bonds, considering that there are significant amounts expiring this year.” Since banks got slammed in Q4 because of their sovereign holdings, the size I believe has and will be modest and banks will instead solidify their 2012 funding needs. German IP in Dec fell almost 3% vs expectations of flat with Nov. In China, the Ministry of Industry and IT gave its view of the world, “the global economy is slowing down, Europe’s sovereign debt crisis is deepening and the downside risks to the world economy are rising with international demand still slack and global commodities and financial markets continuing to be volatile.” The Shanghai index did close down 1.7%. The Reserve Bank of Australia unexpectedly left interest rates unchanged and the Aussie$ is rising to a 6 month high vs the US$ in response. Lastly, Bernanke repeats his testimony in front of the Senate and we’ll see if Friday’s Payroll report changes his thoughts on the economic outlook and monetary policy.
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