Sterilize, “to deprive of the power of reproducing”

According to Webster’s online dictionary, Sterilize is defined as “to deprive of the power of reproducing.” In the case of the ECB we are of course dealing with the risk of them reproducing too many euro’s and we expect this week a specific plan from them on how they will sterilize their bond purchases so as not to increase the money supply on a net basis. With record net shorts in the euro, a satisfactory plan to the market could see a sharp euro rally but in the mean time, the euro is at a 4 yr low vs the US$. US$ 3 mo LIBOR rose to a fresh 9 month high as bank nervousness is still evident ahead of Euro Zone finance ministers meeting again today in Brussels. The Shanghai index got hammered by 5% as Premier Wen over the weekend said they will continue steps to cool the property market and limit the growth of those industries with over capacity and the weakness spilled over into all other Asian markets.

The May NY Fed survey was a weaker than expected 19.1 vs the estimate of 30 and is down from 31.9 in April. New Orders fell by half to 14.3 and Backlogs weakened to -7.9 from -3.8. Shipments, which follow orders, fell to 11.3 from 32.1. Inventories fell by 10 pts but remained positive for a 3rd month. Prices Paid rose 3 pts to 44.7, the highest since Sept ’08. The lone bright spot within the data was the Employment component which rose 2 pts to 22.4, the highest since May ’04. The overall 6 month manufacturing outlook fell to the lowest since last summer at 42.1 from 55.7 in April. The NY survey is volatile and over the past few years has lost its relationship to the Philly Fed survey which is out on Thurs so lets see more data before jumping to conclusions that the inventory led manufacturing bounce is slowing down.

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