No printing, no rally

The ECB cut interest rates by 25 bps to 1.0% as expected although that may disappoint some that were hoping for a 50 bps cut. At the 8:30 press conference we will likely see more steps, including a 2-3 yr lending facility to supplement the current 13 month one and maybe a broadening of the type of collateral they will accept. While the moves will help ease the interbank stress in the banking system, the markets await what they announce, if anything, after the EU summit concludes with hopefully some fiscal union agreement. With respect to the IMF, yesterday’s FT article saying 600b euros would be added to its resources doesn’t seem possible as an EU official reiterated the talk of adding 200b euros, 150b from Europe (to then lend back to itself) and 50b euros from outside the region (partly us). The Dutch Finance Minister wasn’t sure though if this would be agreed to in the next two days. As we await all the news, the German 2 yr yield is falling to a new low in one of the few flight to safety’s there. The BOE held steady on monetary policy as did Indonesia, South Korea and New Zealand in Asia. On Italy, Fitch said the new Italian austerity package “eases the near term pressure on the country’s rating by strengthening the credibility of its attempt to balance its budget in 2013.” In Asia, Japan’s Oct machinery orders unexpectedly fell and the Nov Australia jobs figure was below expectations.

BN:*DRAGHI SAYS HE DIDN’T SIGNAL MORE BOND PURCHASES LAST WEEK. It’s this one headline that has the market lower. While so many want him to print, he doesn’t want to give EU countries a free pass. It’s called tough love. The sustainability of this stock market rally comes down to money printing or not.

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