Santa brings a lot of cash

Santa Clause came to town a few days early in the form of the ECB lending a greater than expected 489b euros to 523 European banks for three years. About 200b of this will be new money as the balance is being rolled from maturing loans. This is the ECB’s version of QE as new money is being injected into the balance sheet’s of banks and we’ll soon see what banks do with the money. Again, this is a liquidity event and does nothing to change the debt and long term growth challenges that many countries in Europe have faced for a years. Santa will come back in Feb for an encore performance with another 3 yr offering. Maybe a sell on the news, the euro basis swap is wider by 4 bps after falling 24 bps over the previous 3 days. Spanish and Italian bonds are also lower after the sharp gains, mostly on the short end, over the past week. In Asia, most markets rallied, especially the South Korean Kospi which was up 3%, gaining back all of Monday’s losses. The Shanghai index continues to lag, falling another 1%. In the US, the MBA said the avg 30 mortgage rate fell to 4.08% from 4.12%, another multi decade low but purchases still fell to a 5 week low, down 4.9% and refi’s fell by 1.6%. Newsletter writers aren’t swayed by European problems as II said Bulls rose to 48.4 from 45.3, the highest since July while Bears remained unchanged at 30.5.

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