ECB Paramo: Rate cuts have calmed the market, inflation falling

ECB executive board member says that the coordinated rate cuts of last week have calmed the markets.  Umm, Senor? The Dow had a thousand point range after the rate cuts on Friday and the VIX is at 82. What exactly is your definition of calm?

He also says that inflation has fallen and expectations have fallen to the price stability level. This looks dovish to me and may raise hopes for more rate cuts ahead.

Stocks are on a little run and EUR/USD and EUR/JPY have gone along for the ride. EUR/USD trades at 136.40 and EUR/USD at 1.3450.

ECB’s Liikanen says rate cuts working

The effects of the October 8 rate cuts are being felt slowly but they are being felt, especially in the short-end of the yield curve, Finlan’s Liikanen says/ This has not stopped the market from speculating more rate cuts are on the way, especially after yesterday’s dismal US retail sales report.

US equities have recovered their overnight losses and European shares have halved their early slide. This has helped EUR/JPY recover after a very rocky night for the cross. Once again, reports of heavy EUR/USD sales from US real money accounts were heard again overnight.

Liquidity remains awful. One anecdote heard last night had one trader moving the market 25 pips late yesterday afternoon in New York on a “fat-finger” trade. The amount that moved the market? 80 million euros. Back in the day (like a month ago), you could have done that without leaving a fingerprint…

ECB loosens collateral rules again

The ECB is in the midst of announcing a slew of procedural measures to try and loosen up the credit markets. It will accept lower-rated and foreign assets as collateral, it says. It’s pretty esoteric stuff, but just one more step in a series of measures designed to get credit markets flowing once again.

Trichet describes “intimate” cooperation between central banks

After sandbagging the Fed back in January by not giving them a heads-up on the Jerome Kervial rogue trader incident, Jean-Claude Trichet now describes cooperation between central banks as “intimate”. (Some would describe the ECB failure to inform the Fed, which cut rates 75 bp in the wake of the stock market slide while US markets were closed for Martin Luther King’s birthday as a sort of forced intimacy, if you get my drift. )

The rest of Trichet’s talk at the Economics Club of New York is pretty much boilerplate.

Markets are fairly quiet for a change though equities are rebounding again, now up 112 points after absorbing some profit-taking this morning.

Almunia sees room for more ECB cuts

Trichet may not be touting the need for further rate cuts but his political counterweight at the EU, Commissioner Almunia says the Bank has room.

ECB economist Stark sees several quarters of very weak growth

The change in mood at the ECB is palpable with officials now looking at the downside in a way we have not seen until the crisis intensified in the last three weeks. The latest manifestation of that are comments ECB chief economist Stark who sees a several quarters of very weak growth ahead. In the past, he’d have likely said something about the Eurozone being well insulated from weakness abroad…The happy-talk has finally been abandoned and the authorities are in the trenches with the rest of us, at long last.

Elsewhere, Italian PM Berlusconi has turned the spotlight on Unicredit even more intensely. He says it is the only troubled Italian bank and now that problem has been solved. Given its cross-border footprint, investors may not be so sure, given the troubles of Fortis and Dexia.

Trichet says will do what is necessary at anytime

Trichet has finally gotten the message that this is not some normal market “event” and is a true crisis. Eschewing his past inflation focus he now says the ECB will do whatever it takes to free up the markets. Liquidity will be made available in unlimited fashion at the main refinancing operations, he says. The comments came in a CNBC interview with the lovely and talented Sylvia Wadwha

ECB narrows lending, deposit rates

The ECB usually pays banks 100 bp below the refi rate, which stands at 3.5% after today’s rate cut, and charges 100 bp above the refi rate for its emergency lending facility. Those rates have been narrowed to 50 bp above and below the refi rate for the duration of the market crisis. This is a technical change which will not impact market rates but it will make it easier for banks to park cash and raise cash from the ECB.

Weber gets the memo

Usually among the most hawkish of ECB members, Germany’s Weber sounds quite pragmatic this morning. He says that central bank shave sent a clear signal that they will do everything needed to prevent the crisis from worsening.

The only problem is that the market has been acting like a junkie, looking for a quick fix on what seems like a daily basis/ Huge, unprecedented policy moves are chewed up and spit out on a daily basis. At some point the market will take stock of the cumulative impact of what has been done in the last week and risk aversion will receded. EUR/JPY will be the major beneficiary; yields will rise out the yield curve and stocks should stabilize and then rebound.

“Zut! The needle broke off my compass!”

Anyone seen the needle to my compass?