The Eurozone: Tim Duy Says That It Is Still Time to Dig a Hole and Hide in It
Is Anything Better Yet?: [T]he world's central banks just validated my pessimism - the Eurozone financial system is falling apart…. [T]he only surprise here is that it took this long for somebody to push the panic button. Actually, there was another surprise - the dissent of Richmond Fed President Jeffrey Lacker to the increased swap lines. From Reuters:
"I dissented on the vote because I opposed the temporary swap arrangements to support Federal Reserve lending in foreign currencies," Lacker said in an emailed statement. "Such lending amounts to fiscal policy, which I believe is the responsibility of the U.S. Treasury. The Federal Reserve has provided and can continue to provide sufficient dollar liquidity through purchases of U.S. Treasury securities," he said.
This is misguided. The Fed is responsible for protecting the US financial sector, and needs to do so, when possible, even if the threat is eminating from overseas. US banks may not be in need of dollar liquidity, but their foreign counterparties might be….
Equity markets took the bait and ran with it…. [But] yields on the ten-year bond where up only 7bp today - not exactly a signal that investors are vastly increasing their appetite for risk…. I admit to being mystified by the compulsions of equity traders….
[H]ow exactly is the rest of the globe? Not good. Not good at all. Eurostat confirmed the unemployment rate in the Eurozone continues to rise and now stands at 10.3% in October, although with vast differences accross countries. Austria is at the bottom with 4.1%, Spain at the top with 22.8%…. If you thought unemployment rates are high now, remember that we are only in the initial stages of this [eurozone] recession. It will get worse….
On the other side of the world, we see that where European manufacturing goes, so too does China's. From Bloomberg:
China’s manufacturing recorded the weakest performance since the global recession eased in 2009, underscoring the case for monetary stimulus as Europe’s crisis weighs on the world’s second-largest economy…
Bottom Line: Central banks took a step in the right direction. But nothing in Europe is close to being solved…