In Between Days

by CC November 23, 2011 1:15 am • Commentary


FRANKFURT — Banks clamored for emergency funds from the European Central Bank on Tuesday, borrowing the most since early 2009 in a clear sign that the euroregion’s financial institutions are having trouble obtaining credit at reasonable rates on the open market.

Indebted governments among the 17 members of the European Union that use the euro are also finding it harder to borrow at affordable rates as investors lose confidence in their creditworthiness.

In a Tuesday auction, the Spanish treasury, for example, was forced to sell three-month bills at a price to yield 5.11 percent, more than double the 2.29 percent interest rate investors demanded at a sale of similar Spanish securities on Oct. 25. Spain also sold six-month debt at 5.23 percent Tuesday, up from 3.30 percent in October.

Italy’s 10-year bond yield, meanwhile, edged up once again — to nearly 6.8 percent Tuesday — as foreign investors withdrew their money from that debt-staggered country.

Together, the commercial banks’ heavy reliance on the central bank to finance their everyday business needs, along with the growing borrowing burden for Spain and Italy, raise the risk of failure for some banks within the countries that use the euro and the danger that nations much larger than Greece could eventually seek a bailout or be forced to leave the euro currency union.


WASHINGTON — The International Monetary Fund on Tuesday announced a set of measuresintended to “bolster the flexibility and scope” of its emergency programs to aid nations that may face liquidity problems.

The I.M.F., in addition, is gearing up to take a bigger role in helping ease the European debt crisis. Risk-averse investors are paring back exposure to Europe, raising borrowing costs across the Continent. Many countries, including Italy, Spain and Hungary, are struggling to finance their debt.

The fund said it approved revisions to help countries with “relatively strong policies and fundamentals” affected by the debt crisis in the euro zone — in its words, “crisis bystanders.” It said it would be able to offer assistance in a “broader range of circumstances” than previously allowed.

The goal, the fund said, is to “break the chains of contagion.”

“The fund has been asked to enhance its lending toolkit to help the membership cope with crises,” Christine Lagarde, the I.M.F. managing director, said in a statement. “The reform enhances the fund’s ability to provide financing for crisis prevention and resolution. This is another step toward creating an effective global financial safety net to deal with increased global interconnectedness.”

The fund is replacing an instrument called the “precautionary credit line” with a more flexible instrument it called the “precautionary and liquidity line.” It will now offer credit to countries in relatively good fiscal shape facing liquidity problems.


Chinese factories battled with their weakest activity in 32 months in November, a preliminary purchasing managers’ survey showed, reviving worries that China may be skidding toward an economic hard landing and compounding global recession fears.

The HSBC flash manufacturing purchasing managers’ index (PMI), the earliest indicator of China’s industrial activity, slumped in November to 48, a low not seen since March 2009.

The data showed the world’s growth engine is not immune to economic troubles abroad, and could further unnerve financial markets already roiled by Europe’s deteriorating debt crisis.

November’s flash reading is a sharp three-point fall from October’s final figure of 51 and indicated Chinese factory output shrank on the month in November. A PMI reading of 50 demarcates expansion from contraction.

The last time the PMI slipped below 50 was in September, when the index hit 49.9.


The Federal Reserve announced plans for a new round of stress test on US banks—including the six largest—to see if they could withstand a possible market shock, such as an escalation of the European debt crisis.

The Fed said its global market shock test for those banks will be generally based on price and rate movements that occurred in the second half of 2008, and also on “additional stresses related to the ongoing situation in Europe.”

The six big banks to be tested are Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo. The heightened stress test for those banks are part of a larger supervisory test the Fed will conduct on 19 firms’ capital plans.

The Fed’s review of those plans will determine whether the banks can raise dividends or repurchase stock. The banks must submit their capital plans by Jan. 19, 2012.

Tomorrow’s Tape – WSJ


  • At 8:30 a.m. ET the Commerce Department tells us about personal income and spending in October. Economists think income rose 0.3% after gaining 0.1% in September, and they think spending rose 0.3% on top of a 0.6% gain in September.
  • Also at 8:30 a.m. we get weekly jobless claims (a day earlier than usual). Economists expect to see 390,000 claims, up from 388,000 claims the week earlier.
  • And one more thing at 8:30 a.m.: Durable goods orders for October. Economists think orders fell 1.5% after falling 0.8% in September.
  • At 9:55 a.m. we get the University of Michigan’s final November read on consumer sentiment. Economists think sentiment rose to 64.5 from an initial estimate of 64.2 and from 60.9 in October.


  • We get results from Deere.