What’s the Story? Draghing Me Down

by CC August 2, 2012 9:10 am • Commentary

Business Insider

Mario Draghi has disappointed the market, it would seem. In his press conference he’s made noises about yields being unacceptably high, and other things. But there’s no concrete action. Markets are going down. The Euro is going down. Peripheral spreads are up.

Reuters

The European Central Bank will draw up a mechanism in the coming weeks to make outright purchases to stabilize stressed euro zone borrowing costs, ECB President Mario Draghi said on Thursday.

“The Governing Council, within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy, may undertake outright open market operations of a size adequate to reach its objective.” Draghi said after the bank kept euro zone interest rates at 0.75 percent.

“The Governing Council will consider further non-standard monetary policy measures according to what is required to repair monetary policy transmission. In the coming weeks we will design the appropriate modalities for such policy measures.”

WSJ

No comment whatsoever so far on how any bond purchases will square with Germany’s very well known distaste for that sort of thing.

Draghi still peddling the line that wide divergences between euro-zone bond yields, which suggest the pricing-in of a breakup, amount to damage to the monetary transmission mechanism and hence fall within the ECB’s remit.

The Bundesbank may well beg to differ.

Reuters

Giving Europe’s permanent ESM rescue fund a banking licence and thereby allowing it to tap the European Central Bank for funding is against European law, ECB President Mario Draghi said on Thursday.

“We have a legal opinion saying that it (ESM) is not a suitable counterparty,” Draghi said after the ECB left interest rates at 0.75 percent and said the bank would draw up a new bond buying mechanism.

Italy and France have been pushing to give the ESM a banking licence to raise the fund’s firepower so it would be able to intervene more authoritatively in bond markets if needed, but an ECB legal opinion from March last year ruled out such a step.

Marketwatch

The number of people who filed applications for unemployment benefits rose by 8,000 last week to a seasonally adjusted 365,000, the Commerce Department said Thursday. Economists surveyed by MarketWatch had projected claims would rise to 370,000 from last week’s upwardly revised level of 357,000. A more stable barometer of labor-market trends, the four-week claims average, dropped 2,750 to 365,500, the lowest level since late March. The four-week average reduces seasonal volatility in the weekly data. Meanwhile, continuing claims decreased by 19,000 to a seasonally adjusted 3.27 million in the week ended July 21. About 5.96 million people received some kind of state or federal benefit in the week ended July 14, down 69,672 from the prior week.

CNBC

The number of planned layoffs at U.S. companies dropped for the second month in a row in July, even as job cuts in the financial sector persisted, a report showed on Thursday.

Employers announced 36,855 planned job cuts last month, down 1.9 percent from 37,551 in June, according to the report from consultants Challenger, Gray & Christmas, Inc.

Job cuts were also well off levels of July last year when 66,414 layoffs were announced. For 2012 so far, employers have announced 319,946 cuts, up 2.5 percent from the 312,220 reductions in the first seven months of 2011.

The financial sector cut 6,156 jobs in July, the largest number since January. For the year so far, the sector has shed 26,352 jobs, with Morgan Stanley and Citigroup alone accounting for more than 5,500.

WSJ

Knight Capital Group, Inc. (NYSE Euronext: KCG) today provided an update on the August 1, 2012 disruption to routing in NYSE-listed securities.

As previously disclosed, Knight experienced a technology issue at the open of trading at the NYSE yesterday, August 1st. This issue was related to Knight’s installation of trading software and resulted in Knight sending numerous erroneous orders in NYSE-listed securities into the market. This software has been removed from the company’s systems.

Clients were not negatively affected by the erroneous orders, and the software issue was limited to the routing of certain listed stocks to NYSE.

Knight has traded out of its entire erroneous trade position, which has resulted in a realized pre-tax loss of approximately $440 million. Although the company’s capital base has been severely impacted, the company’s broker/dealer subsidiaries are in full compliance with their net capital requirements. Knight will continue its trading and market making activities at the commencement of trading today. The company is actively pursuing its strategic and financing alternatives to strengthen its capital base.