Economic Indicators
- The University of Michigan consumer sentiment index declined from 70.3 in September to 57.5 in October, far worst than economists expected, as banks cut back on consumer credit.
- The sharp slide raises the danger than US shoppers weighed down by their fall in house and stock prices last month will retrench and send the economy into a deep recession.
- US housing starts fell again in September, indicating that the sector is far from botttoming out.
Credit Crisis Update:
- UK to fast track public spending in a Keynesian fashion to prop up the economy in the hope that a recovery will be underway before a gapping hole emerges in the UK's public debt in 2 years time.
- South Korea offer $100bn debt guarantee to stabilise it's financial markets.
Why hasn't Libor collapsed?
Given the coordinated intervention by central banks in US and Europe last week and recapitalisation of global banks this week, the question to ask is why hasn't Libor fallen?
a) Libor has decreased slightly over the last few days, but one needs to know that Libor is now in a price discovery stage in an uncharted environment so it's unlikely to decline abruptly back to previous levels.
b) Libor could have been too low for too long with the western economies flushed with Asian liquidity, which is unlikely to return anytime soon, so expect it to be at higher levels for now
c) Unsecured liquidity has yet to return although governments in US and Europe has announced various programs to tackle the problem. The 28 day US dollar funding will only commence next week and there is still no indication of when the 84 day funding will be announced.
The December futures are already starting to suggest that dollar Libor may fall to 2.7% and GBP to fall to 5%. So as the European Co-operative lenders lead the way in unsecured interbank lending this week, we hope to soon see an acceleration of liquidity kick in.
a) Libor has decreased slightly over the last few days, but one needs to know that Libor is now in a price discovery stage in an uncharted environment so it's unlikely to decline abruptly back to previous levels.
b) Libor could have been too low for too long with the western economies flushed with Asian liquidity, which is unlikely to return anytime soon, so expect it to be at higher levels for now
c) Unsecured liquidity has yet to return although governments in US and Europe has announced various programs to tackle the problem. The 28 day US dollar funding will only commence next week and there is still no indication of when the 84 day funding will be announced.
The December futures are already starting to suggest that dollar Libor may fall to 2.7% and GBP to fall to 5%. So as the European Co-operative lenders lead the way in unsecured interbank lending this week, we hope to soon see an acceleration of liquidity kick in.
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