MoreLiver's Daily: 31st Jul

Hacking Herman – alphaville / FT
(apparently Chinese) hackers compromised Mr van Rompuy and some of his staff last year… Mr van Rompuy was co-ordinating the second Greek bailout at the time.

EUROPE: SWITZERLAND

Swiss Have More Euros Than They Know What to Do With – MarketBeat / WSJ
just what exactly the SNB been doing with the piles of euros it’s been buying with all those the shiny new francs it’s been minting. The short answer: selling them. But not fast enough.

Europe Unfixed Again As Scramble For All Things Swiss Resumes – ZH

Citi: This outcome could lead investors to question the sustainability of the peg. The SNB has been unable to diversify a large portion of its euro holdings, so investors may see greater risk of severe capital losses (and potential desperation selling) down the road.

SNB implicitly obliges each Swiss to invest 73% of this year’s income into Euros – snbchf

With the SNB results today it became clear that the Swiss National Bank has invested 77% of the huge 125 billion CHF rise in currency reserves during the second quarter into Euros. The dependency on the euro has become that big, so that the Swiss might be obliged to join the euro zone if they want to avoid big losses.

EUROPE: ECB (see also my Special)

The Big New Idea for Saving the Euro – TIME

Giving Europe’s bailout fund a banking license would provide massive firepower to help flailing states, but proposal must first overcome deep German skepticism

Bundesbank Pulls Cloud Nein From Under Hollande, Draghi – ZH
Schauble Makes It Clear: Beggars Can't Be Choosers – ZH

Negative rates as a precursor to the death of banking – alphaville / FT

Morgan Stanley: The potential impact of negative rates on banks’ willingness to lend and on European rates curves is a key risk…we see a risk of greater Balkanisation of European banking markets from funding pressures.

Charting Europe's Broken Transmission Channels – ZH
JP Morgan: as obvious as the normative argument seems, it isn’t so helpful in thinking through the range of factors in play as the ECB moves into uncharted territory.

France and Italy Seek Ultimate Firepower for ESM – Spiegel

Several leading euro-zone countries want to provide the euro bailout fund with the power to obtain unlimited credit from the European Central Bank to prevent the need for a full-fledged Spanish bailout and calm the markets, according to media reports. In Berlin, German politicians still oppose the proposal.

Merkel Allies Harden Opposition to Granting ESM Bank License – BB

German Chancellor Angela Merkel’s coalition rejected granting the permanent euro rescue fund access to European Central Bank liquidity via a banking license, as the Finance Ministry said it saw no need for any such move.

(audio) Cailloux Says Says ECB Backing Is Uncertain – BB (mp3)

USA: FED (see also my Special)

Will Ben Bernanke Pull the Trigger on More Bond Buying? – TIME

The Fed’s 2% inflation target trap – Economist’s Forum / FT
Though not a problem today, this two per cent target represents a policy trap that will undercut the possibility of future wage increases despite on-going productivity growth. That promises to aggravate existing problems of income inequality and demand shortage.

Try overshooting for once – Free exchange / The Economist

We've experienced sustained periods of very high inflation, we've experienced disinflationary recessions, and we've experienced a prolonged period of very high unemployment, and we have a clear sense of which is the worst of the three. Given the reality of years, perhaps a decade, of high unemployment, the alternative approach—seeing if a couple of years of higher demand, consistent with 4% inflation, can help—looks not just attractive but obviously better.

Fed likely to wait until September before easing more – Danske Bank (pdf)

FOMC Meeting: 3 possible scenarios, plus 3 policy drivers – Saxo Bank

Remember that until further notice, this FOMC meeting will only see the release of a new policy statement. This is not one of the meetings that includes revisions of Fed economic and policy forecasts nor a Bernanke press conference (which we will see in September.).

Preview FOMC – Marc to Market

The advantage of the September meeting is that 1) the Fed would have another two monthly employment reports and more economic data in general, 2) it may have greater insight into what European officials will do, and this could effect a headwind to the US economy that Fed officials have recognized, and 3) it provide more time to "devise new tools".

Golman Sachs: FOMC Preview – ZH

Rate extension but no new QE

The right swap – alphaville / FT
Arvind Krishnamurthy and Annette Vissing-Jorgensen have an interesting variation on what the Fed should do next: start buying MBS while selling longer-term Treasuries.

Twist is Fed's most effective policy tool right now – Sober Look

The most probable outcome of the FOMC meeting currently under way is the continuation of "Operation Twist" and possibly the extension of the current “exceptionally low… through late 2014” rate guidance to "mid 2015."

Like over-hyped Olympian, Fed set to disappoint – MacroScope / Reuters

The U.S. central bank may not want to get out just ahead of the European Central Bank’s policy decision on Thursday. If, down the line, things get really ugly in Europe – or if the U.S. Congress sends the country off the so-called fiscal cliff – the Fed will probably want to have the QE3 bazooka ready in its arsenal.

(audio) Kounis Sees No QE3 From Federal Reserve This Week – BB (mp3)

OTHER

Picturing The Turn In The Credit Cycle – ZH

the credit cycle is deteriorating rather rapidly in both the US and Europe.

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Tuesday, July 31

31st Jul - US Close