Friday, December 4, 2009

"European Cemtral Bank begins to turn off the liquidity tap" and "Traders Increase Wagers on Fed Increase After Payroll Report " (GLD)

Uh oh. As we said a month ago in "Commodities: "LME copper stocks highest since May - price falls as demand weakens":
If the Fed sucks up $1 Trillion by March (see post below) the metals could drop 40%....
Gold is down $48.40 today.
From The Telegraph:
The European Central Bank has begun to turn off the liquidity tap and prepare for a gradual retreat from ultra-low interest rates over the next year, raising its economic growth forecast for 2010 to 0.8pc.

Jean-Claude Trichet, the ECB's president, said this month's offering of 12-month loans to the banking system would be the last of its kind and the cost of borrowing would be linked to the ECB's benchmark floating rate, currently 1pc.

"Not all our liquidity measures are needed to the same extent as in the past. The market is going better and better"," he said.

Carsten Brzeski from ING said it was a key turning point in the sequence of the global financial crisis. "The gentle exit has begun. Today's message to banks was crystal clear: do your homework, free refills are coming to an end".>>>MORE

From Bloomberg:

Traders increased wagers that the Federal Reserve will begin lifting its target rate for overnight loans next year after the U.S. government reported a smaller- than-estimated decrease in jobs last month.

Federal-funds futures contracts on the Chicago Board of Trade show a 18 percent probability that the central bank will lift its target rate for overnight bank borrowing to at least 0.5 percent by March, up from 13.1 percent odds yesterday. For a similar increase at the June meeting of the Federal Open Market Committee, the probability rose to 52.9 percent from 43 percent yesterday.

“With the economy as hot as it has been over the past few months, excluding jobs, an improvement in the labor market is the only thing standing in the Fed’s way as far as reversing some of their easy monetary policy,” said Brian Yelvington, head of fixed-income strategy at Knight Libertas LLC, a Greenwich, Connecticut-based broker-dealer. “I still wouldn’t expect any increase in the target rate until the second half of 2010, as improvement in the jobs markets has to be on a sustained basis. The movement in the futures market today is also reflecting that many had expected the data to be worse than expected.”

The nation lost 11,000 jobs last month, compared with the median economist estimate for a decrease of 125,000, the Labor Department said. That was the fewest job cuts in November since the recession began. The unemployment rate unexpectedly fell to 10 percent, signaling the recovery is lifting the labor market out its worst slump since World War II.

The Fed cut the target rate to the record low range of zero to 0.25 percent in December....MORE