Friday, October 12, 2007

. Federal Reserve: "Factors Affecting Reserve Balances", October 10

- Fed's Treasuries holdings: $783.3bn (-$3.0bn)
- Other central banks' Treasuries holdings: $1,221.8bn (+$7.7bn) (*)
- Other central banks' agency securities: $782.0 (-$2.3bn) (*)
- Global Dollar Liquidity Measure: $2,787.2bn (+$2.5bn)

(*) Off-balance-sheet items

Dull, lacking in liveliness or surprise, uninteresting, colorless and boring: these are the adjectives that best describe the weekly Fed balance sheet. And this has been the norm for months now. There is, I believe, a simple explanation: the real action is taking place ... elsewhere. When you read about liquidity crisis and/or surging current account deficits in the periphery of the eurozone, and when you see the euro trading above $1.42, you know the ECB is getting all the fun (or the stress). It's high time for a Global Euro Liquidity measure! Meanwhile, here's my daily liquidity roundup:

[1] Morgan Stanley: an October pause? "The combination of healing in stressed financial markets and mixed economic news", write Richard Berner and David Greenlaw, "gives the Fed latitude to pause before easing monetary policy again. Since the Fed eased on September 18, the improvement in most markets has been dramatic, although incomplete. As the Fed intended, that improvement has partially offset the financial restraint from the summer liquidity squeeze". [Richard Berner & David Greenlaw: "Fed to Pause in October", Morgan Stanley GEF].

[2] South Africa Reserve Bank raises rates. South African Reserve Bank Governor Tito Mboweni said on Thursday that the bank had decided to raise the repo rate by 50 basis points to 10.5%. The current tightening cycle that began in June last year increases to 350 basis points. Is this the end of the tightening cycle? [Mail & Guardian: "
Reserve Bank raises interest rates"].

[3] Liquidity @ Financial Times. Fred Bergsten on Asia & the euro: "... eurozone leaders should be addressing their concerns to Beijing, and to some extent Tokyo and Riyadh, rather than Washington, especially with the US current account deficit now falling and the budget deficit for fiscal 2007 at a mere 1.2 per cent of GDP" ("
Europe must look east to deal with the euro"); Gillian Tett on the impact of volatility on VAR models (no link); Stacy-Marie Ishmael on a tentative recovery in the junk-rated bond market ("Appetite for high-yield debt improves"); Michael Mackenzie & Sakia Scholtes on the high levels of 3-month interbank rates (no link).

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