Money markets us cp market grows, ecb expected to cut rates

← Homepage

NEW YORK/LONDON, May 2 The U.S. commercial paper market grew in the latest week, suggesting increased interest in lending to finance inventories and payrolls and appetite to fund short-term corporate debt, Federal Reserve data showed on Thursday. The size of the U.S. commercial paper market grew by $14.1 billion to $939.9 billion on a seasonally adjusted basis in the week ended May 2 from a seasonally adjusted $925.9 billion outstanding a week earlier. Meanwhile, the size of the market without seasonal adjustments grew by $3.9 billion in the latest week to $1.0213 trillion from $1.0174 trillion. Meanwhile, dollar-denominated three-month London Interbank Offered Rates (Libor) fixed at 0.46585 percent on Thursday, which was unchanged on the day. Three-month dollar Libor rates have remained virtually unchanged for over two weeks. Three-month euro Libor rates eased to 0.62286 percent on Thursday from 0.62929 percent Wednesday. Three-month euro Libor has been mostly falling steadily since touching a recent high of 1.56 percent in June of last year. In Europe, money markets stuck to expectations the European Central Bank will cut rates this year after the ECB on Thursday neither signaled further monetary easing nor eliminated the possibility of more stimulus. At a press conference in Spain, ECB President Mario Draghi painted an uncertain picture of the euro zone's economy, saying while it was likely to improve this year there were risks of a decline. He said more time was needed to see the impact of cheap three-year financing on the real economy and that any exit strategy remained premature. Euribor futures gave up gains after the comments, as traders took profit on previously held positions. But by late trade, they had come off their lows as some bought back into the dips. "Hopes for a signal from the ECB that further monetary support is in the cards were dashed today, with the central bank still awaiting the full impact of the measures already implemented and stressing once again the need for fiscal consolidation and structural reforms to foster sustainable growth," said Natascha Gewaltig, director of European economics for Action Economics in London. Data this week painted a bleak picture of the manufacturing sector in the euro zone, while double-digit unemployment fueled concerns that austerity in Europe was choking an already sluggish economy. Euribor interest rate futures fell as much as 3.5 ticks across the 2013 and 2014 strip after Draghi's comments, having traded as much as 2 ticks higher when the press conference started. Alessandro Giansanti, strategist at ING, said the June contract was pricing in a close to 50 percent chance of a 25-basis-point rate cut that month, which was little changed compared to before the press conference. One trader said the worsening economic situation in the euro zone had money markets players betting on more monetary easing from the ECB, be it via a cut in interest rates, in the deposit facility rate or by increasing the maturity on long-term refinancing operations. The ECB injected one trillion euros' worth of cheap three-year cash in December and February, providing highly indebted countries with some breathing space as the excess liquidity helped limit a rise in peripheral bond yields. "The reaction was fairly predictable in that people are happy to be long Euribor futures and as a result, because nothing happened today, the pull-back was bought quite quickly," said the trader. "Today's press conference probably didn't surprise us in that nothing happened in terms of changing the monetary stance, but they certainly didn't close any doors." Eonia forwards were suggesting that the overnight rate be at 0.29-0.24 percent by November compared to 0.34 percent currently. The trader said that suggested a 30 percent chance of a 25-basis-point rate cut by that time.