morbius glass

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G7 meeting and the intermarket bank rates. Europe and the UK will start cutting rates

Posted by Adrian on April 7, 2008

Europe’s interbank markets could be a lot more vulnerable than the US equivalent. Despite the huge write downs from the US banks, namely wall street brokerage firms and big retails banks like Citigroup . The biggest loss came from the huge swiss bank UBS, loosing $37.4 billion from it’s exposure to the subprime debt markets.

The current US slow down (recession) will pick up speed further into 2008, the question is to what extent will Europe be effected? As followed in morbius glass, the countries that I have picked in regards to Europe are Italy, Spain and Iceland. Of course there are a magnitude of problems in Ireland, UK and Germany. Those three countries get more press, hence the covering on morbius glass will not be as frequent as say Spain.

The G7 is trying to create calm, but they downplayed the risks last time. Which has been the error of the ‘leaders’ since day one. This time all they are going to do is ask the banks to be more transparent, and give the consensus for the European Central Bank to begin cutting rates. The USD, after being so under bought may gain some from the potential rate cutting of BoE (Bank of England) and ECB (European Central Bank)

Europe will not escape a recession, most likely lead by property busts in countries such as Spain, Ireland and UK.

But the formula is simple against rate cutting: falling asset value, inflation on consumption, loss of purchasing power of currency = continue negative growth.

As much as the central banks cut rates, the financial markets are increasing rates this is in line with fear in inter market lending

Euribor rates are at the highest since September 2001, reports of more write downs from European banks, namely German state banks like BayernLB (estimated loss of 6.7 billion US) are emerging. As mentioned, with German state owned banks writing down losses on assets we will see continue high Euribor rates, and further credit problems between European banks. It is possible some European banks are in trouble (insolvency) out side form the UK, these could be in Spain and Germany. Not to forget UBS, that may be bought or broken up.

summary of periods between 04-04-2008. 04-03-2008. 04-02-2008 (Euribor rates)

1 month 4.348% 4.349% 4.352%

3 months 4.741% 4.741% 4.736%

6 months 4.745% 4.744% 4.737%

12 months 4.751% 4.751% 4.743%

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