Trichet, Trichet, Trichet or Not

The US dollar is mixed, though the euro is clearly lower ahead of the ECB meeting and, more importantly, Trichet's press conference.  Every one and their sister expects a 25 bp hike, but the guidance going forward is important, or maybe not. Observers recall that Trichet's past suggest that a tightening cycle is not at hand has not proved advice to bank on. 

My idea of heightened risk of "buy the rumor sell the fact"  type of of activity was not solely based on the likelihood that Trichet may try to calm market anxiety about the extent and pace of hikes.  Rather it was also on market positioning--the euro has been trending higher since early Jan on ideas ECB was going to hike and not just hike, but hike ahead of the US, something it has not done in a generation.  The intreest rate market, it seems to me, is too aggressive. 

Details of Portugal's request whether for a bridge loan or a full package in the 70-80 bln euro range are not clear, but the fear of default has lessened judging from the credit default swaps.  Spain auctioned 3 year bonds and although the bid to cover was abit lower than last time, yields were largely steady. 

The yen is recovering today.  The BOJ announced a new lending facility of JPY1 trillion for banks ostensibly to help their clients cope with the disaster.  The BOJ also revised down its assessment of the economy, which is hardly surprising.    The government is going to do likewise.   It is reportedly discussing JPY10 trillion in reconstruction bonds, but it is not clear whether this will be a special issue or simply more JGBs. 

Some discussion of possible closure of the US government as the debt ceiling is reached without a deal.  Yet the markets are looking through it.  It is more an inconvenience and political theatre than real substantial financial or economic issue...at this juncture.  The difference between the $60 bln or so the Republicans have offered and the $40 bln the Democrats appear to be supporting is hardly even a rounding error given the size of the budget and the deficit.