LTRO: The 500 Billion Euro Cash Grab

If you are interested in getting an in-depth view of the S+P 500 and the ASX 200, my weekly stock market update is now up on YouTube. You can find it here. I put together these short videos weekly. So if you are a trader interested in seeing someone else’s view on the market, you can subscribe to my channel (for free) and receive an email notification when I upload a new one.

It looks like the whole market is sitting on its hands until we find out the size of the second round of LTRO (Long Term Refinancing Operation) from the ECB. The first round in December 2011 saw the ECB hand out nearly 500 billion euro. This ignited a rally in peripheral European sovereign debt, which in turn ignited the rally in equity markets worldwide.

Tonight we will find out just how much the banks of Europe want this time around. Some are touting figures of between 500-1000 billion. Gold and silver have been rallying strongly in the past few weeks and I suspect it is on the expectation of a large figure at tonight’s announcement.

My gut feel says that banks will gladly snaffle up as much as they can get if they feel there is little stigma attached to taking the money. Europe is heading towards (or is in) recession, so banks may feel that more losses are just around the corner. Why not cash up now in expectation of tough times ahead?

The size of the LTRO this time around will contain some important information. But I think the most important thing to watch will be the price action in Portuguese, Spanish and Italian debt in the weeks following the LTRO announcement. If they fail to catch a strong bid in the weeks following the LTRO (and especially if they start to sell off) I think that will ring some very large alarm bells.

The politicians want the LTRO money to prop up the sovereign debt markets. The banks were willing to buy sub three-year Italian bonds at 7% with LTRO money from the first round, but will they keep loading up on Italian debt at 5%? I’m not so sure. And I don’t think they will do it in enough size to support the huge amount of debt issuance needed over the coming year.

But that is a story for another day. The immediate story is that the market will be frothing at the mouth expecting this latest injection of liquidity to fuel the rally for another few months.

The ASX 200 has been underperforming most markets due to the strong Aussie dollar, but it is on the edge of breaking out above the important 4300 level. If the LTRO is well received you can expect to see a pretty quick move to 4450-4600 in the coming days. I believe the resistance in that zone will be huge and expect any rally to that level will create some great shorting opportunities. Until then though, the technicals point to higher prices in the immediate future.

I do a 10-minute video outlining my technical view in detail every week on a Wednesday. I spend my time talking about the S+P 500 and the ASX 200. It is far easier to explain myself when you can follow along and see the actual charts that I am talking about. You can find this week’s instalment by clicking on this stock market update link.


Murray Dawes
for Markets and Money

Murray Dawes
Murray began his career on the Sydney Futures Exchange trading floor in 1993 with Swiss Banking Corporation (SBC). He spent a couple of years in the 3 and 10 year bond and option pits before moving on to the Share Price Index (SPI) futures and options pit. From there he became a broker with SBC specialising in SPI futures and options to institutional clients. After leaving SBC Murray continued his career in broking at Bankers Trust Australia. Then in 2001 Murray moved to Melbourne to work as a hedge fund trader for one of Australia’s wealthiest families. In 2003 he was ready to set up his own firm providing the same proprietary technical trading system to some of Australia’s boutique hedge funds. The success of Murray’s system led to him trading a $10 million account for a high net worth individual. This involved trading Australian and US futures and Australian stocks. Now Murray heads up the technical analysis desk for us passing on to readers some of his experience from 16 years of trading.
Murray Dawes

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2 Comments on "LTRO: The 500 Billion Euro Cash Grab"

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Rob CA

Hi Murray

Just a technical question. Your subscription service mentions email updates but often I am mostly at two distinct email locations (office / home / Iphone (as well) etc) and was wondering if you can send email updates to more than one email address or IPhone text for the one subscriber. I guess I could log in all over the place to one email account but am a troglodite. Thanks in advance. Enjoy your updates very much.

They are all insolvent on a mark to market basis. Capital or carry trade enabling gift horse liquidity is the only magic fix answer the scurrilous want to hear (the latest carry being the Sarko circular play into govt bonds and back again to suck money out of anything hard like commodities). I don’t believe that ASIC actually opened their eyelids on hybrids. When the senior insurance global industry prudential commentators say 20% max of hybrids should be counted into the debt raising collateral bin we still don’t hear so-called Aussie journalists asking APRA what their accepted rate is… Read more »
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