Market Insider

ECB'S Trichet On State Of Economies


The markets found few immediate take aways in the comments of Fed Chairman Ben Bernanke today which largely focused on the current account deficit and the global savings glut. But if you wanted to hear the thoughts of a top central banker on the state of the economy, current market conditions, the credit crunch and interest rate policy, you might take a look at comments from European Central Bank President Jean-Claude Trichet.

Trichet assured markets today that banks are strong enough to weather the subprime storm. He made soothing comments about the accommodative posture of the ECB, and reaffirmed the monetary stance it made clear Sept. 6. Trichet also talked about the quick reaction and smooth functioning of the Eurosystem of Euro zone central banks in dealing with market tumult since early August.

"It is important to remark that credit losses were not significant enough to materially impact the soundness of core financial institutions," Trichet said before a European Parliament committee today. Trichet's message today echoes comments he made this weekend in an exclusive on camera interview with CNBC's Maria Bartiromo.

European Economic Outlook

Trichet also said inflation's risks remain, a comment that gave some support to the Euro. In a near Greenspan-like lecture, he discussed the need for more regulation of hedge funds and the need for improved surveillance of the financial sector by regulators and better risk management at institutions.

"First we need to restore confidence as we have a paradox that there are a large number of high quality assets which investors are currently treating as if they were not creditworthy...Now it seems to me that the one important reason why we observe such lack of confidence is because we do not have sufficient transparency," Trichet said.

Et tu Ben?
Bernanke discussed the current account deficit, global trade and savings. Not what traders wanted to hear. "In terms of what the market cares about today, I would move onto another story," said CNBC senior economic correspondent Steve Liesman on "The Call."

Liesman also said it may be that Bernanke is happy to let stand the comments of his Fed colleagues who have been chattering in public a lot lately. Liesman pointed out remarks by Fed Governor Frederic Mishkin late yesterday who voiced concerns that the economic fallout of the credit crunch is growing. that scenario in my view cannot be ruled out.

An interesting comment from Miller Tabak's Tony Crescenzi on Bernanke. In a quick note this morning, Crescenzi says Bernanke gave the markets nothing, as expected, but in a look at the speech text Crescenzi says Bernanke shows he's probably not in favor of deep interest rate cuts to improve liquidity.

Writes Crescenzi: "No obvious signals of any sort can be found in the text except to the extent that Bernanke said that large amounts of global savings still exist: "My reading of recent developments is that although some of the details have changed, the fundamental elements of the global saving glut remain in place."

Bernanke said that the glut could take "decades" to dissipate. This means that Bernanke probably is uninterested in boosting liquidity much via deep interest rate cuts.'"

Questions?  Comments?