Trader Talk

U.K. Liquidity, China's Rates Weigh On Markets


Several issues weighing on the markets today. Liquidity issues again coming to the fore, this time in the U.K.

1) Northern Rock, the 4th largest mortgage company in the UK, has sought emergency funding from the Bank of England because it won't be able to roll over obligations that are coming due over the next few weeks.

This is similar to problems that other mortgage lenders in the U.S. have faced in August. They also lowered earnings guidance, and said they were slowing down customer lending due to difficulties NRK is having in accessing long term funding and mortgage securitisation markets.

Not a big suprise but it throws a little cold water on those hoping that most of this was behind us. The good news is that 3 month LIBOR rates continue to drop.

2) The Fed discount window borrowing has gone up to a 6 yr high. The bears point out that these are lenders of last resort and there are obvious problems if they are being tapped. The bulls note that the Fed has encouraged this lending and said there is not a stigma attached to it.

3) China has raised interest rates again to 7.29%, the highest since 1998, in response to the recent inflation data. They seem determined to slow growth down in a bid to slow the rate of inflation.

Questions?  Comments?