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Money markets gloomy data paves way for more ecb action

´╗┐* Below-forecast data seen paving way for ECB easing* Rate cuts or further non-conventional action expectedBy Kirsten DonovanLONDON, Sept 20 Euro zone interbank lending rates ground to fresh lows on Thursday as downbeat economic data modestly raised expectations the European Central Bank would cut interest rates or otherwise ease policy again. Unexpectedly gloomy surveys showed the ECB's aggressive new bond-buying plan has so far failed to inspire any major improvement in business across the region, with the downturn in the service sector accelerating to its fastest pace in more than three years."It was weak (data) and increases the probability for the ECB to cut rates in coming months," said Barclays Capital rate strategist Giuseppe Maraffino. Money market rates, the anchor for borrowing costs throughout the economy, are driven by expectations of central bank monetary policy. Benchmark three-month Euribor rates have hit new lows almost every day since early July and dropped to 0.233 percent on Thursday.

Euribor rate futures, which reflect expectations of where the three-month Euribor rate will be and incorporate expectations of where the ECB will set its main refinancing rate, rose across the curve after the data was released, pushing implied rates lower . The December contract ticked up to a new high of 99.82, giving an implied rate of 0.18 percent."That is consistent with some probability of a refinancing rate cut," Maraffino said. "But (it) is a reflection of expectations of monetary policy generally...of more easing by the ECB, both in terms of standard and non-standard measures.

Slovakia's central bank governor Jozef Makuch said on Tuesday the ECB had room to cut rates again if warranted, echoing comments by his Belgian counterpart Luc Coene who said both rate cuts and further cheap loans to banks were options. Barclays expects the ECB to cut its refinancing rate by another 25 basis points to 0.50 percent in the fourth quarter. BNP Paribas strategists also expect the rate to be cut by 25 basis points -- in December -- and to remain at record lows through 2014. They also look for a cut in the rate the central bank pays other banks to park funds overnight, which would see it fall into negative territory. By contrast, a Reuters poll shows money market traders do not expect the deposit rate to fall below zero this year , with market pricing based on forward overnight Eonia rates also only showing a slim chance of a cut.

When the ECB cut the deposit rate to zero in July, banks, rather than increasing lending to each other or to the wider economy, merely left their excess funds at the central bank. Societe Generale's chief European economist James Nixon said the ECB had more effective options at its disposal than a further rate cut -- steps that would more directly tackle the problems faced by the banking sector in Spain and Italy."The innovations are going to be designed to address the fragmented nature of the money market and the elevated interest rates in (Spain and Italy)," he said."This is no longer a monetary policy problem when we've reached the zero-boundary in rates...if the high rate of deposit withdrawal in Spain continues the banking sector will implode."Spanish bank deposits fell by around 230 billion euros in the year to the end of July, ECB data shows. The ECB has so far offered banks unlimited liquidity, bought covered bonds from them and eased reserve and collateral requirements.

Money tips from historys richest man

´╗┐Warren Buffett and Bill Gates have nothing on Jacob Fugger, a German financier during the Renaissance who monopolized the silver business, became the banker of kings, convinced the papacy to legalize moneylending and paved the way for today's bond market. At the height of his career in the 16th century, Fugger (rhymes with "cougar") accumulated a fortune amounting to a significant portion of Europe's economic activity. And, yet, few people have ever heard of him. A new book about Fugger, "The Richest Man Who Ever Lived," includes the money lessons for investors. Below is an edited interview with the book's author, Greg Steinmetz, who is a securities analyst and former journalist in New York. The cover of the Greg Steinmetz book "The Richest Man Who Ever Lived" is seen as provided by publishers Simon & Schuster. REUTERS/Simon & Schuster/Handout via Reuters Q. What impact did Fugger make on the long-term world of money?A. Before Fugger came along, Christians could not legally charge interest on loans. That's why the Jews were the moneylenders. It's in the Book of Luke that one should loan without expecting anything in return. The church enforced that. Christian lenders such as the Medicis got around this by calling interest a penalty or handling fee. It made lending cumbersome. Fugger said enough of that. He orchestrated a lobbying campaign with the Vatican. The pope came around and said if you are a lender taking risks, it is fair to charge interest. Q. What money lessons can we learn from Fugger?A. Fugger had nerves of steel. Although he had great instincts, those instincts were always backed by superior information. He was one of the first businessmen north of the Alps to use modern accounting – he always had a firm grasp of the numbers. He could see the big picture better than any of his competitors. Investors today don't look at the numbers, let alone the footnotes of a 10-K, an annual report of a company's revenue and profits.. In addition, Fugger did not bail out at the first sign of trouble. The most common mistake that investors make is to sell low and buy high.

Finally, he could always add value for his customers. He made himself indispensable. That kept him in the game. Q. What was his biggest money mistake?A. There are a few failures. Some shipping deals didn't work out. The King of Spain raised money from investors to send a fleet to India. Fugger invested in the venture, and the ships never came back. He got the big things right, though. The interesting thing about him is he just went from success to success. A rival of his had a bank - he was in mining like Fugger was - but he made a disastrous attempt to corner the mercury market and ended up dying in debtors' prison. 

Q. Would Fugger have been a good hedge fund manager?A. Some people just have a gift for making money. He had the gift. The first large investment he made was not only with his money and family's money, but also with money from friends. How he convinced them that an unproven entity could make a massive bet on Austrian silver is beyond me. He must have had a tremendous ability to instill confidence in people. Unfortunately, he didn't leave a diary. The evidence I relied on is fragmentary, including his accounting statements and letters to customers and creditors. Q. Did he actually enjoy his money?A. Fugger had the biggest house in Augsburg, Germany, wore furs and got driven around in coach with 12 horses. It was important to make show of wealth to demonstrate to customers and lenders that he had a lot of money.

There was a perception game in those days that symbols mattered more than they do today. You couldn't look at a proxy and see he owned 100 percent of a company. The outward trappings of wealth mattered a great deal. Q. What was Fugger's life like?A. He worked all the time, but for him, like Buffett, work was fun. Buffett says he tap dances to work every day because he loves it. I don't know for sure, but Fugger was made of the same stuff. He worked until his dying breath in 1525 at the age of 66.