Ahead of tomorrow's EU summit, ECB President Trichet has delivered a timely rebuke to the EU, essentially to get its collective act together. Amongst other things, he has called for maximum flexibility and capacity for the EFSF (in other words, a bigger fund able to take over the task of buying suspect eurozone sovereigns from the ECB), he berates EU budget reforms for not being the quantum leaps that the ECB demanded, and he argues that sanctions for fiscal miscreants should be applied quasi-automatically and include voting-right suspensions. He also said that the ECB does not like the idea of E-bonds. It was a very strong statement from the normally circumspect ECB President. In short, Trichet warns that monetary union without fiscal rules does not work. There are many commentators and investors who would agree with him.

•ECB may ask for more capital

•Greek banks increased ECB liquidity-reliance last month

•Fed holds very steady course after meeting

•Belgium rating outlook revised down to negative by S&P - Moody's

puts Spain on review

•The US economy is looking very strong in Q4

ECB may ask for more capital. Apparently the European Central bank is in negotiations with eurozone finance officials concerning an increase in the former's capital. At the end of last year, the ECB had subscribed capital of €5.76bn, relative to assets of nearly €138bn. The request for more capital is perfectly understandable as the ECB seeks to protect itself from potential losses emanating from its asset purchases program. Thus far, the ECB has purchased €72bn of eurozone sovereign bonds as part of the program, almost exclusively Irish, Portuguese and Greek government bonds. One suggestion is that the ECB needs to double its capital cushion. Germany is likely to be very supportive of this request - indeed it is likely that Bundesbank officials have suggested it. The problem is that a number of eurozone governments and central banks are under significant financial pressure and, as such, would struggle to make any additional contributions.

Greek banks increased reliance on ECB funding last month. According to the Bank of Greece, Greek banks borrowed €95bn from the ECB as part of their liquidity provisions in November, up from €92.4bn in the previous month. This follows the news on Monday that Irish banks borrowed €136.4bn from the ECB last month, up from €130bn in October, and that Ireland's troubled banks borrowed an additional €10bn from their own central bank in the same month. Although Greek banks have had some minor success raising funds, banks are increasingly worried about falling retail deposits as people withdraw deposits from Greek banks for either safety reasons or because they need the money to sustain their living standards. Greek banks have lost €27.5bn in deposits in the first 11 months of this year. Interestingly, the experience of Portuguese banks has been somewhat different - deposits have actually risen over recent months.

Fed holds steady course. Last night's Fed meeting saw no change in policy (no surprise there), with the changes in the statement proving to be marginal. So, it's a case of 'as you were'.

S&P chops outlook on Belgium's credit rating, Moody's put Spain under review. Belgium bond yields were under pressure on Tuesday after S&P lowered the outlook for the country's AA+ credit rating to negative from stable, citing ongoing political uncertainty. PIGS bonds spreads to Bunds were out by 5-10bp on the day. Meanwhile, Moody's has put Spain's Aa1 rating under review, but said that it views Spain "as a much stronger credit than other stressed eurozone countries". Still, euro is a touch weaker on the news early on in the European session.

US economy still looking healthier. The run of good news concerning the US economy continued on Tuesday. Retail sales recorded a fourth consecutive punchy increase, up 0.8% in November after a 1.7% increase in the previous month; in YoY terms, retail sales are up 9.2%. A CEO Economic Outlook Survey conducted by Business Roundtable showed sentiment amongst chief executives was the highest since early 2006 in Q4, with 80% expecting increased sales over the next six months. Not surprisingly, the strength of the retail sales figures (which were very impressive) gave the dollar some renewed impetus, with the EUR falling from 1.35 down below 1.34, and cable declining from above 1.59 to below 1.5750. Treasury yields headed higher again, the 10yr yield touching 3.35%, up from 3.25% late on Monday. Some commentators are starting to wonder whether the Fed will need to go ahead with its full $600bn commitment to QE2. The statement accompanying last night's FOMC meeting did confirm that economic conditions had improved since the last meeting in November when the decision to implement QE2 was taken.

UK inflation remains remarkably elevated. Notwithstanding the conventional wisdom of many UK economists who felt that enormous spare capacity and falling real wages would severely curtail prices, inflation in this country remains stubbornly high, according to the latest figures from the ONS. The CPI rose by another 0.4% MoM in November, above expectations, representing a YOY increase of 3.3%. Core CPI remains 2.7% YoY. November's outcome was adversely affected by a 1.3% jump in food prices, led by a 2.5% surge in seasonal food. Clothing and footwear prices were up sharply again, by 2.2% in the month.