Archive - Sep 8, 2011

Will JCT finally backtrack on the ECB's recent disastrous tightening policy? Find out in the live webcast below.

• Yuan Convertible By 2015: China to EU Chamber (Bloomberg)
• European Bailout Tensions Threaten German Coalition (WSJ)
• Greek backsliding sparks euro exit talk (Reuters)
• Perry, Romney Clash at Debate (WSJ)
• Fitch warns of downgrades for China (Reuters)
• Mists Clear on China's Policy Outlook (WSJ)
• Dutch PM calls for Europe budget tsar (FT)
• Libor inquiry looks at criminal angle (FT)
• Business Leaders Call for More Central Bank Stimulus to Aid Economy (WSJ)

A tale of two Europes:

• PORT 1030/1070 +25
• IRELAND 812/840 +6
• ITALY 420/428 +2
• GREECE (pts) 51/55 +2
• SPAIN 380/390 -2

• BELGIUM 262/272 flat
• FRANCE 164/168 -8
• AUSTRIA 126/131 -5
• ENG 74/76 -1
• DEUTSCHE 76.5/78.5 -1

EUR/USD traded lower during the European session as the market looked ahead to ECB Trichet’s press-conference following the rate-decision, where some analysts expect the central bank to portray a dovish tone. In other forex news, after trading lower for a vast majority of the session, GBP received a boost across the board after the BoE refrained from further monetary easing this month. The BoE kept its benchmark interest rate and asset purchase facility unchanged at 0.50% and GBP 200bln, respectively, as expected. Elsewhere, European equities traded higher during the session on anticipation of monetary easing by the ECB today. Financials traded higher, with outperformance seen in the Italian FTSE MIB and Spanish IBEX 35 indices, after the Italian Senate and the French lower house of Parliament approved measures to strengthen the EFSF. However, DAX came under pressure following a sharp decline in German exports. Moving into the North American open, apart from the ECB’s rate announcement followed by Trichet’s press-conference, markets look ahead to key economic data from the US in the form of jobless claims and trade balance. Canadian trade balance and housing data is also scheduled for release later. In fixed income, 3-, 10-, and 30-year Note refunding announcement from the US is due later, whereas markets will keep a close eye on comments from Fed’s Bernanke.

New research from Dr Constantin Gurdgiev, Head of Research with St Columbanus AG, member of the investment committee of GoldCore and the adjunct lecturer in finance in Trinity College, Dublin, questions the widely held belief that retail investors are “piling into” gold in a speculative frenzy. “The U.S. Mint data on sales of gold coins suggests that we are not in the last days of the ‘bubble’,” finds Gurdgiev. Buyers of gold bullion coins such as the US Mint’s gold eagles are store of value buyers and sometimes collectors, Gurdgiev points out. Most buyers of gold coins are motivated not by a return on capital but by a return of capital and by wealth preservation. Gurdgiev points out that “gold coins are traditionally held by retail investors as portable units to store wealth. Due to this, plus demand from collectors, gold coins are less liquid and represent more of a pure ‘store of value’ than a speculative instrument.” The data shows that there has not been a dramatic increase in demand for the US Mint’s Gold Eagles with annual demand in 2011 set to be some 1,275,000 oz which is below the levels since back in 1986-1987, in 1998-1999 and more recently in 2009 when demand was 1,435,000 oz. Gurdgiev excellent article concludes that the data and evidence from the US Mint regarding the “behaviourally anchored, longer-term demand for gold coins as wealth preservation tool for smaller retail investors” does not “appear to support the view of a dramatic over-buying of gold by the fabled speculatively crazed retail investors that some media commentators are seeing nowadays.”

As usual, egos get in the way of prudent monetary policy. EUR jumps a little on the news but promptly reverts to preannouncement levels. Waiting now for the conference in which Greenspan lite will mumble and lie about Europe's future from the perspective of a clueless Ph.D.

Aside from the ECB rate decision TBA imminently, the key economic data in this news heavy day will be Trade, jobless claims and the speech by Fed Chairman Bernanke, who received quite an earful by the GOP candidates yesterday.

While the BOE's decision came and went exactly as expected (rate unchanged at 0.50%, no new Quantitative Easing), leading to a slight jump in the GBP but nothing too notable, all eyes now turn to the ECB in 20 minutes and whether or not Jean Claude will admit defeat and announce the end of the bank's very ill-timed decision to start tightening from 6 months ago, which as much as it is overdue, will unfortunately not happen, egos and all. Here is a complete preview, but in a nutshell the consensus is for rates to remain unchanged at 1.50%, for an announcement that downside risks have intensified, and that both lower growth and lower inflation will be forecast.

All you need to read.

It was only a matter of time. A few weeks after every money losing firm in the US and the kitchen sink disclosed it would sue Bank of America in an accelerating attempt to salvage something through litigation, the worst case scenario for Brian Moynhian just got real. As of minutes ago, Norway's Government Pension Fund, which is another name for its Sovereign Wealth Fund, has just announced it is suing Bank of America for mortgage fraud. Not only that but it is also going after Countrywide, obviously, but far more importantly, is also suing KPGM, the auditor on the Countrywide transaction, and, drumroll, ole' Agent Orange himself. If US bank analysts were busy quantifying the damages from every bank in the US suing BofA, just wait until the calculation is expanded to included every firm that bought mortgages from Bank of America... ever...in the entire world.