Archive - Sep 6, 2012

Despite consensus for a 25 bps cut by the ECB, Mario Draghi decided to leave rates unchanged. To say that this is ominous for the press conference in 45 minutes is an understatement.

The chart below needs no commentary, neither does what it represents. In May Greek unemployment, pre revision, was 23.1%. It was subsequently revised higher to 23.5%, but this is merely to make the jump to the June number more palatable. What was June? 24.4%. In other words, no matter how one looks at it, the unemployment rate rose by 1% in one month.

• Draghi Credibility At Stake As ECB Tries To Save The Euro (Bloomberg)
• Clinton Returns to Back Obama (WSJ)
• Taxi fares up 17% in New York City (Toronto Sun)
• High Speed Scandal: Ferrari Incident Rocks China (Daily Beast)
• China’s Richest Man Benefits From Thirst For Soft Drinks (Bloomberg)
• China August export growth seen weak, imports slow (Reuters)
• Death to PowerPoint! (BusinessWeek)
• Sweden surprises with interest rate cut (WSJ)
• IMF demands greater clarity on Irish austerity plans (Reuters)
• At Abercrombie & Fitch, Sex No Longer Sells (Bloomberg)
• And the best for last: California Treasurer Backs Law to Ban Costly Long-Term Bonds (Bloomberg) -> legislating low, low yields

There is only one event on pundits and traders minds today: the ECB's press conference, during which Draghi will announce nothing material, as the substance of the bank's message has been leaked, telegraphed and distributed extensively over the past three weeks before just to gauge and test the market's response as every part of this latest "plan", which is nothing but SMP-meets-Operation "Tsiwt" was being made up on the fly. And not even a weaker than expected Spanish short-term auction in which €3.5 billion in 2014-2016 bonds were sold at plunging Bids to Cover, sending yields paradoxically spiking just ahead of what the ECB should otherwise announce will be the buying sweet spot, can dent the market's hope that Draghi will pull some final detail out of his hat. Or any detail for that matter, because while the leaks have been rich in broad strokes, there has been no information on the Spanish bailout conditions, on how one can use "unlimited" and "sterilized" in the same sentence, and how the ECB can strip its seniority with impairing its current holdings of tens of billions in Greek bonds without suddenly finding itself with negative capital. Elsewhere, the Swedish central bank cut rates by 25 bps unexpectedly: after all nobody wants to be last in the global currency devaluation race. Ironically, just before this happened, the BOJ's Shirakawa said that he won't buy bonds to finance sovereign debt: but why? Everyone is doing it. Finally, in news that really matters, and not in the "how to extend a ponzi by simply diluting the purchasing power of money" category, Greek unemployment soared to 24.4% on expectations of a rise to "just" 23.5%. This means there was an increase of 1.3% in Greek unemployment in one month.

Earlier we noted Gold's seeming clairvoyance with regard the expansion of the Fed and ECB balance sheets over the last few years. It seems the EUR strength overnight (or stop-run) has provided just enough USD weakness impetus to nudge spot Gold (not futures) back over $1700 for the first time since March 13th.