Archive - Aug 24, 2010 - Story

The often ridiculed (for some incomprehensible reason) John Taylor of FX Concepts is once again proven spot on with his EUR top call, which came when the European currency was at 1.33, at about the time when Goldman reinforced its long EURUSD call. A few weeks and 6% lower, here is Goldman explaining what they really meant (again). In a nutshell - despite the transitory economic boost driven by a plunging EUR export-boom is over, Goldman is hopeful the lingering effects will remain forever. And Goldman continues to be very bearish on the dollar, for one simple reason: "Our expectations for sizeable additional QE by the Fed will only add to the Dollar negative mix towards the end of the year." We are waiting for the Jackson Hole announcement with bated breath: rumor is the Chairman has mastered the alchemy process of converting linen to gold, and will commence printing the shiny metal shortly.

• Deflation: the Neutron Bomb of Balance Sheets  (and why Bernanke will destroy the dollar before he allows it) (Barrons)
• Captain Obvious headline of the day: Asia Slowdown to Have "Serious" on Affect Europe, Economy Chief Rehn Says (Bloomberg)
• Kan Says Yen Move Undesirable; Union Urges G-7 Action (BusinessWeek)
• BoE's Weale Says Britain Faces Recession Risk (Reuters)
• European Banks May Face More Frequent Stress Tests (Bloomberg)
• Libor Volatility is Price of Disrupted Credit (FT)
• We need more TBTFs around the world stat: Greek Banks Pressured to Merge as Economic Slump Hurts Profits (Reuters)
• Housing Slide in U.S. Threatens to Drag Economy Into Recession (Bloomberg)

This is not the start of the global panic you are looking for. That is all

• Asian stocks fall on economic growth concerns; Yen, Dollar gain.
• Coffee futures flirt with 13-year high on crop troubles.
• Greece asks EU, ECB for $8.2B loan disbursement as part of accord.
• Nikkei dips to 15-month low, with yen strength as 'usual suspect'.
• Obama may propose any federal backing of mortgages be paid for through fees on the lending industry.
• Oil falls a fifth day on concern over US supply gains, slowing recovery.

The title of Jan Hatzius' latest piece pretty much says it all, although here is the punchline: "We continue to believe that the risk of a renewed technical recession—defined as a return to quarter-on-quarter declines in real GDP—is an uncomfortably high 25%-30%. In our view, this exceeds the likelihood of the trend/above-trend growth scenario envisaged in the consensus forecast." So just as the Great Depression v2 is now called the Double Dip, Goldman now calls the Double Dip a "Technical Recession." Surely that will make everything better again.

As the USDJPY is currently probing fresh 15 year lows of 84.24, various London desks, Nomura, BNP and UBS are reporting that the last central bank bastion, the BOJ, is about to intervene. This despite Japanese Finance minister Noda earlier making no specific comment on FX intervention, although noting that the government needs to be flexible on policy response. Yet sending a somewhat contrary message, PM Kan said that sudden currency moves are not welcome and is watching the FX market closely. Also, the head of Japan's Rengo union has now called for a G-7 response to the near record JPY: looks like scapegoating the central banks' (transitory lack of intervention) for all economic ills is becoming a pandemic. Reuters is attempting to moderate the story somewhat by pointing out that some in the BOJ feel more evidence needed on damage from a surging JPY before easing policy. Yet the Yen vigilantes are out in full force, with the most recent 90 pip move driven by a push to force the BOJ's hand: at this point the likelihood of a bank intervention before September is material. Watch the Yen crosses for that very indicative V-fib 200 pip move that will signal that the BOJ has officially entered the currency destruction race. Elsewhere, the flight to safety and to bond bubbles continues, as the both the 10 and 30 Year German yields have fallen to fresh record lows of 2.237%and 2.894%, respectively.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 24/08/10

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