Archive - Oct 14, 2011 - Story

• China inflation dips to 6.1% in September (FT)
• G-20 Said to Weigh Boosting IMF Lending Power to Stem Europe Debt Crisis (Bloomberg)
• German Bankers Argue Against Capital Plans (WSJ)
• State Revenue Under Forecasts to Produce Cuts From New York to California (Bloomberg)
• Germany’s Banks Said to Prepare for Greece Debt Losses of as Much as 60% (Bloomberg)
• Bank’s Bean says will do more QE if needed (FT)
• Banks’ Paths Vary in Greek Write-Downs (WSJ)
• ECB warns against private role in bail-outs (FT)
• China Inflation Wen’s Scope for Easing (FT)

While the euro has been gloriously soaring higher over the past nine days, to much pomp and circumstance, with the move now 3.2% on the week - the biggest 5 day gain since the beginning of the year, and European bureaucrats overeager to point out that there is no way the currency could be on the verge of implosion if it is in fact soaring, a far more quiet and stealthy move has occurred in the spread between French and German bunds, which just hit an all time record. Why is this important? Because as the chart below shows, the correlation between the two had been for all intents and purposes 1.000... until 5 days ago when it bexome -1.000. Which is a clear signal that the move in the EUR is now purely technical and on last fumes from the ongoing short squeeze long discussed on Zero Hedge (watch for the CFTC COT update at 3pm today for the plunge in net EUR short exposure); it is also a loud signal for a compression trade between the France-German bund spread and the EUR, and as such we encourage readers with a capacity to enact said compression trade to boldly go where no weak EUR short covering hands have dared go in the past 5 days.

The Bloomberg ‘Chart of the Day’ shows the proportion of gold in the international reserves of India, Russia, China and Mexico is significantly lower than the rates in the U.S., Germany and France, based on data compiled from the World Gold Council. The lower panel tracks central bank holdings in metric tons and the bullion price since March 2008. Central banks last year were net gold purchasers for the first time in two decades. Central banks, the biggest gold holders, have expanded reserves due to the international financial crisis. Central bank and government-institution buying totaled 192.3 metric tons in the first half of 2011, World Gold Council data show. Gold accounts for 75.4% of the U.S.’s reserves and 72.7% of Germany’s. The ratio is just 1.6% for China and 8.2% for Russia, WGC data show. “Governments in many places like Asia and South America are rapidly embracing gold as a security mechanism,” said Wendt, who expects gold at $2,500 in 2013. “The value of their U.S. dollar foreign reserves has drastically fallen over the past decade.” Thailand, Bolivia and Tajikistan raised reserves in August, according to the International Monetary Fund. Central bank demand is strategic leading to gradual accumulation and it is long term meaning that official sector demand will provide support to prices for the foreseeable future. Thus, continuous suggestions that gold is a bubble today and in recent years and of a gold bubble bursting and prices falling sharply as seen in 1980 is uninformed and misguided. The world of 2011 is very different to that of 1980.

Just when it seemed that a Fitch downgrade of all global banks and an S&P cut of Spain may finally snap the back of the EUR, the European currency decided to shove its head even deeper in the sand and proceed to melt up by a nice 100 pips on hope that some big, fat, juicy rumors may come out of a G-20 meeting in Paris, and that a bumbling Barroso may say more unbearably stupid things (such as this one from Bloomberg: Barroso reiterates call for Euro-wide bank recapitalization: apparently the unelected European dictator is not aware the EFSF somehow has to be increased to €3.5 trillion first. Never let facts stand in the way of fictional propaganda) about bank recapitalization. Either way, what appears to be a certain risk off day, has in the past 6 hours, been completely reversed. Here are the key catalysts that drove that, courtesy of Bloomberg First Word.

The first call of voting for the Berlusconi "vote of confidence" in the lower house of the Italian parliament has started. Follow it live here. Should Berlusconi ultimately not get enough votes, and his government tumbles, all hell may soon break loose.