Archive - Apr 14, 2011 - Story

Completing the trifecta of posts focusing on China, here is the (un)official leak of Chinese GDP data to Phoenix TV which is due out at 10 pm. In the past this has been roughly 100% accurate. So without further ado...

• Bailout a ‘Flawed Plan’ Forced on Irish People (Irish Times)
• Obama’s Debt Plan Sets Stage for Long Battle Over Spending (NYT)
• America Must Give Up on the Dollar (Michael Pettis)
• Banks Forced to Pay Foreclosure Victims as Talks Continue (Bloomberg)
• Budget Rises as Most Important Problem to Highest Since '96 (Gallup)
• Calls grow for Japan PM to quit in wake of quake (Reuters)
• Find the discrepancy of these two headlines:
  • China to See More Interest Rate Hikes in Q2 (China Daily)
  • China Banks Said to Need $131 Billion of Equity Over Six Years (Reuters)
• Hong Kong Considers More Property Measures (WSJ)
• Glencore seeks up to $12.1 billion in IPO, no chair yet (Reuters)

And just in time to follow up on our previous post about the Chinese real estate bubble pop which speculated that PBoC tightening is over, here comes Goldman confirming that the tightening in the world's fastest growing economy is now over. To wit, from Yu Song Helen Qiao: "There was a clear loosening of monetary conditions in March, despite possible distortions to March monetary data because of various end-of-the-quarter examinations at commercial banks. This loosening of monetary conditions was contributed by a combination of i) more bank lending; ii) change to fiscal deposits; and iii) more FX inflows." So China, which is about to report 5.4% CPI (per a Phoenix TV leak, more shortly) is willing to take the political risk of loosening even as it has been working hard to suppress the Jasmine revolution. And yet people still believe the Fed will not recommence loosening (and with ZIRP that leaves only acronym option) as soon as the marginal credit bubble pops heard around the world (not to mention the supply chain effects from Japan crunch US margins) resonate until they hit the US ten-fold. On the other hand a Chinese loosening, no matter the political risks, is possibly Bernanke's last ditch attempt to export marginal money printing, together with Japan which will soon find that another round of QE is inevitable. Alas, with Europe tightening, the US will be the marginal variable yet again. Just like in China, Expect a few month break between QE2 and QE3 at best.

Could the Chinese monetary tightening be working? The Chinese National Bureau of Statistics has released its latest food price update for the period April 1-10, which shows that while most foods continue to rise modestly, several food products have plunged particularly cucumbers and rapes, both falling 8.8%, and kidney beans down 6.3%. Yet this is nothing compared to what is happening to Chinese real estate: it appears Chanos' long anticipated property bubble may have popped... but the supersonic boom is so loud that nobody has heard it yet.

Gold is tentatively higher against the euro but mixed against other currencies while silver is again higher against most currencies. Both probed higher this morning and are exhibiting signs that they may push higher prior to a much anticipated correction. The Greek 10 year yield has just surged over 13.2% and this is leading to falls in the euro and risk aversion with equities, commodities and oil falling. Both gold and silver are less than 2% from their record nominal highs seen Monday (gold all time and silver 31 year) and are remaining firm due to concerns about the U.S. dollar, the euro and sovereign debt issues in Europe. While markets are not focusing on geopolitical risk in Africa and the Middle East and the Japanese natural and nuclear disasters, these problems remain and will lead to continuing safe haven demand. Silver’s resistance is at Monday’s multiyear nominal high at $41.95/oz. In normal circumstances profit taking would be expected near $42/oz but this is anything but a normal market due to the existence of massive concentrated short positions being investigated by the CFTC. The dollar’s fall suggests that markets are skeptical of Obama’s latest budget proposal to cut $4 trillion off the massive US budget deficit. The US fiscal situation continues to deteriorate week on week and month on month which could potentially lead to sharp falls in the dollar in the coming weeks.

Today's docket: Initial claims, March PPI and the fed Fed speaker obfuscation brigade is back. As usual the Treasury issues debt and the Fed monetizes it.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 14/04/11