Archive - Jul 7, 2011 - Story

The fully priced-in rate hike has come and gone, with the ECB raising the benchmark interest rate from 1.25% to 1.50%. Now the question is what happens next: at 8:30 am is the Trichet press conference which we will carry live. Everyone will wonder if this is the end of the hiking cycle, which it almost certainly is as any more hiking will cause a full blown collapse within the PIIGS countries. If so, look for the market to promptly sell the news.

The U.K.’s Royal Mint said that first-half silver production in 2011 doubled, while gold production climbed 8.9% over 2010 levels. The Royal Mint, established in the 13th century, used 36,219 ounces of gold compared with 33,266 ounces the previous year, according to data obtained by Bloomberg News under a Freedom of Information Act request. Silver use more than doubled to 324,421 ounces in the period. The Royal Mint makes Britannia silver bullion coins and other collector silver coins. 324,421 ounces of silver at today’s prices ($36/oz) would be worth less than $12 million dollars. Mere chump change to many wealth investors and savers concerned about their investments and savings.

We get two non-core employment indicators today, with both the ADP and the Initial Claims numbers coming out in an hour. Last month ADP for the first time in a while predicted the NFP release with a high degree of confidence, although with the bulk of layoff now concentrated at the government level it will likely not disclose the full picture.

The cooling system at Fukushima's Daiichi sister plant was closed earlier today after Tepco announced that "sparks were detected". According to TEPCO this is no cause for alarm and the situation will be restored back to normal shortly. According to yet other news, after 4 months of lies, TEPCO has started telling the truth. From Reuters: "The operator of Japan's Fukushima Daini nuclear power plant, located near the tsunami-crippled Daiichi plant, on Thursday halted the cooling system at one of its reactors after electrical sparks were detected, Kyodo news agency reported. Tokyo Electric Power , the plant's operator, expects to be able to restore the cooling system at the Daini plant's No.1 reactor before the end of Thursday, Kyodo said." Fair enough. We will be sure to check in later today to validate this latest "fact."

Both completely in line with expectations. And since the BOE is anything but the PBOC which is actively tightening, the GBP barely budged on the priced in news. The minutes of the meeting will be published on July 20 and 9.30 am. And now everyone shifts their attention east to the ECB where in a 45 minutes Trichet is expected to hike rates by 25 bps or else China will have a full day on its hands buying the EUR dumpathon.

Today, the ECB will probably raise the benchmark rate to 1.5 percent, while the Bank of England will leave rates and its bond purchase program unchanged, according to economists. Per Reuters, "concern about the pace of economic recovery looks set to persuade the Bank of England to keep interest rates at rock-bottom not just this week but for months to come. UK interest rates have stood at 0.5 percent since March 2009, when a deep recession and the threat of deflation prompted central banks around the world to slash rates to record lows. Since then, inflation in Britain has returned as a force to be reckoned with. Consumer prices are rising more than twice as fast as the BoE would like, but it has been reluctant to tighten monetary policy when the government's massive fiscal tightening is already crimping growth. "The Bank can do nothing about inflation over the next six months, and will not try to," said Paul Mortimer-Lee, chief global economist at BNP Paribas. While the European Central Bank looks set to raise rates this month -- its second move since April -- all 70 economists polled by Reuters last week predicted that the BoE's key rate would stay at 0.5 percent." So with inflation at 4.5%, double the target rate, there is speculation the BOE may even commence another round of QE: "Minutes to the meeting observed that "the current weakness of demand growth was likely to persist for longer than previously thought". And several policymakers -- not just arch-dove Adam Posen -- considered that more quantitative easing could be warranted in the future if growth remained weak. Most economists, however, believe printing more money is unlikely short of a disorderly Greek debt default or similar financial crisis. "Many investors remain wary about QE and the monetary policy committee might find it difficult to sell the idea to markets with the current rate of inflation so far above target," said Philip Shaw at Investec." There is no such fear at the ECB yet: after all that particular bank's monetizations occure via separate CDOs and SPVs. Yet if Trichet does not do the expected 0.25% hike, look for the EURUSD to tumble at least 150 pips.

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