Archive - Oct 9, 2012 - Story

Turkey has confirmed that it is deploying at least 25 additional F-16 fighter jets at its Diyarbakir air base close to the border with Syria. Al Jazeera reports that Erdogan, Turkey's PM, noted that he does not want war but needs to prepare for anything and at the same time NATO's secretary general has "all necessary plans in place to protect and defend Turkey if necessary."

Just over a week ago we we were the first to shed light on the reality of hyperinflation on the ground in Iran - and subtley suggested the whole thing could be watched in real-time. Soon after, a mysterious cabal of 16 currency manipulators was arrested and the Rial jumped dramatically higher (according to official sources) - as if by magic there was no problem at all. This all sounded a little too good to be true (just like unemployment rates in slightly more controlled economies). Sure enough, by the power of social media, we now know it was too good to be true.

Just after 3:00 am Eastern, the EURUSD experienced a sharp large move lower, sliding by nearly 100 pips in under an hour, without what appeared to be a news catalyst (hardly that surprising in the New Illiquid Normal when one VWAP order can move risk by +/- 1%). For those curious what may have caused the sudden drop, here is one explanation from Citigroup.

• Rajoy’s Deepening Budget Black Hole Outpaces Spain’s Cuts (Bloomberg)
• ECB May Need to Cut Rates Given Deflation Risk, IMF Says (Bloomberg)
• Global Recession Risk Rises (WSJ)
• Romney Leads Obama in Pew Likely Voter Poll After Debate (Bloomberg)
• IMF Sees Global Risk in China-Japan Spat (WSJ)
• Republicans shift tone on taxing the rich (FT)
• Romney casts Obama's foreign policy as weak, dangerous (Reuters)
• Europe Salutes Greek Budget-Cutting Will, Raising Aid Prospects (Bloomberg)
• U.S. Downgrade Seen as Upgrade as U.S. Debt Dissolved (Bloomberg)
• IMF Says Most Advanced Nations Making Progress Reducing Deficits (Bloomberg)
• Eurozone launches €500bn rescue fund (FT)

Overnight sentiment is decidedly negative, following the across the board cut of growth forecasts by the IMF late yesterday. The only bright light was the PBOC dumping 265 billion yuan ($42.1 billion) in reverse repos in an open-market operation (a liquidity adding operation) whose only purpose was to roll the massive reverse repo from before the Golden Week. The resulting 2% jump in the Shanghai Composite came as traders expect an imminent rate cut by the PBOC. The irony of course is that as long as Reverse Repos are the liquification instrument of choice, the local central bank will do nothing else in an economy which is once again overheating in several industries, the most important of which continues to be housing. Furthermore, as long as the spectre of a 15% surge in pork prices is over the horizon, the PBOC will do nothing. Period. Elsewhere, as BBG summarizes, FX is mostly modestly lower with the AUD outperforming on rising iron ore price. Metals mostly modestly lower despite the crippling South African strike which has now migrated to catch iron ore mines as well. Treasury yields moderately lower, partly in catch-up after yesterday’s holiday. Bund yields modestly higher sovereign-to German yield spreads mixed with mostly modest changes. Few if any macro economic news today.

Just in case it is not clear, the main event for the next 6 hours will be Merkel's arrival and prompt departure from what many consider the province of Southeast Bavaria, formerly known as Greece.

At least the locals seem to be enjoying themselves. Via Athens News:

With much fanfare, and as Athens News pointed out, 10 minutes early, the German delegation landed in Athens at 1:20 pm local time, and has brought with it 7,000 part-time Greek police jobs: look for a massive drop in the Greek unemployment rate next month. For the next 6 hours everyone will be praying that the ghost of Gavrilo Princip has not found a new host. In the meantime, the most inexplicable of official visits will take place as Angela Merkel paints the town red (hopefully not literally).