Today marks the beginning of a new era for the ECB, with Mario Draghi taking over the helm from Jean-Claude Trichet as the President of the central bank. Unfortunately for Draghi, the changeover is to take place at a very critical juncture and at a time when market participants are demanding that the central bank takes more pro-active measures to stimulate the stagnating economy which stands on the brink of a double dip recession. However, such action may prove difficult for Draghi to push through the governing council since doing so only few months after Trichet announced that the central bank is to resume covered bond buying and 12-month LTROs risks undermining the central banks’ credibility. Another reason why a rate cut may prove futile is that the meeting coincides with the G-20 summit where leaders of the Eurozone are expected to endorse use of the leveraged EFSF fund as an investment opportunity for countries with a large budget surplus such as China and other BRICS. In turn this indicates that comments stemming from the summit may have a more profound impact on investors’ appetite for the EU related financial instruments and therefore determine whether the EUR/USD pair consolidates above the 1.4000 level.
- European leaders agreed, in principle, to boost the firepower of the EFSF to approximately EUR 1trl using a combination of a special purpose investment vehicle and a debt-insurance scheme. The leaders also struck a deal with private banks and insurers for them to accept a 50% loss on their Greek government bond holdings
- According to EU sources, the EU is to present Eurobond ideas on November 23rd
- According to a German government official, direct or indirect financing via the ECB is ruled out, adding that haircut excluded Greek bonds held by the ECB
- BoE's Fisher said that the BoE will revisit QE once the current purchase is complete, adding that there is a significant chance of a double dip recession in the UK
Let's just say even if you were an Olympic skier, you would not want to ski on that slope...
COT data in the US shows that speculative sentiment has fallen dramatically which is bullish from a contrarian perspective. The Got Gold Report reports that silver futures market data is the most bullish it has been since 2003 - eight years ago. Silver was priced at about $4.40 per ounce then. Large commercial shorts have dramatically reduced their positions after the selloff in recent weeks suggesting that we are likely at or very close to silver bottoming. While the figures for gold are not as dramatic they too show that speculative positions and sentiment has been reduced significantly. Venezuela will repatriate some gold reserves held abroad before December 24th, Central Bank President Nelson Merentes told reporters today in Caracas according to Bloomberg. “I can’t give you an exact date for security reasons,” Merentes said. Venezuela will keep an unspecified portion of its gold reserves in foreign institutions, he said. In August, President Hugo Chavez ordered the central bank to repatriate $11 billion of gold reserves as a safeguard against volatility in financial markets. Venezuela held 211 tons of its 365 tons of gold reserves in US, European, Canadian and Swiss banks as of August.
Less Than Two Months After Its First Rate Cut, Brazil Once Again Lowers Key Interest Rate 50 Bps To 11.50%Submitted by Tyler Durden on 10/19/2011 17:13 -0500
The world may not be re-entering a recession (after all just look at the S&P in the past two weeks - reputable economists will tell you there is no way the market can soar like that if the world was entering a double dip - and everyone would believe them because they have a Ph.D.), and America may be decoupling from everyone all over again just like every other time it was supposed to decouple but didn't, however Brazil is not waiting around to see the result. Less than two months after its first rate cut, the Brazil central bank just cut its main "selic" interest rate by another 50 bps, this time citing a "more restrictive global environment" instead of "substantial economic deterioration." At the end of the day, the result is the same. So will China finally follow suit and join the global loosening game?
Gold has fallen in all currencies today as equity and commodity markets have seen weakness due to concerns about Chinese economic growth after China's economy eased somewhat. Germany’s pouring cold water on the likelihood of a speedy resolution of the euro zone's debt crisis and the summit this weekend has also increased market jitters. Gold continues to be correlated with equities in the short term but we are confident that this correlation is short term in nature and the inverse correlation between gold and equities and bonds will again be seen in the medium and long term. Peripheral European debt markets are showing weakness again. The recent trend of falling yields appears to have ended which is worrying. Should yields begin to rise again this should create added safe haven demand for gold. UK inflation rose to match a record high of 5.2% (CPI) and retail price inflation (RPI), a measure of the cost of living used in wage negotiations, accelerated to 5.6% (from 5.2%), the highest since June 1991. The figures were again worse than expected by the BoE, economists and many economic experts who have been underestimating the threat of inflation for some time. The BoE, like the Federal Reserve, continues to follow an ultra loose monetary policy in an effort to boost an economy teetering on the brink of a double dip recession.
Hark - either the end is nigh, or we are about to see one of the biggest market melt-ups in history: the man who conceived, developed, and distributed the Birinyi Ruler to a Comcast financial comedy cable channel near you, and to late night comedy in financial circles everywhere, is no longer a Bull. He is merely a bull, which is the also the first word one may apply to another very appropriate word to describe his predictions from early on in the year. For those who have their ultrasound babel fish on, here it is: "The S&P 500 has been perilously close to a 20 per cent decline in recent weeks which would, by definition, terminate the bull market which began in March 2009. Given the economic circumstances and the continuing political turmoil on both sides of the Atlantic, most commentators believe it is only a matter of time before such a landmark is reached. Having been bullish, I am – as expected – disappointed but not undaunted. I remain bullish if only now with a lower case “b”. Some months ago I conceded that making market forecasts was increasingly difficult as they entailed an understanding of American politics, Chinese monetary and financial policy, Greek and Italian attitudes, German elections in addition to the usual economics, corporate developments and actions and comments by the Federal Reserve Board." Obviously, all these are superfluous 'things' that a man of Birinyi's intellect should not need to be concerned by. After all, what is good is the 'ruler' for if not to predict the future? But before you go ahead and pledge a 4th lien on your 3rd born to go all in stocks, here is the Notorious BIGGS, who bottom ticked the market a few weeks back with laser-like precision : "Barton Biggs Increases Bullish Bets in Traxis Macro Fund to 65%." Needless to say, every time Biggs has done something, the market has done the opposite. So for all those confused what they should do when two of the market's most hilarious permabulls say the opposite things, fear not - i) you are not alone, and ii) just buy a collocated vacuum tube-based algo, and watch as the High Frontrunning Trading algo makes you rich beyond your wildest dreams.
UPDATE: EURUSD loses 1.3750
On Oct. 13, 2011, Standard & Poor's Ratings Services lowered the long-term rating on the Kingdom of Spain from 'AA' to 'AA-', while affirming the short-term ratings at 'A-1+'. The outlook is negative. The transfer and convertibility assessment remains 'AAA', as it does for all members of the eurozone. The negative outlook reflects our view of the risks to Spain's economic growth linked to private sector deleveraging, external financing pressures, and their impact on budgetary consolidation. We could lower the ratings again if, consistent with our downside scenario, the economy contracts in 2012, Spain's fiscal position significantly deviates from the government's budgetary targets, or additional labor market and other growth-enhancing reforms are delayed. Conversely, we could revise the outlook to stable if, consistent with our upside scenario, the government meets its budgetary targets in 2011 and 2012, risks to external financing conditions subside, and Spain's economic growth prospects prove to be more buoyant than we currently assume.
Europe’s banking system is in far FAR worse shape than anyone over there is admitting. The stress tests were complete and total fiction. And the market is starting to figure this out.
When a pure momentum stock lost its mementum.....
The rally has been strong across many products, but once again has all the signs of a short squeeze rally. The weakest and most beaten up sectors and names have performed the best. Anything that was a "hedge" tool, has also outperformed. This rally seems overdone. European stocks and credit are sluggish today. The data, while not bad, seems priced in already, and being long because "Europe gets it" is risky, because even if they finally get it, do they still have the resources to fix it, or a system that is simple enough to let them agree on how to fix it? I am dubious, and at 1080 was willing to give some benefit of the doubt to the EU, but at 1170, I am happy to bet against them.
Yesterday, Goldman proclaimed that their new base case outlook is one of a double dip for Germany and France, and hence all of Europe. Now, it is S&P's turn. In a just released report, S&P says that "The prospect that Europe might dip into recession again is looking more likely. The flow of news and market developments in recent weeks, such as sharply deteriorating business sentiment and a projected slowdown in the U.S., has led us to once again revise downward our projections for economic growth in 2012. This follows a number of downside revisions in our last economic outlook at the end of August. We now forecast GDP growth in the eurozone at 1.1% in 2012, compared with 1.5% in our earlier projection. For the U.K., we expect a GDP growth rate at 1.7% in 2012, slightly below our 1.8% projection in August. We still do not expect a genuine double dip to occur in the eurozone as a whole or in the U.K., but we recognize that the probability of another recession in Western Europe has continued to grow. We now estimate the probability of a new recession in Western Europe next year at about 40%. In our baseline forecast, however, we continue to anticipate sluggish and unevenly distributed growth over the coming five quarters." Next up: rating warning for France, and all EFSF bets are off?
Inflection points on four key markets that would serve as definitive indicators that the world is in a double-dip recession.
Economic activity decoupling is no longer a phenomenon between the developed and developing world. It is between the Chicago region and everywhere else. And because the Chicago PMI is supposed to be representative of the Manufacturing ISM, the market just loves (or rather loved, considering the 10 minute leak of the data) that the PMI soared from 56.5 to 60.4 on expectations of a decline to 55.0. The internals were all hot, hot, hot as follows: "Business Activity: "EMPLOYMENT expanded to highest level in 4 months; NEW ORDERS erased net declines accumulated since April; ORDER BACKLOGS remained in contraction at a 23-month low; SUPPLIER DELIVERIES approached neutral; while the buying policy was as follows: PRODUCTION MATERIEL moved to an 10-month high; CAPITAL EQUIPMENT lead times ended a 4-month uptrend." Yet as usual the amusing part, which is straight from the respondents was the following: "We are seeing unannounced and incredible inflation on one product, multiple parts, that we are purchasing out of Europe. At 400% increase we thought surely must have been a mistake. This is not related to $ exchange since we pay in Euros already. Supplier says they cannot absorb costs anymore." And that's why Houston, we have a problem.