France

• Investors help Athens over bailout hurdle (FT)
• Greece Moves Closer to Swap (WSJ)
• U.S. Warns Apple, Publishers (WSJ)
• China offers other Brics renminbi loans (FT)
• Court Challenges EU on Bank Downsizings (WSJ)
• QE blamed for surge in pensions shortfall (FT)
• Tang: Open to adjusting dollar trading band (WSJ)
• U.S. Report to Warn on Cyberattack Threat From China (WSJ)

All you need to read.

Perhaps not so shockingly, AP is reporting tonight that satellite images of Iranian military facilities show trucks and other earth moving vehicles. Diplomats, accredited to the IAEA, suggest this indicates attempted cleanup of radioactive traces possibly left by tests of a nuclear-weapon trigger. As sanctions grow more burdensome and Israel's pre-emptive rhetoric rises, the discovery of this sanitization effort only raises the stakes as the images are said to be very recent and updated constantly and suggest evidence of tests of a small experimental neutron device. This wouldn't be the first time a site has been 'sanitized' prior to IAEA inspector visits but as The Boston Globe reports IAEA expert teams have tried twice - and failed - in recent weeks to get Iranian permission to visit this area and now (following the apparent clean-up) they have finally been granted access. As the US, Britain, France, Germany, Russia, and China postpone their meeting, in an effort to find more moderate language to criticize Iran, it seems to us that actions may just start having more impact than words very soon.

Unleash the lawyers, um, ... soccer players.

A dysfunctional system takes its toll.

German leaders, particularly Merkel and Schäuble see the writing on the political wall: that both Greece and France are likely going to find themselves with new leadership that is pro-socialism, anti-austerity measures, and most certainly anti-taking orders from Germany. Thus, Germany must be aware (as the EU, IMF, and ECB are to some degree) that it is ultimately fighting a losing battle by participating in the bailouts. Indeed, Schäuble even went so far as to recently call Greece a “bottomless pit” where money is wasted (having just participated in Greek bailouts that exceed the entirety of Greece’s GDP, I have to admit he does have a point here). So while a “deal” may have officially been struck for Greece, there are deep underlying tensions that could bring proceedings to a crashing halt at any point.

Not many websites, analysts or authors have both the balls/temerity & the analytical honesty to take Goldman on. Well, I say.... Let's dance! This isn't a collection of soundbites from the MSM. This is truly meaty, hard hitting analysis for the big boys and girls. If you're easily offended or need the 6 second preview I suggest you move on.

European financials are under significant pressure today and that is dragging down the rest of the broad markets. The selling appears to be driven by three main factors: 1) the LTRO Stigma has surged back to record wides (after a brief lull into LTRO2); 2) rather amazingly investors are starting to get concerned that the Greek PSI deal may not happen; and 3) weak macro data. Obviously both are no surprise to readers and the canaries have been fluttering for a few weeks on this. Equity markets continue to hold onto hope as they remain broad outperformers but in a different tone than the last credit-led sell-off, European equities are dropping much more in sync today. Sovereign spreads and yields are leaking higher with Spain and Italy underperforming (followed closely by France) as perhaps all the self-serving Italian and Spanish carry-trade-funding banks have run out of ammo (or will to extend) as the Greek basis package inches ever closer to Par (implying absolute inevitability of an imminent credit event). Notably Sov CDS are underperforming (as we pointed out last week they are potentially a less manipulated and cleaner indication of risk appetite than bonds for now). It would appear that all the belief that insolvency tail risk and contagion had been deferred or ring-fenced by yet another liquidity flush may have simply forced European banks into an Oliver-Twist-style environment - "May we have some more?" as we now start top hear the mutually assured destruction chatter surrounding the implications of a failed PSI deal - where have these people been for the last 3 months?

Asian equities too a hit, posting their biggest two-day loss this year. The MSCI Asia Pacific Index dropped 1.2%. The losses were situated in the Hang Seng, which fell 2.2% and China’s Shanghai Composite, which declined 1.4%. Meanwhile, Europe is off 1.6% in the aggregate after the second take on Q4 GDP confirmed the 0.3% drop from the initial estimate. And, after yesterday’s sell-off, equity futures are pointing to a weaker open at home across the major indices driven in part by concerns that the Greek PSI will not get the required 75% participation as reported here yesterday. In the US, government bonds are in rally mode with the 10-year Treasury note yield down 4bps, to 1.97%; the long bond is rallying 5bps, to 3.10%. Across the pond, government bonds are performing as one would expect. Benchmark German bunds are rallying 4bps, to 1.78% while France, Italy, and Spain are selling off anywhere from 5 to 9bps. In the FX market, the US dollar is enjoying a flight to safety bid against major currencies. The DXY index is up 0.5%. Not surprisingly, with risk being taken off the table, commodities are taking a hit. WTI crude oil is down 60 cents, to $106.10 per barrel. Industrial metals are taking a hit too; copper is off 1.6% to its lowest level since mid February. In Europe, the LTRO continues to not work at all as the ECB deposit facility rose to a new all time record of €827 billion as cash parked with the ECB is not being used for any other purpose, and the net money from LTRO 1 and 2 is now less than the cash added to the ECB from Europe's banks.

Privacy, a quaint concept of the past.

Insolvency will keep dragging the Euro-Area economy down until sovereign and bank balance sheets are repaired, but as Lombard Street Research  points out: eliminating the Ponzi debt without fracturing the entire credit system is impossible. The Lehman default occurred 13 months after the US TED spread crossed 100 basis points. The European equivalent crossed 100 basis points in September 2011, so its banking crisis would occur this autumn if a year or so is a normal incubation period. A Greek or any other significant default will precipitate a European banking crisis in the foreseeable future. Markets are already speculating on Portuguese negotiations for haircuts and Ireland can’t be far behind and the contagion to US (and global) banking systems is inevitable given counterparty risks, debt loads (and refi needs), and capital requirements (no matter how well hidden by MtM math). The contagion will likely show up as a risk premium in the credit markets initially as we suggest the recent underperformance of both US and European bank credit relative to stocks is a canary to keep an eye on.

And now for some pure irony, we have a member of the Fed, granted a gold bug, but a Fed member nonetheless, one of the same people who not only enacted ZIRP, but encourage easy money every time there is a downtick in the market, complaining about, get this, Wall Street's "continued preoccupation, bordering upon fetish" with QE3. The irony continues: "Trillions of dollars are lying fallow, not being employed in the real economy. Yet financial market operators keep looking and hoping for more. Why? I think it may be because they have become hooked on the monetary morphine we provided when we performed massive reconstructive surgery, rescuing the economy from the Financial Panic of 2008–09, and then kept the medication in the financial bloodstream to ensure recovery....I believe adding to the accommodative doses we have applied rather than beginning to wean the patient might be the equivalent of medical malpractice." So let's get this straight: these academic titans, who for one reason or another, are given free rein to determine the fate of the once free world with their secret decisions every two or three months, are completely unaware of classical conditioning, discovered by Pavlov nearly 90 years ago, also known as a salivation response. The same Fed is shocked, shocked, that every time the market dips, the red light goes off, and the "balls to the wall" crowd scream for more, more, more free money. Really Fisher? Really? Oh, and let us guess what happens the next time the S&P slides into the tripple digits: will the Fed a) do nothing, thereby letting the market slide to its fair value in the 400 point range, or b) print. Our money, in the form of hard yellow metal, is on the latter, just like we predicted, correctly, back in March 2009 in " Bailoutspotting (Or The Search For The Great Financial Methadone Clinic" that nothing will ever change vis-a-vis the great market junkie until it all comes crashing down.

European equity indices are exhibiting signs of risk averse behaviour, with financials and basic materials performing particularly poorly. This follows weekend reports from ECB sources that the central bank does not believe voluntary participation in the Greek debt swap deal will be sufficient, and the CACs will have to be invoked. Markets are also reacting to the weekend press from Germany, claiming the Troika believe Greece will require a third bailout of around EUR 50bln by 2020, however these reports were denied by a German spokesman earlier in the session. European Services PMI data released earlier in the session fell below expectations, compounding the already cautious market behaviour. European Banks have parked a fresh record EUR 820bln with the ECB overnight, showing further evidence that the LTRO has loosened liquidity constrictions in the continent. Commodities are making losses ahead of the North American open following overnight news that China have made a downward revision to their GDP target for 2012. Spot gold is trading down around 0.9% and WTI and Brent crude futures have been making a loss for most of the session so far, however oil has made positive movements in recent trade. These negative movements in commodities are also weighing down upon the commodity-linked currencies, with AUD particularly making losses on the session.

Citigroup have said that they believe that gold will rise to $2,400/oz in 2012 and by $3,400/oz in “the coming years”. However, Citi’s Tom Fitzpatrick warned of price weakness in the short term and said there is a “real danger” that there may be a correction to $1,600/oz which would provide an even better buying opportunity. Citi are also cautious near term on oil and silver. Production of gold in Australia slid again last year, despite gold fetching higher nominal prices than ever before. According to gold experts, Surbiton Associates, 264 tonnes of gold were produced last year, two tonnes less than in 2010. The 264 tonnes equated to about 8.5 million ounces and ensures that Australia remains a major player in gold, with only China producing more last year. The United States was the world's third-biggest producer with 240 tonnes. Australia's gold production was well below the nation's production peak in the late 1990s.  This further suggests the possibility of peak gold production. Of the world’s four biggest gold producers (China, Australia, the U.S. and South Africa), only China has managed to increase gold production in recent years and this Chinese gold is used in China to meet the rapidly growing demand for gold jewellery and coins and bars as stores of value in China.

• China cuts 2012 growth target to 7.5 percent, stability key (Reuters)
• Freom the Fed scribe himsef - Fed Takes a Break to Weigh Outlook (WSJ)
• Greek bond swap deal rests on knife-edge (FT)
• Lenders Stress Over Test Results (WSJ)
• China to Curb Auto Production Capacity, Promote New-Energy Car Development (Bloomberg)
• China military spending to top $100 billion in 2012, alarming neighbours (WaPo)
• Warning: A New Who's Who of Awful Times to Invest (Hussman)
• EU to push quota for women directors (FT)
• Romney Advances As Obama Gains (WSJ)
• Saudi Aramco Raises Oil Premium for April Sales to Asia, U.S.; Cuts Europe (Bloomberg)