France

Contrary to prior expectations that all No Fly Zone decisions will have to go through the UN, Reuters reports an Al Jazeera update that US, Britain and France have promised East Libyan rebels the imposition of a No Fly Zone. While the latter two were expected, and hardly relevant considering both are quite impotent at actually imposing "any" zone anywhere in the world, the addition of the US, with its USS Enterprise floating in the region, is rather surprising, especially since the nobel peace prize winning teleprompter announced previously how no unilateral invasion (because that is what a No Fly Zone in essence) decisions would be made.

Update: Libyan Rebel group rejects Venezuela peace proposal according to a report, as the Pentagon announces it remains cautious but not against Libya no-fly zone

Just headlines from AFP for now. Hpefully this should end the most embarrassing 12 hour period ever in which the dumbest news possible actually impacted the commodities market.

The escalating series of simply tragicomic news out of Europe continues. Per Reuters, "France deserves its "AAA" credit rating at the current time, the president of Standard & Poor's credit agency told a French business daily on Tuesday. "At the current time, France deserves its AAA rating," newspaper Les Echos quoted Deven Sharma as saying in an advance edition due for publication on Wednesday." As we suggested earlier, France will not be downgraded by Moody's before 2014. That means S&P will last until  France is rebranded the German Vassal Kingdom of Gaul before it notches the country even one rating lower.

...But did traders pick the wrong currency to sell? Tonight's prompt sell off in the Euro is now being attributed to comments by Banque de France Governor Christian Noyer who said monetary easing creates the potential for global imbalances. While it is true that Noyer stated that The European Central Bank will keep its emergency measures as long as needed, this is not news. Obviously all of Europe is now reliant solely on the ECB's bidding of last resort for each and every failed bond auction and to prevent bond routs in the secondary market. Again: this is not news. Yet what is interesting is that instead of selling off the EUR, traders may have picked the wrong currency. To wit: Noyer was actually blasting the pegged CNY, which means that the CNY-derivative currencies, the AUD and the NZD should have taken the brunt of tonight's action, and in the wrong direction at that. And, ultimately, the target was the USD. The moment this became clear (9pm Eastern) is when gold took off.

If the recent Hungarian "appropriation" of pension funds, and today's laughable Irish bailout courtesy of domestic pension funds sourcing 20% of the "new" money was not enough to convince the world just how bankrupt the entire European experiment has become, enter France. Financial News explains how France has "seized" €36 billion worth of pension assets: "Asset managers will have the chance to get billions of euros in mandates in the next few months for the €36bn Fonds de Réserve pour les Retraites (FRR), the French reserve pension fund, after the French parliament last week passed a law to use its assets to pay off the debts of France’s welfare system. The assets have been transferred into the state’s social debt sinking fund Cades. The FRR will continue to control the assets, but as a third-party manager on behalf of Cades." FN condemns the action as follows: "The move reflects a willingness by governments to use long-term assets to fill short-term deficits, including Ireland’s announcement last week that it would use the country’s €24bn National Pensions  Reserve Fund “to support the exchequer’s funding programme” and Hungary’s bid to claw $15bn of private pension funds back to the state system." In other words, with the ECB still unwilling to go into full fiat printing overdrive mode, insolvent governments, France most certainly included, are resorting to whatever piggybanks they can find. Hopefully this is not a harbinger of what Tim Geithner plans to do with the trillions in various 401(k) funds on this side of the Atlantic.

The pension turmoil is not limited to France either. US pension funds are underfunded by nearly $3 trillion. Will US workers be as willing as their French counterparts to face the beatings (to defend "what's theirs") or will they throw up their hands and appeal to Obama for help?

The strike that was supposed to be over two weeks ago refuses to go away. In the meantime, we get the following headline: "Local French Authorities say have imposed fuel consumption restrictions for the public in Normandy due to shortages." And yet Sarkozy promised that the country has more than enough fuel to last it through the strike. How could fearless leaders be possibly lying?

As if we needed more warnings that the US is rapidly losing its position as the world's superpower and wealth aggregator, is the following chart from Credit Suisse, which ranks the top 10 countries in the world in terms of average wealth per adult. While the US was #1 10 years ago, due to an abysmal growth rate of only 23%, by far the lowest of all the ranked countries, the US has now dropped from first to seventh, falling behind such countries as Sweden and France. At the top - such perennially voted "top places to live" as Switzerland and Norway. Hopefully the US can fix its ever-expanding black hole of problems soon, as once the wealthiest decide they have had it here and move away, look for this number to drop ever faster until the US drops out of the ranking altogether.

A pair of very conflicting news articles over the weekend about secret currency talks caps yet another week full of central bank interventions in the FX arena (and, as Bruce Krasting points out, many more to come). Yesterday, the FT reported that France and China had been in secret talks over "heightened co-ordination of exchange rates" which is another way of saying finding alternatives to the rapidly debasing US Dollar. "The talks and their content have been kept secret, in an attempt to draw China into a discussion on global currency co-ordination, a subject that Beijing has been reluctant to countenance in the past. In an ambitious move reminiscent of the currency accords of the 1980s, President Nicolas Sarkozy hopes to open a debate on the subject when France takes over the presidency of the G20 group of leading nations in November, according to people familiar with the matter." Yet China's desire to engage in a currency axis away from the US is no secret, and many have alleged that Beijing has approached both Russia and Germany in the past about a USD substitute. The timing of the latest escalation of the battle to the currency bottom is not surprising: "The move comes against the background of rising concern over exchange-rate interventions by a host of countries, most notably China but also Japan and South Korea, to prevent their currencies from rising against the dollar." Perhaps China, which has been reticent in exposing its CNY domination plans in the past, was just waiting for the correct provocation to go public with its plans. And last week's move by Congress to retaliate against China and impose duties on imports because of undervaluation may be just that provocation.

Yesterday's statement by Iran's atomic chief Ali Akbar Salehi that the Islamic republic's search for sites for 10 new enrichment facilities is coming to an end, is already generating heavy condemnation by the international community. AFP reports that "France warned on Monday that already serious international concerns over Iran's nuclear programme have deepened after Tehran said it would start building a third uranium enrichment site next year. "This announcement only worsens the international community's serious concerns about Iran's nuclear programme," said foreign ministry spokeswoman Christine Fages. This comes hot on the heels of last week's condemnation by various developed countries, who did not take kindly to the announcement that Russia would supply reactor fuel for the country's first nuclear plant near Busheher, now expected to launch imminently.

A month ago, Sarkozy was pissed that Merkel had dared to take the initiative over him and to ban naked CDS trading. Being a stubborn reactionary, this action only prolonged his inevitable decision to do the same (because politicians, being the wise Ph.D's they are, realize fully all the nuances of screwing around with the financial ecosystem). However, looking at this week's DTCC data, we have a feeling he may accelerate his decision to join the CDS-ban team. With a total of 456 million in net notional derisking, France was the top entity in which protection was sought in the past week. In a very quiet week, where the 5th most active name did not even make it past the $100 mm threshold, France was more than double the number two sovereign - Mexico (we are unclear if this is some sort of contrarian move to the Yuan reval, which Goldman was pitching as MXN positive, which means traders likely hedged by loading up on Mexican CDS). But what is probably most notable, is the sudden and dramatic appearance of China in the top 3rd position. Welcome China! And after tonight's surprise PMI miss and the resulting market drubbing, we are confident within a week or two, China will promptly become a mainstay of the top 3, and will quickly rise to the top position, where it rightfully belongs. We are also confident those perennial Eastern European underdogs, Romania and Bulgaria will shyly make an entrance in the top 10 next week.

Not sure how this is news, but apparently it is impacting spreads currently. S&P officials are heard saying that they are evaluating the UK (-1 to 77.5 bps) rating in light of the emergency budget, that Spain (+26 to 244) needs additional measures to meet fiscal targets, and that France (+3 to 80.75) has very high deficits. This will certainly not help once again surging European cash and CDS spreads. And does anyone remember Greece? As the chart below shows, its various spreads to all other European sovereigns are blowing out. Risk off in Europe, as the EURCHF just hits a new all time low of 1.3590.

For the first time in over 2 months, last week CDS traders ignored their ongoing derisking barrage in Great Britain CDS, and instead shifting their attention to the very heart of European darkness, the two countries that are in charge of it all - Germany and France. There was over 750 million worth of German CDS derisked, in 58 contracts, with France close behind at $728 million. Two other notable names rounding out the top five were Turkey and Spain. Quiet, little Finland was there for some reason. Other name filling out the list of top 10 were Brazil, Ukraine, Korea, Portugal and Japan: all names that have very valid reasons to be concerned about their future, and CDS traders agree. On the other end, rerisking was rampant in Mexico, Slovenia, Holland, Indonesia and Thailand. Most likely these are just hedge pairs as there is no reason why any of these names should be in play. Two names which we will focus on shortly, Romania and Bulgaria, were in no man's land. We expect they will slowly migrate toward the red part of the chart.

Nothing too surprising here today: Portuguese, Greek, and Spanish blowouts are now are daily occurrence... Except for the redness in the France column. On a day when the German 5 and 10 year Bunds are closing at record levels, seeing this kind of underperformance in French bonds can only indicate one thing: the barbarians at the gate have gotten past the periphery and are now closing in on the core.

Austria, the country most exposed to weakness in Central and Eastern Europe, is back on the radar. After having avoided skeptical investor scrutiny even as the bulk of Europe was collapsing all around it, the country is today's top CDS widener, yet still stunningly trades inside of France and Belgium. Look for this spread to blow out over the next week. Then again, the biggest CDS wideners are precisely the countries formerly seen safe: Austria, France, Germany and Belgium are all the top movers in CDS. So much for the whole North vs South division in Europe.