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.
Better late .....here is all you need to read.
Appetite for risk was observed during the Asian and European sessions on enhanced prospects that the eight-day deadline given by the G-20 leaders to resolve an ongoing Eurozone debt crisis would bring some positive outcome before the EU leaders' summit on October 23rd. Nikkei (+1.41%) closed higher and European equities also received a boost, with financials as one of the better performing sectors, which was further helped by comments from Moody's that accelerating talks to recapitalise European banks are credit positive for the banks. News that China has offered to spend tens of billions buying European infrastructure projects and government debts strengthened the appetite for risk. However, later in the European session, comments from the German finance minister and a German government spokesman that a concrete solution for the Eurozone crisis couldn't be found by the EU summit dented risk-appetite. In the forex market, after trading lower during early European trade, the USD-Index ventured in positive territory, which in turn weighed upon EUR/USD, GBP/USD and commodity-linked currencies, however GBP did receive support following a sharp jump in the Rightmove House Prices from the UK overnight. In other news, CHF received a boost across the board following market talk that SNB's president Hildebrand may resign, whereas CAD received support on news that the Canadian finance minister and the Bank of Canada governor may go beyond inflation-beating monetary policy measures. Moving into the North American open, markets will look ahead to key economic data from the US in the form of Empire manufacturing, industrial production and capacity utilisation.
It's not just uninformed people who want to end the Fed.
China Bailing Out Europe (Again)? Don't Make The Head Of Greater China Research At Standard Chartered Bank LaughSubmitted by Tyler Durden on 10/16/2011 13:00 -0500
With the G20 meeting in Paris such an epic dud there is nothing even the permaspin media can write about (there was no news of a bailout. Nothing), it is time for some paywalled publications to recycle the gibberish about China bailing out Europe all over again. Sorry, it's too late. Courtesy of last week we now know that China is much more focused on bailing out its own largely underwater banking system (first facts, then analysis), than worrying about buying the 17th Community Bank of Thessaloniki. Yet we can keep repeating this so very simple fact until we are blue in the face. So we will leave it Stephen Green, head of Greater China research at Standard Chartered Bank.
The most concise summary of bullish and bearish events in the past week and commentary
Now that we already had one notorious bond bear in the house with a late afternoon appearance by Bill Gross, who in a very polite way, apologized and said that while he may have been wrong in the short-term, he will be proven correct eventually, it is now time for the second uber-bond bear to make himself heard. In a CNBC interview with Jim Rogers, the former Quantum Fund co-founder, who back in July said he was had shorted US Treasurys, exhibited absolutely no remorse, instead reiterated a 100% conviction in his "bond short" call: "Rogers said when there is a bubble, such as the one being experienced in U.S. Treasurys, prices could go up for long periods of time. Bill Gross of Pimco, who also had a bearish view on Treasurys, threw in the towel earlier this year. But Rogers is sticking to his opinion that Treasurys will eventually fall. "Bernanke is obviously backing the market again and the Federal Reserve has more money than most of us - so they can drive interest rates down again. As I say they are making the bubble worse." The reality is that while Bill Gross has to satisfy LPs with monthly and quarterly performance statements (preferably showing a + sign instead of a -), the retired and independently wealthy Rogers has the luxury of time. And hence the core paradox at the heart of modern capital market trading: most traders who trade with other people's money end up following the crowd no matter how wrong the crowd is, as any substantial deviation from the benchmark will lead to a loss of capital (see Michael Burry) even if in the longer-term the thesis is proven not only right, but massively right. Alas, this means most have ultra-short term horizons, which works perfectly to Bernanke's advantage as he keeps on making event horizons shorter and shorter, in the process killing off any bond bears which unlike Rogers can afford to wait, and wait, and wait.
ECB Tells Belgium Not To Backstop Dexia Interbank Deposits, Says Bailout Plan May Be Against The Euro CharterSubmitted by Tyler Durden on 10/14/2011 13:49 -0500
If anyone is surprised that things in Europe will get massively surreal before this is all over, we suggest finding another thread. In the meantime, for the latest example of the utter chaos and "make it up as we go along" we go to the ECB which has just, in very polite terms, warned Belgium that its bailout-cum-nationalization plan may not be quite feasible. From Bloomberg: "The European Central Bank advised Belgium not to backstop Dexia SA’s interbank deposits and to avoid providing guarantees on debt maturing within three months because it risks interfering with the central bank’s monetary policy." Reading between the lines here, it means that the ECB is effectively telling national governments to not try and become their own central banks under the ECB's umbrella, which would likely result in not only in various sovereign downgrades (that is guaranteed) but in loss of conviction in the European Central Bank, something which the insolvent European continent and the insolvent hedge fund in its core, aka Jean-Claude Trichet Capital et Cie. which holds hundreds of billions of Greek bonds at par, can certainly not avoid. It gets better: "The ECB also said the planned debt guarantees for Dexia may last as long as 20 years, which is inconsistent with European Union guidelines for national support measures to be temporary in nature, according to a statement published on the Frankfurt- based central bank’s website and dated Oct. 13. Belgium sought the ECB’s opinion on draft legislation that would grant state guarantees on Dexia loans." Oops: the ECB may have just scuttled the currently envisioned Dexia bailout plan. Oh well, just like with the Greek 50% bond haircut, so here to it is now back to the drawing board.
Today's Economic Data Docket - And The Depression Rolls On With Yet Another 400K+ Jobless Claims NumberSubmitted by Tyler Durden on 10/13/2011 06:51 -0500
Today we get jobless claims and the trade balance, both largely irrelevant as they will merely confirm the downward trajectory of the economy. What matters are flashing headlines, HFT kneejerk responses, lies, rumors, innuendo, and endless bullshit.
Philly Fed dissenter and rebel Charles Plosser, said something stunning during a Q&A session at the Zell/Lurie Real Estate Center at Wharton. When asked what he thought of Operation Twist, his response: "it is fiscal, not monetary policy, and does not have much credibility ....Treasury debt issuance could undo much of the effect of the Fed's attempt to lower borrowing costs, known as 'Operation Twist', Plosser said. "It doesn't have a whole lot of credibility attached to it." While we have no doubt that Twist has no credibility and both the Fed and the market will figure this weakest link out within a month, forcing the Fed to proceed, over the 3 dissenters pseudo-dead bodies, with much more LSAP, it is somewhat shocking to hear confirmation that the Fed itself now sees its duties as those of the legislative, or the body tasked with writing America's laws and funding required amounts of money via debt issuance. Granted, it is well known that America's congress is now in a state of perpetual impasse with no further stimulus likely to come as long as the GOP controls the Congress and Obama is president. But at least the American people (deserving as they are of their representatives and president) pick those in congress. The last time we checked, the "popular election" of the Fed chairman is not in the purvey of the US constitution, and the only capacity given to public representatives is to veto his nomination. Everything else is decided in a banker-filled conclave. Which then begs the question: has the Fed admitted the archaic concept of the US republic is now over and done with?
It appears Operation Twist was not enough for all...
- SOME FED OFFICIALS SOUGHT TO RETAIN OPTION OF QE3, MINUTES SAY
- SOME FED OFFICIALS SAW QE3 AS 'MORE POTENT TOOL' TO SPUR GROWTH.
- TWO FOMC MEMBERS FAVORED `STRONGER POLICY ACTION' LAST MONTH
- MANY FOMC MEMBERS SAID INFLATION RISKS `WERE ROUGHLY BALANCED'
- FOMC MEMBERS SAW `RELATIVELY LITTLE RISK OF DEFLATION'