Monetary Policy

The IMF meeting ended yesterday and leading world economies agreed to more than double the lending power of the IMF in an effort to protect the global economy from the euro zone contagion. This was still short of Lagarde’s $600 billion goal. The Netherlands  was drawn into the spotlight over the weekend when the government failed to agree on budget cuts, making elections nearly unavoidable and casting doubt on its support from future euro zone aid.  Investors will watch the China HSBC manufacturing survey at 1430 GMT as a measure of the conditions of the world’s 2nd largest economy.  The Federal Reserve meets on Tuesday and Wednesday, and its statement on monetary policy is given on April 25th.  The Bank of Japan meets on Friday and is expected to ease again. Trading is sluggish as the market waits for clues.

8 pm has just passed in France, and all the polls are now closed, which means official preliminary data is now allowed - the first results from IPSOS are in, and are as follows:

• Francois Hollande: 28.4% - with victory virtually assured in the runoff round on May 6, it is now Hollande's election to lose. Could he? Yes - read here how Sarkozy can still catch up per DB.
• Nicholas Sarkozy: 25.5% - make the runoff round
• Marine Le Pen: 20.0% - extreme right: much better than expected as nationalism is back with a bang.
• Jean-Luc Melenchon: 11.7% - extreme left: best communist showing since 1981 yet weaker than expected.
• Francois Bayrou: 8.5%
• Eva Joly: 2.0%

At first we were going to comment on this "response" by the high priest of Keynesian shamanic tautology to Mark Spitznagel's latest WSJ opinion piece, but then we just started laughing, and kept on laughing, and kept on laughing...

Oops, Hollande, likely winner in the French election, saw the 5% spread that banks get from the ECB....

Over the past month, the world has finally awakened to the reality that when it comes to easing, there is more than just one central bank (i.e., the Fed). in fact, as we have been showing since early this year, the bulk of the easing over the past 5 months has happened elsewhere, primarily in Europe with LTRO 1+2, and subsequently at the BOE, and more recently at India and Brazil. Yet some holdouts still remain. One of these naturally is China, which everyone would love to see cut RRR or even the benchmark rate, yet which as recent CPI data has shown still has lingering packets of inflation precisely where it hurts: food (and of course recall China's Schrodinger economy). Which leaves Japan, which already eased more a few months back when it expanded its LSAP program... but it is never enough. Needless to say strategists, in their quest to shake any and every central banker here or there for some free money, have been seeing imminent BOJ easing in the form of yet another Y5 trillion LSAP any second now. Yet it is one thing for bankers to do what they are programmed to do, which is demand more free money, it is something very different when politicians step in and defuse the myth that any central bank is even remotely independent, especially when reelection is at stake. As Bloomberg points out this morning, the fight for the BOJ's "independent" balance sheet is starting to get lethal.

Japanese Finance Minister said an IMF funding increase to USD 400bln is "coming into sight", and that he expects the BRIC nations to offer funds to the IMF at the appropriate time. The finance minister sees funding figures to be released as early as tomorrow. (Sources) The IMF looks set to reach or pass that target, with USD 320bln secured yesterday and many of the largest emerging economies still to contribute. ECB’s Knot and EU’s Rehn have said IMF commitments may have to be up to USD 500bln, and expects China to boost resources.  Brazil’s finance minister has said his country is still not ready to give numbers on their IMF contribution. The Indian finance minister has said he will take time to provide an answer to the funding question for the IMF. China also remains undecided on an increased IMF contribution.

All you need to know.

The global reliquification continues:

• BRAZIL CENTRAL BANK DECREASES BENCHMARK LENDING RATE TO 9.00%
• BRAZIL CEN BANK SAYS RATE CUT PART OF CONTINUED ADJUSTMENT

First India, now Brazil (even if the move was largely expected). When are Russia and China joining the fray?

Following a blistering two days of upside activity in Europe and a manic depressive turn in the US in the past 48 hours, the rally is now be running on fumes, and may be in danger of flopping once again, especially in Spain where the IBEX is tumbling by over 3% to a fresh 3 year low. Still, the Spanish 10 year has managed to stay under 6% and is in fact tighter on the day in the aftermath of the repeatedly irrelevant Bill auctions from yesterday, when the only thing that matters is tomorrow's 10 Year auction. Probably even more important is that the BOE now appears to have also checked to Bernanke and no more QE out of the BOE is imminent. As BofA summarizes, "The BoE voted 8-1 to leave QE on hold at their April meeting: a more hawkish outturn than market expectations of an unchanged 7-2 vote from March. Adam Posen - the most dovish member of the BoE over the last few quarters - took off his vote for £25bn QE, while David Miles judged that his vote for £25bn more QE was finely balanced (less dovish than his views in March)." Even the BOE no longer know what Schrodinger "reality" is real: "The BoE judged that developments over the month had been relatively mixed, with a lower near-term growth outlook, but a higher near-term inflation outlook. However, they thought that the official data suggesting very weak construction output and soft manufacturing output of late were “perplexing”, and they were not “minded to place much weight on them”." Naturally, this explains why Goldman's Carney may be next in line to head the BOE - after all to Goldman there is no such thing as a blunt "firehose" to deal with any "perplexing" issue. Finally, the housing market schizophrenia in the US continues to rule: MBA mortgage applications rose by 6.9% entirely on the back of one of the only positive refinancing prints in the past 3 months, which rose by 13.5% after a 3.1% drop last week. As for purchases - they slammed lower by 11.2%, the second week in a row. Hardly the basis for a solid "recovery."

All you need to read and more.

Aiming to Get Votes, Hitting Germany, and Threatening the Euro....

There is the slow realisation that the complacency of recent months was again misplaced. It remains obvious that the euro zone debt crisis is far from over and this will support gold in the coming months – especially in euro terms. 

Gold in euro terms has been consolidating above €1,200/oz for six months now. With the eurozone crisis set to deepen and the continuing risk of contagion, we could see gold break out in euro terms prior to doing so in dollars, pounds and other currencies.

All you need to read and some more.

Busy day today with lots of economic data and some more Fed good cap-bad cop theater as both hawk Bullard and dove Pianalto pretend to give an objective picture of what is on CTRL+P's mind.

Curious what the investing world will focus on next week? Here is a recap courtesy of Goldman Sachs, though for those who want the punchline now, just fast forward to Thursday when get Spain and French bond auctions. In the meantime just ignore all the intraday trading halts of Intesa, UniCredit And Banco Popolare. The rest is just the supporting cast.