- European equities traded higher supported by news of a coordinated action by various central banks to enhance USD liquidity in order to ease funding concerns surrounding European banks
- EU’s Juncker said that the Eurogroup discussed collateral issue, and collateral will be given for Greek loans at an appropriate price
- EU's Rehn said France, Italy, Belgium and Spain have all ratified more flexible EFSF, adding that the first step in Eurobonds is a feasibility study which the Commission will present this autumn
- Moody’s and S&P placed UBS ratings on review for a potential downgrade
The Biggest EURUSD Bull, Goldman's Thomas Stolper, Throws In The Towel, Cuts His Forecast Across The BoardSubmitted by Tyler Durden on 09/14/2011 14:17 -0400
Three things are sure in life: death, taxes, and betting against the calls of Goldman's Thomas Stolper. Sure enough:
- We lower our EUR/$ forecast path slightly but keep the same upward-sloping trajectory.
- Our new EUR/$ trajectory is 1.40, 1.45 and 1.50 in 3, 6 and 12 months, from 1.45, 1.50, 1.55 previously.
- The recent increase in the Euro area’s fiscal risk premium is likely to persist.
- Very large short EUR/$ positioning is likely to last in the near future.
- But the underlying Dollar downtrend should drive EUR/$ higher over time.
- We discuss the CHF and safe-haven currencies after the SNB’s commitment to intervene.
- Our new EUR/CHF forecasts are 1.21 flat in 3, 6 and 12 months.
Complete conflicted, planted and rumor-based schizophrenia overnight. An article in the FT saying that the Italian government is working on measures to facilitate the sale of the Italian government paper to China provided positive sentiment to the market early in the European session.However, the move was short lived on the back of market talk that China will not buy Italian bonds but instead seek various infrastructure investments, which resulted in a sell-off in equities. Equities came under further pressure after an article in the WSJ wrote, citing an unnamed BNP Paribas executive, that the bank could no longer borrow USDs from the money market, which also resulted in a sharp decline in Eurodollar futures. Weakness in equities provided support to Bunds, and the Eurozone 10-year government bond yield spreads with respect to Bunds generally widened. Particular widening was observed in the Italian/German spread leading up to and following a lacklustre 5-year Italian BTP auction, where the yield hit an all time high. Elsewhere, EUR/USD traded in negative territory during the European session, however did come off its earlier lows as the USD-Index weakened, together with comments from the Italian Prime Minister who said that the Italian Parliament will approve the budget proposals tomorrow. Also, AUD/USD remained under pressure following worse than expected business conditions/confidence data from Australia overnight. In other forex news, GBP/USD lost ground after BoE's Posen said that the central bank should resume its quantitative easing programme.
On one hand we have FT "reporting" about Chinese Italian bond purchasing ambitions citing "unidentified Italian officials" one day ahead of a major Italian bond auction (wink wink nudge nudge). On the other hand, we have Reuters, citing a real live Italian Finance Minister (though not for long) Giulio Tremonti, who tells us a slightly different story, which, gasp, cites real live people: "Italian Economy Minister Giulio Tremonti said on Thursday that Asian investors are reluctant to buy Italian bonds because it sees they are not being bought by the European Central Bank."
In The Meantime, ECB QE Is On In Full Force With About $100 Billion In Open Market Bond Repruchases In Past MonthSubmitted by Tyler Durden on 09/12/2011 09:58 -0400
And so the ECB's balance sheet, once upon a time clean of any monetization interventions, continues to deteriorate, and has now grown to a record €143 billion, after the bank disclosed €13.96 billion in PIIGS debt purchases in the prior week. This is an additional €70 billion since the SMP was expanded to purchase Italian and Spanish debt in early August (predicated by Italy complying with an Austerity prgoram that it has since made a complete mockery of). So for those complaining about the ECB pursuing Quantitative Easing, we wonder what one would call nearly $100 billion in bond repurchases in the open market in the past month: this is about as much as the Fed would purchase in its most active monetization month during either QE1 or QE2!
Goldman Calls For QE In Europe: "How Far Can The ECB Go In Using Its Balance Sheet. The Short Answer Is: A Lot Further"Submitted by Tyler Durden on 09/11/2011 12:01 -0400
Even as the eyes of the world are currently frozen in a spot in time from ten years ago, and Wikileaks is making doubly sure of this by releasing the entire record of Metrocall pager (remember those?) intercepts starting at 9:55 am on 9/11/01, the world itself continues onward, and especially those who determine its global policy of "Prevention of Harm to The Status QuoTM" are busier than ever this weekend. Chief among these is and always has been the one financial firm which has infiltrated "sovereign" decision-making more than anyone in history: Goldman Sachs, whose alumnus, incidentally, is about to replace Jean Claude Trichet at the helm of the world's largest and most undercapitalized central bank (yes, a central bank can be undercapitalized - read on). Which is why the following note just released by Goldman's Dirk Schumacher is of particular attention. Mere hours after Goldman economist Sven Jari Stehn said that FOMC "easing at the September meeting is very likely—around 75% according to our model", Goldman is now taking on European monetary policy, and specifically the question of further quantitative easing, across the pond, where printing money has always been a far more touchy subject than in the US, courtesy of the German experience with hyperinflation. As a result, the key line in the Schumacher note is the following: "How Far Can The ECB Go In Using Its Balance Sheet. The Short Answer Is: A Lot Further." To be sure, this is not surprising: after all Zero Hedge first predicted that following the latest market trouncing on Friday, in the aftermath of the ECB's admission of failure on Thursday (who can forget Ze Price Stabeeleetee), see "ECBCTRL+P: The Next Steps In The European Implosion", but we are nothing but a simple blog, which predicts what will happen but certainly does not set policy for a corrupt and failed regime. That's Goldman's job. And what is stunning is the brazenness with which it does it now. To sum up: to Goldman both the Fed and the ECB have to engage asap in yet another episode of bonus-preserving currency debasement, middle class be damned. And, we have very little doubt, they will.
It was a momentous week for markets and the ramifications of the German constitutional court decision and the SNB currency intervention have yet to be realized. The German constitutional court decision has effectively ruled out Eurobonds which has massive ramifications for the European monetary union and the euro. While promoters of Eurobonds suggest that Eurobonds may still be possible – most objective analysts believe they are now highly unlikely. The SNB decision to peg the Swiss franc to the beleaguered euro, thereby effectively devaluing the franc, stunned currency and wider financial markets. It is one of the most significant currency interventions in modern history and led to violent volatility the like of which have never been seen in foreign exchange markets. Incredibly and not widely reported the Swiss franc fell more than 7% against the euro, dollar and gold in just 15 minutes (putting gold’s relatively minor recent price fall into context). Such volatility in currency markets was not seen during 911, the Lehman’s collapse or for any other major macroeconomic or geopolitical event in modern history. The collapse of the Swiss franc in minutes greatly surpassed the collapse of sterling seen on “Black Wednesday” in 1992, when the British pound fell by 2.7% against the German mark on one day.
All you need to read and some more.
While the BOE's decision came and went exactly as expected (rate unchanged at 0.50%, no new Quantitative Easing), leading to a slight jump in the GBP but nothing too notable, all eyes now turn to the ECB in 20 minutes and whether or not Jean Claude will admit defeat and announce the end of the bank's very ill-timed decision to start tightening from 6 months ago, which as much as it is overdue, will unfortunately not happen, egos and all. Here is a complete preview, but in a nutshell the consensus is for rates to remain unchanged at 1.50%, for an announcement that downside risks have intensified, and that both lower growth and lower inflation will be forecast.
Access to Fed backup support “leads you to subject yourself to greater risks,” Herring says. “If it’s not there, you’re not going to take the risks that would put you in trouble and require you to have access to that kind of funding.” All of this might conceivably make citizens revolt against an entity that uses their money to secretly fund the “Wall Street aristocracy.” It might make them vote for a Gary Johnson or a Ron Paul, someone who favors dismantling the Fed. Or not. When a story as big as this one generates a bare minimum of media coverage, you know it’s probably headed for that huge waste bin in the corner of the parking lot. The one marked Bailout Fatigue.
The Fed has been reduced to promoting politically expedient "solutions" in the face of a moribund global economy suffering from persistent and intractable unemployment.
Confirming that this is a market for idiots, by idiots, was the 4 am response in the price of gold, which following the SNB's Swiss Franc peg announcement did not surge, as it should have considering that the SNB just singularly changed the role of the CHF from a "flight to safety" to a carry currency, making gold the only island of stability in a world of fiat insanity, but instead plunged by over $50. Subsequent attempts to regain the $1900+ level were met with constant program selling for no other reason, than just because someone 'else' was selling. Of course, the logic is completely and totally the opposite. But don't take our word for it: here is Reuters: "Switzerland's decision to peg the erstwhile safe-haven franc to the euro may finally give gold bugs the chance to see prices hit the once-unimaginable $2,000 an ounce mark, as the metal holds on track for its strongest annual rally in three decades. By buying euros in unlimited amounts to weaken the franc, the SNB is in effect putting more of its own currency into circulation, which threatens to trigger inflation. It has also impacted the Swiss currency's status as a haven in its own right. While gold prices initially dipped as the move sparked a rush to liquidity in the form of other currencies such as the dollar, the SNB move is likely to lend firm support to gold in the medium term, analysts said." Precisely. And it is not only Reuters: Bank of America's MacNeill Curry said that Gold will probably rise to $2,050 this year. The rationale - identical to the above: SNB decision to peg franc to euro should also support gold. "They have taken out one of the big safe-haven assets, which is the Swissie." As for the amount of time the idiots will need to realize that QE3 coupled with the SNB action means that gold is now valued somewhere well over $2000: at least a few days...Which everyone who looks for even the smallest golden pullback will be happy to take advantage of.
Currency markets have seen massive volatility this morning after the Swiss National Bank decision to fix the Swiss franc to the euro. Just prior to the announcement, spot gold for immediate delivery had risen to a new record nominal high of $1,921.15/oz in early morning trading in Europe. Then just before 0900 hours GMT came the news that the Swiss National Bank has decided to fix the country's exchange rate at 1.20 Swiss francs per euro. The SNB indicated it would buy an unlimited amount of euros regardless of the risk to maintain that value. In a matter of minutes, gold fell 3% from the high of $1,921.15 to an inter day low of $1,862.72. It then recovered as quickly and surged back to over $1,912/oz. Gold’s London AM fix this morning was USD 1,891.00, EUR 1,330.75, GBP 1,172.86 per ounce. Gold fixed lower in all currencies (USD 1,896.50, EUR 1,341.13, GBP 1,174.67 per ounce). The SNB announced the currency fix because of what it called "the current massive overvaluation of the Swiss franc." It said it will "no longer tolerate" an exchange rate below the minimum rate of 1.20 francs, which it said is still high.