De-dollarization has been an ongoing theme hidden just below the surface of the mainstream media for more than a year as Russia and China slowly but surely attempt to "isolate" the US Dollar. Until very recently, direct trade agreements with China (in other words, bypassing the US Dollar exchange in bilateral trade) had been with smaller trade partners. On the heels of Western pressure, Russia and China were forced closer together and de-dollarization accelerated from Turkey to Argentina as an increasing number of countries around the world realize the importance of this chart. However, things are about to get even more dramatic. As Bloomberg reports, China will start direct trading between the yuan and the euro tomorrow as the world’s second-largest economy seeks to spur global use of its currency in a "fresh step forward in China’s yuan internationalization." With civil unrest growing on every continent and wars (proxy or other) at tipping points, perhaps, just perhaps, the US really does want rid of the weight of the USD as a reserve currency after all (as championed here by Obama's former right hand economist)... now that would be an intriguing 'strategy'.
There may be one great conspiracy dictating the course of the capital market, but if there is not, what is the near-term outlook for the dollar?
To claim that this is the market at work makes no sense anymore. Today central banks, for all intents and purposes, are the market. Our overall impression is that the Fed has given up on the US economy, in the sense that it realizes – and mind you, this may go back quite a while - that without constant and ongoing life-support, the economy is down for the count. And eternal life-support is not an option, even Keynesian economists understand that. Add to this that the "real" economy was never a Fed priority in the first place, but a side-issue, and it becomes easier to understand why Yellen et al choose to do what they do, and when. When the full taper is finalized next month, and without rate rises and a higher dollar, the real US economy would start shining through, and what’s more important - for the Fed, Washington and Wall Street - the big banks would start 'suffering' again.
- Mystery Man Who Moves Japanese Markets Made More Than 1 Million Trades (BBG)
- Draghi’s Trillion-Euro Pump Finds Blockage in Spain: Euro Credit (BBG)
- Apple plays defense on iPhone 6 bending, software concerns (Reuters)
- U.S. to Shield Military From High-Interest Debt (WSJ)
- U.S. Outgunned by Extremists on Social Media Battlefield (BBG)
- Yen Weakens on Pension Fund Reform; Aussie Drops to 7-Month Low (BBG)
- Secretive Russian oil giant has no fear of sanctions (Reuters)
- Ride-Sharing Services Face Legal Threat From San Francisco, Los Angeles (WSJ)
- Putin’s Sell-Treasuries-for-BRICS Bonds Plan Has Limits (BBG)
Beneath the surface wealth of bullet trains, cute robots and exuberant fashions, this is the Japan few outsiders understand: the one gripped by a deepening social depression. Japan is the global bellwether in social depression, and we can already see the same symptoms and official panic to mask these symptoms in Europe, China and the U.S.
Having totally killed the Japanese government bond market, Shinzo Abe has - unlike the much less transparent Federal Reserve, who allegedly use their proxy Citadel - gone full tilt into buying Japanese stocks (via ETFs). In May, we noted the BoJ's aggressive buying as the Nikkei dropped, and in June we pointed out the BoJ's plan tobuy Nikkei-400 ETFs and so, as Nikkei news reports, it is hardly surprising that the Bank of Japan bought a record JPY 123.6 billion worth of ETFs in August. The market 'knows' that the BoJ tends to buy JPY10-20 billion ETFs when stock prices fall in the morning. The BoJ now holds 1.5% of the entire Japanese equity market cap (or roughly JPY 480 trillion worth) and is set to surpass Nippon Life as the largest individual holder of Japanese stocks. And, since even record BoJ buying was not enough to do the job, Abe has now placed GPIF reform (i.e. legislating that Japan's pension fund buys stocks in much greater size) as a primary goal for his administration. The farce is almost complete as the Japanese ponzi teeters on the brink.
China is slowly moving to dominate the global gold market and it is important to join the dots regarding a few key recent developments in China relating to gold. When the International Board of the Shanghai Gold Exchange (SGE) was launched last Thursday September 18 during an evening trading session, it was notable that the first transactions were put through by a diverse group comprising HSBC, MKS (Switzerland), and the Chinese banks, ICBC, Bank of China and Bank of Communications. One encouraging factor about the SGE and the SGE international platform is that there is a lot of physical gold flowing through the Exchange. Therefore, price discovery is not just based on an inverted pyramid of mostly unallocated gold as in London or mostly cash-traded futures paper gold as in New York.
Which incidentally has nothing to do with stocks or bonds, and everything to do with all-important FX. To wit: "If a clear break in the yen downwards against both the dollar and euro is occurring, not only will this spell trouble for the beleaguered Chinese economy and exacerbate deflation in the west, but it will also break the spell of German economic dominance"
We, like Bloomberg's Richard Breslow, were bemused this weekend by the communiques from the wisest men in the room at the G-20 meeting. On one side of their mouths they warned of "excessive risk-taking," in markets noting that there were "mounting economic risks" also. On the other hand, stories continue to print of US equity strength implying optimism over global growth - despite the ongoing collapse in consensus GDP expectations. However, away from this hope and fear, it was the almost coordinated responses of the PBOC (Chinese Finmin Lou Jiwei signaling not to get carried away with stimulus expectations), ECB (Visco saying may not need additional QE step since EUR had dropped 'enough'), and finally the BOJ (Iwata saying Abenomics misunderstood, USDJPY 90-100 'fair); all dashing market expectations of a smooth hand over from a feckless Fed to a free-printing rest-of-the-world. Stocks (and carry) responded by selling off.
While some were wondering if last night's sudden, commodity-liquidation driven selloff would last, most were not, expecting that the perfectly predictable levitation in the USDJPY around a round "tractor beam" number would provide a floor under the market .Sure enough, starting around midnight eastern, the USDJPY BTFDers emerged, oblivious to comments from former BOJ deputy governor Iwata who late last night said the obvious, and what we have been saying since January 2013, namely that a weak yen puts Japan at recession risk, and that a USDJPY in the 90-100 range reflects Japan fundamentals. And, as expected, the 109 level is where the algos have hone in today as a strange FX attractor, which also means that ES has reverse sharper overnight losses and was down just 7 points at last check even as the poundage in the commodity sector continues over rising fears of a sharp Chinese slowdown driven by its imploding housing sector (most recently observed here) without an offsetting stimulus program, following several comments by high-ranked Chinese individuals who poured cold water on any hopes of an imminent Chinese mega-QE or even modest rate cut.
Just one guy's attempt to make sense of what is likely to happen in the coming days.
The world may be a big conspiracy and civilization as we know it may end soon, but if you care what the dollar may do next week, take a look at this post.
So much for any Scottish referendum vote "surprise": the people came, they voted, and they decided to stay in the 307-year-old union by a far wider margin, some 55% to 45%, than most polls had forecast, even as 3.6 million votes, a record 85% turnout, expressed their opinion. The gloating began shortly thereafter, first and foremost by David Cameron who said "There can be no disputes, no re-runs, we have heard the settled will of the Scottish people." Queen Elizabeth II, who is at her Scottish castle in Balmoral, is expected to make a rare comment on Friday. But while a No vote was where the smart betting money was ahead of the vote anyway, and is thus hardly a surprise, the most curious thing overnight was the complete roundtrip of cable, which was bought on the rumor and then sold off on the news, roundtripping by nearly 200 pips.
Cable (GBPUSD) is surging as the first results from the Scottish Referendum hit and a resounding "No" to independence appears confirmed. Almost back to pre-Scottish-Vote-fears level (1.66), cable is up 250 pips in the last 24 hours (its biggest move in over a year). GBP is also strengthening notably against EUR (2-year highs), CHF (2 year highs) and of course the JPY (6 year highs) as the Japanese government admits defeat and downgrades its economic assessment for the first time in 5 months (hence sell JPY as they 'must' do more money printing (despite Japanese businesses all pushing for a stronger JPY). FX markets are extremely volatile this evening and implicitly, equity futures are clanging around cluelessly. The USD Index is flat (gaving retraced all FOMC gains). Gold is down on the Japan news (below $1220).