Yuan

Courtesy of Diapason's Sean Corrigan, here are some 22 charts taking us around the world's markets and back.

Demand for gold is likely to rise as the world heads towards a multi-currency reserve system under the impact of uncertainty about the stability of the dollar and the euro, the main official assets held by central banks and sovereign funds. This is the conclusion of a wide-ranging analysis of the world monetary system by Official Monetary and Financial Institutions Forum, (OMFIF), the global monetary think-tank, in a report commissioned by the World Gold Council, the gold industry’s market development body. The report warns of “twin shocks” to the dollar and the euro and of a “coming dollar shock” and points out how gold would be a safe haven in a dollar crisis. “Gold has a lot going for it; it correlates negatively with the greenback, and no other reserve asset seems safe from the coming dollar shock.” “The world is preparing for possible twin shocks from the parlous. position of the two main reserve currencies, the dollar and the euro... The OMFIF offers a confidential, convenient and discreet forum to a unique membership of central banks, sovereign funds, financial policy-makers and market participants who interact with them. They note that “western economies have attempted to dismantle gold's monetary role. This has failed.”

• Foreign Hostages Die in Algeria’s Battle With Terrorists (Bloomberg)
• The latest bank to soon join the currency wars: McCafferty Says BOE Must Keep Open Mind on New Policy Tools (Bloomberg)
• US debt talks complicated by timing (FT)
• BOJ eyes open-ended asset buying, agrees new inflation goal (Reuters)
• AmEx Says U.S. Card Income Fell 42% as Loss Provisions Increased (BBG)
• Call to raise age for US’s Medicare (FT)
• Obama Promise to Raise Middle Class Living Already Seen in Peril (BBG)
• China Exits Slowdown as Quarterly Growth Tops Forecasts (BBG) - actually, as new Politburo says to make it appear that way
• Britain to drift out of European Union without reforms (Reuters)
• Republicans weigh interim debt-limit hike (FT)
• Abe's aide says Japan shouldn't fret if yen falls to 100 vs dlr (Reuters) ... and it was 90 just a few days ago
• PBOC May Seek More Liquidity Operations (Dow Jones)

• Obama's Gun Curbs Face a Slog in Congress (BBG)
• Euro Area Seen Stalling as Draghi’s Pessimism Shared (BBG)
• China Begins to Lose Edge as World's Factory Floor (WSJ)
• EU Car Sales Slump (WSJ)
• Fed Concerned About Overheated Markets Amid Record Bond-Buying (BBG)
• Australia Posts Worst Back-to-Back Job Growth Since ’97 (BBG)
• Abe Currency Policy Stokes Gaffe Risk as Amari Roils Yen (BBG)
• Japan Opposition Party Won’t Back BOJ Officials for Governor (BBG)
• Fed Reports Point to Subdued Economic Growth (WSJ)
• China Set to Exit Slowdown by Boosting Infrastructure (BBG)
• Greece not out of woods, must stick to reforms: finance minister (Reuters)
• Russian Rate Debate Flares Up as Cabinet Seeks Growth (BBG)

• White House delays 2014 budget after "fiscal cliff" standoff (Reuters) - And Senate will pass this... never?
• Amari Signals Limits to Abe’s Campaign to Weaken Yen (BBG)
• Draghi’s Bond Rally Masks Debt Doom Loop Trapping Spain (BBG)
• Obama backs gun limits, concedes tough fight ahead (AP)
• Bernanke to Weigh QE Costs as Fed Assets Approach Record (BBG)
• Japan to Sell Debt Worth 7.8 Trillion Yen to Pay for Stimulus (BBG)
• France more than doubles forces in Mali (FT) and yet...
• Malian Rebels Take Town and Vow to Avenge French Attack (NYT)
• China’s Li Calls for Patience as Government Works to Reduce Smog (BBG)
• EU berates China over steel subsidies (BBG)
• Number of working poor families grows as wealth gap widens (Reuters)

The Chairman of China Securities Regulatory Commission (similar to the US SEC) said that China can increase by 10-fold the size of the two main channels by which foreign investors buy mainland financial assets. It can, Guo Shuqing said, increase quotas under the Qualified Foreign Institutional Investors and the Renminbi Qualified Foreign Institutional Investors. The latter would make it easier for the yuan in Hong Kong (CNH) to be used to purchase Chinese securities. This hint helped lift China shares by over 3%, their largest gain in a month. The Shanghai Composite's 3% rise brings the gain to 19% off the multi-year low near 1949 (the year of China's Revolution) in early December.

That China openly manipulates its economic data, especially around key political phase shifts, such as one communist regime taking over for another, is no secret. That China is also the marginal economic power (creating trillions in new loans and deposits each year) in a stagflating world, and as such must be represented by the media as growing at key inflection points (such as Q4 when Europe officially entered a double dip recession, and the US will report its first sub 1% GDP in years) as mysteriously reporting growth even without open monetary stimulus (something we have said the PBOC will not engage in due to fears of importing US, European and now Japanese inflation) is critical for preserving hope and faith in the future of the stock market, is also very well known. Which is why recent market optimism driven by "hope" from Alcoa that China is recovering and will avoid yet another hard landing, and Chinese reports of a surge in Exports last week, are very much suspect. But no longer is it just the blogosphere that is openly taking Chinese data to task - as Bloomberg reports, even the major banks: Goldman, UBS and ANZ - are now openly questioning the validity and credibility of the goalseek function resulting from C:\China\central_planning\economic_model.xls.

There are very few free lunches in the world, there will be some costs or unintended consequences of this newfound commitment towards a weaker Yen.

• WSJ picks up on excess "deposits over loans" theme, reaches wrong conclusion: Wads of Cash Squeeze Bank Margins (WSJ)
• SAC Is Bracing for Big Exodus of Funds (WSJ)
• Japan unveils Y10.3tn stimulus package (FT)
• China’s Inflation Accelerates as Chill Boosts Food Prices (BBG)
• Berlusconi Denies Responsibility for Italy Crisis (BBG)
• Fed hawks worry about threat of inflation (Reuters)
• And then the lunatics: Fed easing may not be aggressive enough: Kocherlakota (Reuters)
• BOJ Likely to Take Easing Steps (WSJ)
• Draghi Shifts Crisis Gear as ECB Focuses on Economy Inbox (BBG)
• Argentina Bondholders Lose Bid to Get State-Court Review (BBG)
• Regulators Find Major Euribor Shortcomings (WSJ)
• Basel III Punishes Dutch Over Risk That Isn’t (BBG)
• Bondholders in Crosshairs as Merkel Travels to Cyprus (BBG)

• Obama Picking Lew for Treasury Fuels Fight on Budget (BBG)
• Deutsche Bank Bank Made Huge Bet, and Profit, on Libor (WSJ)
• Spain Beats Maximum Target in First 2013 Debt Sale (BBG) - In other news, the social security fund is now running on negative?
• "Icahn is also believed to have taken a long position in Herbalife" (NYPost) - HLF +5% premarket
• Lew-for-Geithner Switch Closes Era of Tight Fed-Treasury Ties (BBG)
• Turkey Beating Norway as Biggest Regional Oil Driller (BBG)
• Greek State Firms are Facing Closure (WSJ)
• Draghi Spared as Confidence Swing Quells Rate-Cut Talk (BBG)
• China’s Yuan Loans Trail Estimates (BBG)
• SEC enforcement chief steps down (WSJ)
• CFPB releases new mortgage rules in bid to reduce risky lending (WaPo)
• Japan Bond Investors Expect Extra Sales From February (BBG)

Following on from our earlier discussion of how a Chinese hard landing would evolve, SocGen now examines how a Chinese hard landing would impact the global economy. They see the contagion in several ways: mechanically (since China is part of the global economy) and through trade, financial and market channels. Mechanically, a slump in Chinese GDP growth to just 3% would cut our global GDP growth forecast by 0.6pp. Add to that the channels of transmission to the global economy, and our expectation is that a Chinese hard landing would result in 1.5pp being slashed from global GDP growth in the first year.

The Chinese economy has been enjoying a cyclical rebound since the beginning of Q4 2012. SocGen's central scenario is that this recovery will last until early Q2 2013 and then gradually lose momentum. In the medium term, they still anticipate a bumpy path of secular deceleration, leading to an average growth rate of 6-7% over the next five to seven years, down from 10% per annum over the last three decades. This piece focuses on what is probably the most popular “what-if” question about the Chinese economy – what if China hard lands (with real GDP growth rate plummets to below 6%)? As China undergoes demographic ageing and growth of the working-age population slows, this minimum stable growth level will decline further. However, if progress in rebalancing and structural reform remains slow, the probability of a hard landing will rise over the medium term. In the tail risk scenario set out below, 2013 will see several quarters with just 3% growth and full year growth would stand at just 4.2%, but what are th triggers, how would it evolve, how would the government respond, and how bad could things get?

Reuters report that Asia's physical market has picked up so far this year, with buyers tempted by last week's big drop in prices -- when prices retreated to as low as 1,626 per ounce -- and on demand ahead of the Lunar New Year, traders said. The trading volume on the Shanghai Gold Exchange's 99.99 gold physical contract shot through the roof on Monday, hitting a record of 19,504.8 kilograms, after double-counting transactions in both directions.  "Physical demand is very strong," said a Beijing-based trader. "It's a combination of the attraction of lower prices as well as pre-holiday demand." But such appetite could waver if prices recover towards $1,700, he added.

• London Quantitative Hedge Funds Report Second Year of Losses (BBG)
• Berlusconi Forms Alliance in Comeback Bid (WSJ)
• Japan to Buy ESM Bonds Using FX Reserves to Help Weaken Yen (BBG)
• Japan Mulling BOJ Accord Linked to Employment, Mainichi Says (BBG)
• Samsung Expects Record Operating Profit (WSJ)
• Boeing 787 Dreamliner Fire Probed, Blaze Adds to Setbacks (BBG)
• BOJ's Shirai: Open to Firmer Inflation Target (WSJ)
• HSBC N.J. Client Admits Conspiracy in Offshore Tax Case (BBG)
• Lampert to Assume CEO Role at Sears (WSJ)
• Abe prepares fresh stimulus measures (FT)
• U.S. Set for Biggest State-Local Jobs Boost Since 2007 (BBG)
• Pakistan Seen Needing IMF Bailout as Rupee Drops Before Vote (BBG)

• Secret and Lies of the Bailout (Rolling Stone)
• Banks Win 4-Year Delay as Basel Liquidity Rule Loosened (BBG)
• Hedge Funds Squeezed With Shorts Beating S&P 500 (BBG)
• Bankruptcy regime for nations urged (FT)
• Is the Fed Doing Enough—or Too Much—to Aid Recovery (WSJ)
• Cracks widen in US debt ceiling debate (FT)
• McConnell Takes Taxes Off the Table in Debt Limit Negotiations (BBG)
• Abe Seen Spending 12 Trillion Yen to Boost Japan’s Economy (BBG)
• Monti, Berlusconi Spar on Taxes in Weekend Media Barrage (BBG)
• Cameron Sets New Priorities for U.K. Coalition (BBG)
• Defiant Assad Rules Out Talks With Rebels (WSJ)
• Korea Seen Resisting Rate Cut as Won Threatens Exports (BBG)