ECB Re-Regurgitates Draghi As Greek Unemployment Rises To New Record, China Deteriorates With No Easing In Sight

Tyler Durden's picture

It has been a quiet session overnight (and that will continue until the Germans come back from vacation) punctuated by Mario Draghi's attempt to jawbone the market into submission again, this time following the release of the ECB monthly report in which it basically regurgitated Draghi's still misunderstood speech in it said it may buy bonds if strict conditionality is ensured, the same conditionality that Spain said it would not comply with, yet which European bond traders continue to misunderstand, because Spain will not request a bailout as long as its 10 Years are trading below 8% yield. Of course, nobody wants to sell first, until the selling actually begins. Then it will be waterfall. In other news Greek industrial production rose by a tiny amount from below sea level, rising by 0.3% in June following a 2.9% decline previously. This however must be due to the Greek workers' enhanced efficiency - Greek unemployment just rose yet again to the mindblowing 23.1%, from 22.6% - a new all time high (with youth unemployment just 45% away from 100%). And so the race between Spain and Greece over who can hit 50% unemployment first continues. Another notable economic milestone was crossed after the IFO institute euro-area economic climate indicator declined for first time this year, pushing the EURUSD to just above 1.2300. There were also more bad news from the UK whose trade deficit widened more than expected hitting GBP10.1 billion vs GBP8.7 billion estimated, with a record GBP28.3 billion good deficit, led by oil, cars and chemicals. In other news the European collapse continues unabated, yet the market which has long been nothing but a central bank policy tool and no longer discounts anything is perfectly oblivious to what is happening. There was one notable final change: the Chinese economy accelerated its own deterioration, and this time, courtesy of the specter of soaring food prices and a CPI print above estimates, it is very much powerless to even threaten with more easing.

From SocGen:

China's July activity data came in weaker than expected across the board


Industrial production decelerated further to 9.2% yoy and nominal retail sales growth stepped down to 13.1% yoy, both much below expectations. Total fixed asset investment growth remained at 20.4% yoy year-to-date, but the yoy rate for the single month of July slowed by 0.7ppt from the 21.1% in June.


The property sector continued to exert downward pressure on overall growth momentum. Despite the impressive rebound in housing sales (in volume terms, +13% yoy in July vs -3.3% yoy in June), property investment growth dropped below +10% yoy, within which investment in residential projects was up only 4.8% yoy in July. Moreover, total new starts declined 26.7% yoy in July and residential new starts contracted 30.4% yoy. The base effect was one of the factors contributing to such a sharp decline, but the trend since Q1 has been unambiguously sluggish.


Infrastructure investment did pick up, but was still too modest to offset the drag from the housing sector. Railway FAI growth recovered to -6.6% yoy in July from -21.5% yoy in June and highway FAI growth rebounded to +8.5% yoy from -6.9% yoy. This trend is set to persist in the coming months, with the help of credit expansion and acceleration in bond issuance.


We have been arguing that Beijing is unwilling to repeat the investment stimulus of 2009/10 and that a moderate boost to infrastructural investment without a relaxation in property policies will not be enough to lift overall growth substantially. Today's data reconfirms our view. And, unfortunately, the bottoming-out seems to be taking even longer than we initially anticipated.


Clearly, the easing policies announced so far have not fully passed through to the real economy. The central government's determination to cap property prices will continue to obstruct its push for public investment. We think the PBoC's options could be even more limited if food inflation continues from here onwards. We see the most likely action from the PBoC as further liquidity easing via reverse repo and required reserve ratio cuts, alongside increased bank lending. We continue to look for a 50bp RRR cut in August.


Given today's data and expectations for further incremental easing, we revise down our forecast for Q3 GDP growth from 8% yoy to 7.7% yoy, but our Q4 call for 8% yoy remains unchanged. This revision reduces our full-year growth forecast to 7.8% from 7.9%.


In other words, the economy of the entire world is rapidly deteriorating. But at least futures are up at last check.

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firstdivision's picture

So that explains the SPA10 going verticle.

trebuchet's picture

I heard today key prices - chicken and pork - were significantly down ( - over 15%) with inflation lower than expected.


Snidley Whipsnae's picture

Meanwhile, use of the Chinese currency is making inroads in many locations... including 'The City'...

"Money Talks and London Listens to the Yuan"

Ghordius's picture

China is a US Primary Dealer, so they are an honorary MegaBank.

Snidley Whipsnae's picture

"China is a US Primary Dealer, so they are an honorary MegaBank."

Did you read the article?

China is much more than a 'primary dealer'... and they are begging to push harder to supplant the dollar with their currency where ever possible.

The currency war is heating up. Little Timmy to become a permanent member of the NSC.

We live in interesting times.

Ghordius's picture

yes, I did read it as soon as Jesse's Cafe Americain put it on the "materies a reflexion" list. Ties in with my expectations since long - did you read my last twenty comments? The US wants to keep the Dollar Hegemony, the Chinese want the SDR or any other solution and the eurozone is hoping that the EUR (the preparation homework for this eventuality) will keep some internal stability to a possible escalation of the currency war.

The City of London is of course of the opinion that they can keep themselves on all fences - reminds me the Dutch position of a couple of centuries ago. In all this I hope we don't get to the next possible escalation - a serious trade war. For which of course the "preparation homework" is the EU.

falak pema's picture

we are already there in disguised trade war; it is now clear the continental divides will go protectionist; especially in EU and USA. As already in Chindia. I'd hate to be sitting on the WTO committee.

Their task is downhill as the flood gates of global trade will soon be fenced in by the protection walls of statist intervention.  

Ghordius's picture

disguised is still "very cold" - I see an escalation as a probability, not as a given

and in a not-too-hot trade war you could have strange and not-foreseen constellations

remember that in the past protectionist walls were often erected with the help of the Left - "to keep the jobs here"

LawsofPhysics's picture

Correct, but if you think the PBofC doesn't know how to print, you are beyond stupid.

Ghordius's picture

yes, though I appreciate some quality in their printing, they are financing with it capital goods like industries and infrastructure.

                         they     have     a     strategy    in    their    madness

LawsofPhysics's picture

Works as long as they have a buyer. The Chinese have a bad habit of paying/buying high and selling low. I will go on record and predict that their strategy will only work if they can turn their own people into better customers. Being in agriculture I see hungry mouths with new purchasing power, fucking bring it!

Ghordius's picture

LOL - you are right, of course. nevertheless, they have one million millionairs, a two hundred millions strong "middle class" with an income of USD 10'000 per year and other eight hundred millions to integrate in their new economy. plenty of future customers.

Like the US, China could be mostly autarchic and quite self-contained. It's us europeans that have to trade well to keep the head above the water.

Ghordius's picture

OT, btw, Have a look at the non-discussion the Brits are having about a referendum on the EU and note Cameron's talking point where he

"...said last month it was a "perfectly honorable position" to call for an immediate referendum on Britain's EU membership - something polls show a majority of British people would vote to reject - but that he would never campaign for an "out" vote because leaving the EU would not serve British interests."

When will the Government of Her Majesty come out clean and explain to the British Public why there is no majority in Parliament for a Referendum? Seriously, this gets me mad as hell...

Dear United Kingdom, we need you. We need you either in - as a constructive member - or out - so that we can implement a miriad of needed reforms.

Get your act together, dear Blighty, time is running out.

Snidley Whipsnae's picture

G... I posted a link in the EU Recap this am...

Ghordius's picture

? EU Recap ? I'm a dinosaur, not a Whipsnaepper. I fear that if you don't help me with a link here I will never have a clue what you mean...


now I get it, you mean here 2690332

LawsofPhysics's picture

When will the Germans be back anyway? I really need to put that on my calendar.

wstrub's picture

All of our problems highlighted in the short clip...........very well done!


GoldbugVariation's picture

ECB statements are about buying short term debt, meaning 1-2 years duration I think.  This has driven yield for Spanish 2 year bonds down a lot since Draghi statements last week, currently in the region of 3.75%-4.00%, compared with around 7% for the 10 year.  The biggest 2Y-10Y spread for a long time.

Spanish and Italy government policy has adapted to those new market conditions, so they now plan to issue more short-term debt than previously, to benefit from the lower yields.

Current elevated equity levels in good part reflect the trend on 2Y debt yield not 10Y.  Repeated articles on ZH saying that equities in the periphery are overconfident in comparison with bonds are overlooking this point.

Snidley Whipsnae's picture

In more news out of the UK...

"Prisoners paid £3 a day to work at call centre that has fired other staff"

Whats the difference in this situation and sweat shops in starvation wage countries?

AssFire's picture

You know, every ZH member can rate the story.. just click on "your rating" button above.

-thought it strange no votes after 560 reads.

I would say I voted; but then somebody would comment: "You did not vote that." or even worse: "All your vote are belong to us"

potlatch's picture

Don't worry, just a minor anomaly, well within expected parameters, should not be a proble.... we're still gtg.  China, however, is fucked.  They have a continent full of mid-industrial capacity -- some of it large industry -- no one goddam needs.   The Chinese?  Left to themselves, they will return to their fascination with oxen-based economies.

AssFire's picture

The Chinese are positioned much like the USA in the Great Depression. Only a matter of time before the current depression sets in over there (just as it hit Europe sooner than the USA). Don't discount the manufacturing capacity they have...think about what a war making machine it can easily be transformed into- just the same as the USA did in WWII. We are not in a position of strength unless we consider the non-conventional weapons.

LawsofPhysics's picture

Extendeding your logic, the U.S. Would then be positioned like Germany. This should be fun. The BIG difference is available resources.

LikeClockwork's picture

Resource ka-boom. Rio Tinto multi-bagger!

awakening's picture

Might mean Australia goes from riding the back of a dump truck (minerals) back to the sheeps back (food and wool industry; no idea what they do across the Tasman in New Zealand /sarcasm) again in the long term? =/

magpie's picture

Apples ? The edible, not the Ipad variety.

awakening's picture

Not in the food production industry myself (nor own any shares/interests in it); though my observation is that I am seeing an increase of food imports (pre-packaged as well as raw materials for manufacture into food products [juices etc.] here) in general due to the rise of the AUD making it cheaper to import than it is to grow it here (regardless the better quality we get overhere, people just don't seem to be able to afford the price of said quality).

As for Apples (I don't really like either variety much fyi =P ) there is this as a starting point for your research. Note that I don't dabble in finance (beyond stockmarket games due to not being part of the exclusive 'club' ZH knows about) -

edit 2 - I didn't find anything published about Oranges but stumbled upon this that might be of some interest (can't vouch for the site itself though =S)

old articles but then again attention has been elsewhere in our media also.

magpie's picture

I used to live in a country which was for most purposes still an Australian colony. Most of the foodstuffs were of course imported from there (currency was mostly pegged higher than the AUD) and the occasional NZ item, like the apples could excite derisive comments. How times change.

Shizzmoney's picture

Totally bullish for the DOW......where can I buy some stock?

Mugatu's picture

Just ask any algo for shares,  People don't trade stocks anymore - computers do.

blueRidgeBoy's picture

is anyone documenting the distintegration of the Greek welfare state occurring right before our very eyes?  I hope so, because it'll make for a good chapter in an econ textbook someday.  Hopefully they'll include that chapter right after the one about the myth of Keynsian economics...

Peter Pan's picture

The destruction of the Greek welfare state was begun in the eighties with the socialist government handing out an ever increasing number of public servant jobs on higher and higher pay as well as benefits which in turn inflated retirement benefits. Moreover the number of bogus pensions claimed has been nothing less than stunning.

All this was not funded by productive output of the nation but by borrowings and EU subsidies. These are now long gone.

With the arrival of austerity (both in terms of handouts and borrowings as well as strict new conditions) the bogus welfare state is crumbling and in the midst of a severe downturn the destruction of the welfare state if not the whole nation, is almost assured as long as Greece clings to the Euro.

Peter Pan's picture

The 23.1% unemployment rate for Greece is pure unadulterated BS for a number of reasons. First of all it does not take into account all those excess public service positions it needs to cull. Secondly, it does not take into account the number of people in the private sector who continue to go to work even though they have not been paid for quite a few months.

Very trustworthy sources tell me that even public servants' wages are not up to date and that medical providers have also not been paid for months for services rendered.

The cash flow position of the Greek government is in fact far worse than that portrayed in the press to the point that even the fan is taking cover from the amount of sh.... headed its way.