Yen

Years of growing resentment for the Japanese premier, who panders only to the rich, to the exporting corporations, to the Japanese military-industrial complex, and of course, to the US government and Goldman Sachs (whose idea Abenomics was from the very beginning) thousands of protestors rallied Friday night in downtown Tokyo in a campaign of "Say no to the Abe government," targeting Japanese Prime Minister Shinzo Abe's "runaway" policy. The protestors gathered at the Hibiya Park, Diet building and the prime minister's official residence, shouting "Abe step down."

The dollar's pause may be short-lived.  Divergence still the key driver.  

Just minutes after rumors of Axel Springer Verlag's interest in buying The Financial Times were flatly denied, Marketwatch reports that Japanese financial newspaper Nikkei said Thursday that it is buying Financial Times from U.K. publishing group Pearson for 160 billion yen, or $1.29 billion.

It appears The IMF is willing to shake the boat of status quo, everything-is-awesome, once again. After proclaiming Greece is screwed and needs a haircut no matter what, the bank to save the world has unleashed a new report on Japan...

*IMF SAYS JAPAN NEEDS DEEPER CUTS TO CURB ‘UNSUSTAINABLE’ DEBT,  RISKS SURGE TO TRIPLE GDP WITHOUT CHANGE, IMF SAYS
*IMF: YEN MODERATELY WEAKER THAN IS CONSISTENT WITH FUNDAMENTALS

We assume Abe and Kuroda will disagree strongly, argue that they just need a little more devaluation and everything will be perfect. The slide in JPY suggests some more capital leaving their shores. It appears The IMF has read some of Kyle Bass' work.

• In Asia/Pacific, the sales decline was primarily due to lower sales in China and Japan.
• Decreases in Latin America were primarily due to continued weak construction activity
• Sales declined in EAME primarily due to the unfavorable impact of currency, as sales in euros translated into fewer U.S. dollars.
• Sales declined in North America as weakness in oil and gas-related construction was largely offset by stronger activity in residential and nonresidential building construction.

Is China (or the US) the next Greece?

The Fed may raise rates from 0.25% to 0.3% or possible even 0.5% sometime in the next 24 months… but these moves will be largely symbolic. Here's why...

So having acquired substantial quantities of gold for itself and having also ensured it is widely held by its public, the Chinese government is arguably in a more compelling position to encourage a gold revaluation as a means of stabilising her economy in a credit crisis than America was eighty years ago. It will be China's only option, and if the government doesn't go for it, China's middle classes certainly will. This simple fact could override all the geostrategic considerations upon which China-watchers have tended to focus. A gold revaluation would be presented to the world as bound up with China's domestic economic problems, instead of an act aimed at undermining the dollar's reserve status: a solution that is less confrontational than outright disagreement with Western central banks over gold's role in the international monetary order.

The divergence theme is not longer being eclipsed by the Greek drama and the Chinese stock market slide.  See how this week's developments fit into the bigger picture.  

Investors are too myopically focused on expectations of a steep rise in bond yields and on using central bank stimulus to pile back into riskier assets. There is too much complacency.  We believe the upside potential for Treasuries prices for the balance of the year is once again being greatly underestimated. The long end should continue to perform well under various scenarios. If the Fed hikes in September or earlier, the back end should perform well.  If the Fed breaks its implicit promise to hike rates in September, its credibility would be damaged:  unless of course, it was due to a significant deterioration in the economic or political landscape.  Either outcome would likely benefit long Treasury security prices.

The dollar made new multi-year highs against the dollar-bloc and is bid against most major and em currncies.  Why?  

As a result, the world’s economy is now based upon unsound banks dealing in unsound currencies. Both have degenerated considerably from their origins.

Just when the Chinese plunge protection team (and "arrest shortie" task force) seemed to be finally getting "malicious selling" under control, first we saw a crack yesterday when the composite broke the surge of the past three days as a result of yet another spike in margin debt funded purchases, but it was last night's reminder that "good news is bad news" that really confused the stock trading farmers and grandmas, which goalseeked Chinese economic "data" beat across the board, with Q2 GDP coming solidly above expectations at 7.0%, and retail sales and industrial production both beating, but in the process raising doubts that the PBOC will continue supporting stocks.

In a January 2013 report “Report of the Working Group to Study the Issues Related to Gold Imports and Gold Loans by NBFCs”, the Reserve Bank of India estimated that the ratio of paper gold trading to physical gold trading is 92:1. That is a lot of unbacked paper gold instruments. This has almost entirely separated the “gold price”, such as it is (the clearing price for vast volumes of paper gold “representations” with a fractional backing) from the fundamental supply and demand dynamics for actual physical gold bullion.

As Mr L. famously quipped. "Ever get the feeling you’ve been cheated?"

A Greek exit will be evidence that the US and IMF influence on Berlin is waning, and will establish Berlin as the new geopolitical player to reckon with.