It appears that the market refuses to be baffled with bullshit any longer. The EURUSD just took a big tumble following a report that Christine Lagarde, the IMF's new boss, announced that her new agency has not yet discussed Greek aid details, and made it clear that "nothing should be taken for granted on Greece." Since the only thing that is being taken for granted is that Greece will be bailed out, it is easy to see why the EURUSD just lopped off 60 pips in seconds. Not very surprisingly, this fits with what the Chairman of Commerzbank Martin Blessing told the Frankfurter Allgemeine Zeitung earlier. It appears that the dining room table is being set for what the EUR's chef believe will be a brief feast on the Greek carcass, following the country's plunge into SD, or temporary default status. What will happen next, however, is the same thing that happened when Lehman filed: sheer panic, as a global bank runs ensues, and the USD, not to mention gold, all go parabolic. The only possible brief saving grace is once again China, which just reported that its FX reserves rose from $3,197 billion to $3.233 billion. The bulk of that money is now going to purchase EURs and keep Europe afloat one more day.
China's inflation battle would be a vertical battle climb for Beijing, and is nowhere close to "have peaked in June" as many analysts have predicted.
How bad must things be getting that Geithner, a man who has lied and swindled the American people with impunity, and has never once suffered the consequences of his actions, is voluntarily “getting out of Dodge”? The answer: BAD.
Italy has clearly recently broken the 5% support, and if on a tech point of view, a quick 40bp is guaranteed, to 5.4% (the previous range was 4.6%-5% so 40bp wide), given the context, and given that German yields are going DOWN, this is the sign of something much much bigger, like what happened to Spain and perhaps Portugal. You've seen the info as well on the recent volatility in Italian banks, and headlines shifting to Italy, I now believe the big move is happening right now.
The schizophrenic EU once again confirms it has forgotten to take its daily dose of Geodon. Reuters reports that banks in the European Union face curbs on how much they can depend on ratings from credit agencies to calculate the size of their capital safety cushions. Michel Barnier, the EU's financial services chief, said he will make the proposals as part of his reform to bring EU bank capital requirements in line with a global accord known as Basel III that will increase the size of capital buffers. "To limit overreliance, we will be strengthening the requirement for banks to carry out their own analysis of risk and not rely on external ratings in an automatic and mechanical way... We will also make other concrete proposals before the end of the year to limit over-reliance to deal with insurance, asset management and investment fund sectors," Barnier also told the European Securities and Markets Authority (ESMA). Translation: banks will be told to .... police themselves. As for the basis of this move, it is all too clear: remove the influence of the ratings agencies on the fact that the European ponzi is unravelling faster than Lady Gaga's costume at next year's VMA. But wait, what about that AAA rating on the "CDO at the heart of the Eurozone." Oh, well, since that's an AAA, they are fine with that. Of course, if the CRA's say enough, and actually slap a rating that is truly appropriate with this reverse synthetic debt contraption, it's game over.
Just when it seemed things were shifting back to the optimists’ camp, Friday’s news about the state of the world threw another spanner in the works. In addition to a very disappointing US nonfarm payrolls report, Italy came into the spotlight in the European crisis. Subsequently, the earliest of the June data releases from China look somewhat of a mixed bunch too. China’s CPI came in at the high end of expectations and there was a notable rise in the trade surplus due to soft imports....I had been pretty strongly in the camp that the US recovery had only temporarily stalled during the past couple of months, and that higher food and energy prices, along with the disruption of the Japanese supply chain, were responsible for the softer data. But if Japan is witnessing a bounce back, it should be seen elsewhere too. I can’t see DATA.
Risk-aversion remained the dominant theme during the European session, as lack-lustre economic data from the US last week, and China, during the weekend, weighed on market sentiment. Allied to that, the ongoing contagion fears in the Eurozone dented the appetite for risk-among investors. European equities traded lower throughout the session, with particular weakness seen in financials, which was also reflected in the Italian FTSE MIB and Spanish IBEX 35 indices underperforming their European peers. Weak equities provided support to Bunds, whereas general widening was observed in the Eurozone peripheral 10-year government bond yield spreads. European sovereign concerns together with strength in the USD-Index weighed upon EUR/USD and GBP/USD, whereas safe-haven currencies including JPY and CHF received a boost. Elsewhere, WTI and Brent crude futures traded under pressure weighed upon by a strong USD as well as diminishing hopes of a sustainable economic recovery.
- Merkel's Migraine: The Man Who Wants Greece to Give Up the Euro (Spiegel)
- Up to 15 years needed to fix Greece: German president (Reuters)
- Taxes still a stumbling block in debt talks (Reuters)
- EU stance shifts on Greece default (FT, first in the WSJ)
- EU calls emergency meeting as crisis stalks Italy (Reuters)
- China Boosts Lead in Global Exports (WSJ)
- Italy's Market Regulator Imposes Measures To Curb Speculation (WSJ)
- NOTW reporters tried to access 9/11 phone data (Reuters)
- Trichet says debt is global, not European problem (Reuters)
The farce is now complete, as the Chinese rating agency Dagong, which was the first one to downgrade the US, reminds the world it is there to lend its weight in destabilizing the ponzi house of cards. From Dow Jones: "Chinese ratings agency Dagong Global Credit Rating Co. said Monday it is putting Italy's sovereign debt on negative watch for a possible downgrade. The Italian government's debt accounts for 119% of gross domestic product, with most of the debt coming due in the next five years, Dagong said in a statement. Dagong has often issued controversial ratings. In November last year, it cut its rating on the U.S. to A+ from AA, with a negative outlook. It ranks the U.S. as a riskier borrower than China. Italian debt is in focus at the moment, as spreads between 10-year Italian and German bond yields reached a record 2.47 percentage points on Friday. Dagong said in its statement that it will downgrade Italian debt if the government's debt-financing costs continue to rise. "(Italy's) financing needs are huge each year, and the debt burden of the government will be seriously constrained by financing costs," Dagong said. Dagong gave Italy an A- rating with a negative outlook in June 2010." Who could have possibly thought that Italy's surging issuance load over the short term could be an issue. Oh wait... And yes, the irony that China, which as of this morning has telegraphed it is just as helpless in controlling the global liquidity implosion as everyone else, is downgrading another insolvent country is not lost on us. But yes, earlier Dagong did announce that that Moody's report on local government debt is "unfounded" and "vicious." Perhaps the most ironic thing is that the rating agencies got us here... And they will be those who get us out (courtesy of the escalating downgrades to the global reset ushering bottom).
Global Crisis Spreads To China Where The Finance Ministry Fails To Sell Half Of Local Government Debt OfferedSubmitted by Tyler Durden on 07/11/2011 06:11 -0500
Europe is now openly burning once again (Italy-Bund spreads just hit a new record), the US is 9 days away from being bankrupt, and completing the trifecta is China, which just failed to sell half of the proposed 50 billion in CNY of local government debt at an auction, courtesy of the SHIBOR supernova which oddly only Zero Hedge has been covering. From Bloomberg: "China’s finance ministry failed to sell all of the three-year debt offered at an auction on behalf of local governments as a cash crunch curbed demand. The ministry sold 23.9 billion yuan ($3.7 billion) of bonds at a yield of 3.93 percent on behalf of 11 provinces and municipalities, falling short of its 25 billion yuan target, said a trader at a finance company required to bid at the auction. The Shanghai interbank offered rate, or Shibor, for three-month yuan loans, was fixed at 6.24 percent today, near a record high of 6.46 percent reached on June 28. “While the interbank borrowing cost is so high, investors won’t spend money on local government debt,” said Huang Yanhong, a bond analyst at Bank of Nanjing Co. in Nanjing. “Demand is low also because the debt’s secondary-market trading isn’t active. After you buy it, you can only hold it till maturity." Who would have possibly thought that 7 week money costing 7% and more could have implications and stuff...
All you need to know by www.thetrader.se
Remember when the dollar reigned supreme, and nobody cared about that joke of a currency, the Chinese Renminbi? Neither do we. And neither does the CME, which just announced it is launching USD/CNY futures, which will be available in standard and E-micro sizes beginning August 22. Put otherwise, with one fell swoop the CME will now allow one to transform liability risk, credit and maturity of underlying assets from one currency to another, while on margin (granted, exposed to the same margin shenanigans that make silver bulls scream blood murder every time the CME's name is mentioned). And the CME is just the beginning of what soon will allow everyone to denominate their liability exposure into the Chinese currency. In the process, the dollar lost yet another battle, as it continues to lose the war.
China activity data: Following the June CPI print, which saw inflation rise to 6.4% yoy, in line with our above-consensus forecast, we will be looking for above-consensus activity readings for Q2 GDP and June industrial production. Eurogroup meeting and bank stress tests: This will be an important policy week for Europe. On Friday, the IMF approved its disbursement to Greece under the old EU/IMF program of EUR110 bn agreed in 2010. Discussions at the Eurogroup meeting will center on the financing of a new program, which is supposed to close the financing gap for Greece for 2012 and 2013. The role of private sector involvement remains a key issue. The week also brings a bond auction for Italy on Thursday, for an estimated EUR7 bn. The week ends with the publication of the EU-wide bank stress tests on Friday. Summary results will be published at 6 pm CEST, with bank-by-bank results following thereafter. Bernanke testimony: In his semiannual monetary policy testimony, Fed Chairman Bernanke is likely to repeat the basic message from his recent press conference—namely that labor market performance has been disappointing but that inflation remains too high to combat the weakness with additional monetary easing.
Chinese Exports Surge To Record, As Trade Surplus Comes At Almost Double The Consensus: More Bad News For US GDP?Submitted by Tyler Durden on 07/10/2011 13:10 -0500
So much for China converting from an export-led economy to a consumer-driven society. In June, the Chinese trade balance soared to $22.3 billion, nearly double the consistently clueless economist consensus of $14.2 billion. The surplus was $13.1 billion the previous month and $20 billion a year earlier. This was a result of an all time record in gross exports which hit $162 billion in June, driven by all time high exports to both the US and the EU, at $28 billion and $30.3 billion, respectively. Also, the surge in Chinese exports to the US in June to a near record $19.1 billion (lower than just the $19.4 billion in July 2010), means that the official read of the US trade deficit which will be reported on Tuesday, will almost certainly spike, pushing GDP expectations lower yet again. This is precisely the last news China needed as the surge in new money entering the economy will merely hasten an already overheating economy, and following yesterday's announcement of June CPI coming in at 6.4%, it likely means that the PBoC's statement that inflation is now under control is full of hot air. It also likely means many more attempts at tightening are imminent: expect another RRR hike within a few weeks. Per Bloomberg: "The surplus adds to the cash flooding the economy and complicates Premier Wen Jiabao’s efforts to cool the fastest inflation in three years. Policy makers are seeking to rein in price gains that are stoking social discontent without choking off growth that’s already showing signs of slowing. “We don’t think the PBOC will halt monetary tightening soon,” said Liu Li-Gang, head of Greater China economic research at Australia & New Zealand Banking Corp. in Hong Kong. The central bank will increase bill sales to soak up the extra liquidity from the trade surplus and prevent it from boosting money supply, he said." It also likely means that repo rates and SHIBOR will continue their inexorable trek higher as the Chinese central bank is the latest to find itself between the rock of short-end liquidity constraints, and the hard place of long-term "anchored" inflation expectations.
There has been much speculation recently about whether or not China is or isn't dumping its holdings of US Treasurys. Spoiler alert: it isn't. At least not outright. After all, it still is not a self-sustaining economy and as such relies on what's left of the US middle class to purchase its production. In fact, according to the latest TIC data, after 5 months of declines, Chinese UST holdings increased in April 2011. The problem with TIC is that it is woefully late. It is also terribly unpredictable and subject to annual adjustments which see hundreds of billions adds or subtracted from estimated holdings. Furthermore much has happened in the period between April and the first week of July. Namely the end of QE2. Furthermore many will note that there has been little if any change in market sentiment to Treasury paper now that QE2 is over (which is actually very much untrue after last week we saw the biggest percentage blow out in the 5 Year in history). But for the best indication of what non-US based buyers of Uncle Sam's paper think about the desirability of said paper, we went to the source, and compiled all Auction issuance data since the June 2009 bidder reclassification rules. The result is quite striking. Over the past 2 years, foreign demand, expressed by the final take down as a percentage of total auction size across the entire curve (2,3,5,7,10, and 30 Year) has plummeted from 55% to just below 35% as of the last auction.