With the rest of the developed world's central banks waiting for the Fed to admit defeat for one more year and delay its proposed rate hike (or launch NIRP/QE4 outright) it was all about China (the same China which a month ago we said would launch QE sooner or later) and hope that its central bank would boost asset prices, when over the weekend the PBoC governor hinted that more easing is imminent to offset the accelerating drag after he admitted that the nation’s growth rate has tumbled "a bit" too much and that policy makers have scope to respond. How much scope it really has now that its bad debt is rising exponentially is a different question. It got so bad, Shanghai Securities News leaked a false rumor earlier forcing many to believe China would announce an unexpected rate cut as soon as today, in the process sending the Shanghai Composite soaring by 2.6%.
"If the RMB wants to achieve international status, it must have popular acceptance and a stable value. To this end, other than having assurance from the issuing nation, it is very important to have enough gold as the foundation, raising the ‘gold content’ of the RMB. Therefore, to China, the meaning and mission of gold is to support the RMB to become an internationally accepted currency and make China an economic powerhouse. That is why, in order for gold to fulfill its destined mission, we must raise our gold holdings a great deal, and do so with a solid plan. Step one should take us to the 4,000 tonnes mark, more than Germany and become number two in the world, next, we should increase step by step towards 8,500 tonnes, more than the US."
- Song Xin, Party Secretary and President of the China Gold Association
A look ahead at the major drivers in the days ahead.
Unless We Learn Our History, We're Doomed to Repeat It
As Moscow and Seoul throw their support behind China's Asian Infrastructure Investment Bank, the question is no longer about the end of dollar hegemony but rather about the extent to which the new venture will be used to institute a global shift towards the yuan.
Greek Energy Minister Slams "Unscrupulous, Imperialist" Germany, Will Seek "Bold Alternatives" In RussiaSubmitted by Tyler Durden on 03/28/2015 14:05 -0400
The Greek energy minister kicked the hornet's nest point blank earlier today when he said that "Greece is at more than breaking point; urgently needs big, bold alternatives to “German, incumbent Europe"and that "creditors behaving as unscrupulous imperialists towards distant colony, threatening submission or economic suffocation." More importantly, Lafazanis has some ideas where to find said "big, bold alternatives." In Moscow. Greece's Energy Minister Panagiotis Lafazanis will meet his Russian counterpart and the CEO of energy giant Gazprom in Moscow on Monday, as he hit out at the EU and Germany for tightening a 'noose' around the Greek economy.
World sleep walking from ‘Cold War’ to ‘Hot War’ and new World War ... It will lead to financial decimation in the coming years when the monstruous financial bubble of today eventually collapses ... and it will as sure as night follows day
If Tsipras and Varoufakis should elect to give in to Brussels and Berlin, that decision would still need to be put before the people to vote on, because it would mean a prolongation of austerity. And that is not the mandate. By the same token, if the leadership decides an exit is the only option, and that further negotiations are hopeless because Europe won’t accept anything else than strapping the proud Greek people in a straitjacket, that too will have to be put before a vote. They know there will come a moment when a referendum can no longer be postponed no matter what the polls say. In that, Greece is living up to its glorious past as the cradle of democracy. Still, make no mistake: of course they’re preparing to leave.
A five sigma event signifies extreme conditions, or an extremely rare occurrence. To bring this discussion from sports and weather to the financial world, we can relate a 5 sigma event to the stock market. Since 1975 the largest annual S&P 500 gain and loss were 34% and -38% respectively. A 5 sigma move would equate to an annual gain or loss of 91%. With a grasp of the rarity of a 5 sigma occurrence, let us now consider the yield spread, or difference, in bond yields between Germany and The United States. As shown in graph #1 below German ten year bunds yield 0.19% (19 one-hundredths of one percent) and the U.S. ten year note yields 1.92%, resulting in a 1.73% yield spread. This is the widest that spread has been in 30 years.
There is a risk that Japan, China, and the US will not sit on their hands while the euro loses value, with the world possibly even sliding into a currency war. Moreover, the southern EU countries, instead of leaving prices unchanged, could abandon austerity and issue an ever greater volume of new bonds to stimulate the economy. Competitiveness gains and rebalancing would fail to materialize, and, after an initial flash in the pan, the eurozone would return to permanent crisis. The euro, finally and fully discredited, would then meet a very messy end. One can only hope that this scenario does not come to pass, and that the southern countries stay the course of austerity. This is their last chance.
"Serious Depressive Episode" May Have Driven Germanwings Pilot To "Criminal, Mad, Suicidal" Action, Prosecutors AllegeSubmitted by Tyler Durden on 03/27/2015 08:49 -0400
Andreas Lubitz, the 28-year-old co-pilot who murder-suicided a plane full of 150 people into the Alps, had been judged to have suffered a "serious depressive episode" around the time he suspended his training in 2009, according to internal documents cited by Germany's Bild. As Reuters reports, Lubitz had broken off his training in 2009 and reportedly spent a year in psychiatric treatment but as the Lufthansa CEO noted, "After he was cleared again, he resumed training. He passed all the subsequent tests and checks with flying colors. His flying abilities were flawless." French Prime Minister Manuel Valls urged patience during the investigation but stated, "everything points to a criminal, mad, suicidal action that we cannot comprehend."
Default Risk Soars After Ukraine's 'American' FinMin Suggests Severe Haircuts For Creditors (Including Russia)Submitted by Tyler Durden on 03/27/2015 08:18 -0400
Ukraine’s American Finance Minister has announced a broad restructuring plan with a wide range of severe haircuts for creditors, and she – well, obviously – wishes to include Russia in the group of creditors who are about to get their heads shaved. Russia sees the world as one in which multiple major powers can govern together. The US sees Russia as a power that must be defeated by any means necessary, and subdued. One of these worldviews must prevail in the end. Perhaps we won’t know which one that will be until the third power, China, raises its voice. What we do know is that Russia will back down only so far, and then it will no more.
After a few days of dollar weakness due to concerns that the Fed's rate hike intentions have been derailed following some undisputedly ugly economic data (perhaps the Fed should just make it clear there will never be rate hikes during the winter ever again) the USD has resumed its rise, and as a result risk assets, after surging early in the overnight session driven by the Nikkei225 and the Emini, the "strong dollar is bad for risk" trade has re-emerged, with the Nikkei dropping almost 500 points off its intraday highs, with US equity futures poised to open lower once more, sliding nearly 20 points in the overnight session, and surprising the BTFDers who have not seen five consecutive days of "risk-off" in a long time.
We're just a little over two weeks into PSPP and signs are already beginning to show that the ECB is effectively breaking the market. "The soaring cost of borrowing government bonds in secured lending markets highlights the distortions caused by the ECB's asset-purchase scheme, which analysts say could clog up Europe's financial system," Reuters notes.