Saturday 11 September 2010

Weekend Update – September 11, 2010

Baltic Dry Index. 2995
LIR Gold Target by 2019: $3,000.

“China’s attempts to cool the real-estate market may be faltering as sales surge, prompting speculation the government may issue more tightening measures. Housing transactions in cities including Shanghai jumped in August from July. China Vanke Co., the nation’s biggest developer, said sales increased 149% from a year earlier.”

Bloomberg.

Up first this weekend, ominous developments in Europe. America may have lost its bond vigilantes forever, or they may just have emigrated to Europe ready to return once hyper-inflation starts showing up, probably about 2012. Below, the week in Europe’s bonds. Perhaps significantly, even German yields increased while America’s yields fell. Poor Norway, Club Med now looks increasingly likely to lose Greece, sinking Norway’s big sovereign wealth fund bet in Greek bonds. Did Norway get any kind of secret guarantee from the ECB? This being Europe, nothing is rarely as it seems.

German bund yields increased 5 bps to 2.40%. U.K. 10-year gilt yields jumped 12 bps to 3.12%, Ireland yields increased 6 bps to 5.81%. 10-year Portuguese yields rose 17 bps to 5.76%. Greek 10-year bond yields surged 42 bps to 11.73%.

Tomorrow, in the land of gnomes and the banksters that think that US tax laws are there to be broken, the Basel Committee on Banking Supervision meets to announce the Basel 3 “reforms” to banks’ capital. The committee is made up of the Governors of Central Banks and Heads of Banking Supervision Authorities, so any reforms they take are likely to have big implications for credit availability going forwards. It’s been widely leaked that they want the banks to hold a minimum of tier 1 capital at 7%. Something likely to upset the German bankers along with several other European nations. But of course, what goes in to tier 1 capital makes all the difference. Greek Euro bonds anyone? By now Norway probably has some going cheap.

We end with big news from China where for some reason they’ve decided the weekend is the best day to bury bad news. Actually, if the figures are correct, the figures are quite good, although the inflation number is getting scary, all the more so in that much of it was food price inflation. Below some of today’s and the week’s China news.

China Industrial Output Rises 13.9%; Inflation 3.5%

Sept. 11 (Bloomberg) -- China’s industrial output rose at a faster pace than analysts estimated in August, signaling that the world’s third-biggest economy is maintaining momentum as growth moderates.

Production gained 13.9 percent from a year earlier, more than that 13 percent median estimate of 29 economists, a statistics bureau report showed in Beijing today. Consumer prices jumped 3.5 percent, the most in 22 months, as food costs climbed. Retail sales increased 18.4 percent.

Today’s data suggest domestic demand is withstanding curbs on bank lending and government crackdowns to cool the property market and meet energy and pollution targets. Bank of America- Merrill Lynch forecasts gross domestic product will expand at least 9.4 percent this quarter and 9 percent in the final three months of the year, aiding the global recovery as elevated unemployment caps U.S. growth.

“Domestic demand is robust and the Chinese economy is heading for a smoother and softer landing than people had feared,” said Lu Ting, a Hong Kong-based economist at Bank of America-Merrill Lynch.

------ Inflation is 1.25 percentage points above the benchmark one-year deposit rate, encouraging savers to shift money into assets such as real-estate and adding to public concern about rising prices.

Australia and New Zealand Banking Group Ltd. said today that China should gradually “normalize” interest rates, initially raising the deposit rate. Credit Suisse AG economist Tao Dong said that while he favors higher rates, policy makers may make no “imminent” move, preferring to support growth.

China is poised to replace Japan as the world’s second- biggest economy this year after reporting a larger GDP in the second quarter.

http://noir.bloomberg.com/apps/news?pid=20601087&sid=aPCXSAJBWgs8&pos=1

“China posted a third straight trade surplus of more than $20 billion in August even as imports leaped, highlighting friction with the U.S. over claims that the nation’s currency is undervalued. Exports rose 34.4% and inbound shipments climbed a more-than-forecast 35.2%, leaving a $20.03 billion excess…”

Bloomberg September 10

“China’s passenger-car sales to dealerships grew at a faster pace in August as dealers offered discounts to clear rising inventories. Wholesale deliveries of passenger cars rose 18.7% to 1.02 million units in August, compared with 13.6% growth in July”

Bloomberg September 9

“China’s retail sales may outstrip those of the U.S. by reaching 34 trillion yuan ($5 trillion) in 2016, Huang Hai, a former Chinese assistant commerce minister, said… The forecast is based on annual growth so far this century of 14.5% in China and 4.6% in the U.S….”

Bloomberg September 6

China August New Lending Rebounds, Exceeds Forecasts

Sept. 11 (Bloomberg) -- New lending in China rebounded in August and expansion of the money supply unexpectedly accelerated, reflecting strong demand for credit in the world’s fastest-growing major economy.

Banks extended 545.2 billion yuan ($80 billion) of new local-currency loans last month compared with 532.8 billion yuan in July, the People’s Bank of China said on its website today. That was the first acceleration in four months and compared with the median forecast of 500 billion yuan in a Bloomberg News survey of 26 economists. M2, the broadest measure of money supply, grew 19.2 percent from a year earlier, the first pickup in nine months.

The figures “are much higher than forecast and this may reflect strong borrowing demand, especially from the business sector,” said Shen Jianguang, a Hong Kong-based economist at Mizuho Securities Asia Ltd. “It may also reflect the fact that banks can’t move some of their lending off balance sheet due to the tightening in bank-trust products.”

China last month ordered banks to put loans linked to wealth management products provided by trust companies back onto their balance sheets to reflect the risks they could face in the event of default. Regulators said lenders were using trust companies to circumvent credit curbs.

The “strong” pickup in money supply growth “implies a meaningful loosening of financial conditions and probably contributed to the rebound in activity growth in August,” Goldman Sachs Group Inc. economist Song Yu wrote in a note today after the statistics bureau reported industrial production rose 13.9 percent last month from a year earlier.

http://noir.bloomberg.com/apps/news?pid=20601087&sid=aMmxIFAouXOY

China’s bubble continues to get away from Beijing’s control. On fiat currency, just like the west, inflation is inevitable, as a bubble economy. Stay long precious metals for when reality sets in.

The market can stay irrational longer than you can stay solvent.

John Maynard Keynes.

Have a great weekend everyone.

GI.

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