Thursday 21 June 2012

Germany Backtracks.


Baltic Dry Index. 972  +18

LIR Gold Target by 2019: $30,000.  Revised due to QE programs.

Every normal man must be tempted, at times, to spit on his hands, hoist the black flag, and begin slitting throats.

H. L. Mencken.

More on Germany in a moment, first this worrying news from China. Contagion from Euroland seems to have struck China’s manufacturing sector.  According to HSBC chief China economist Hongbin Qu, employment in China is likely to weaken and with it the level of demand in China. Unlike 2009-2010, China it seems will not be decoupled from the G-7 economies.

June 21, 2012, 12:16 a.m. EDT

China manufacturing weakens further: HSBC

HONG KONG (MarketWatch) — China’s manufacturing activity deteriorated in June, according to preliminary HSBC data released Thursday which registered a seven-month low, indicating that global problems were taking a mounting toll on China’s export-dependant industries.

The inital or “flash” version of the manufacturing Purchasing Managers’ Index dropped to 48.1 for the month on a 100-point scale, compared with the final reading of 48.4 in May, HSBC said.

A reading below 50 indicates a weakening in business conditions at factories, while one above 50 shows an improvement.

HSBC chief China economist Hongbin Qu said the data suggested exports are likely to weaken further in coming months.

He also flagged employment as the next economic pillar that could be weakened by the faltering global economy, saying subindexes showing a sharp fall in prices and a moderation in new orders suggested weak demand at home in China.
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There was bad news across the Atlantic in America too. A slowing economy has forced the Fed to extend “Operation Twist” to the year end, although they had already seemingly reached “Twist and a half,” with a hint of more QE to come.  The Fed is probably reluctant to do more outright QE until after the presidential election, unless the US economy dramatically slows.

"Too bad ninety percent of the central banksters give the other ten percent a bad reputation."

Ebenezer Squid, with apologies to Henry Kissinger

US Fed slashes growth forecasts and extends 'Operation Twist' by $267bn

America's central bank has slashed its US economic growth forecasts for the next three years, as it stepped up efforts to rescue the flagging US recovery by extending “Operation Twist”, a diluted version of quantitative easing.

Painting a bleaker picture of economic prospects than at its last meeting two months ago, the Federal Reserve said growth would “remain moderate over coming quarters”, that “employment has slowed”, and “household spending appears to be rising at a somewhat slower pace than earlier in the year”.

It now predicts the US economy will expand by between 1.9pc and 2.4pc this year, compared with previous estimates of between 2.4pc and 2.9pc. The forecast also projected that unemployment will remain stubbornly close to 8pc until the end of 2013.

Speaking at a press conference on Wednesday, Ben Bernanke, Fed chairman, said that Europe was "slowing US economic growth"

"Certainly many countries are in recession and that affects our trade with Europe and the demand for our products. More broadly, the effects of European concerns on financial markets have added to volatility, have brought down stock prices, have increased credit spreads and generally have been a negative for economic growth," he said.

Responding to the weaker conditions, the Fed said it would extend Operation Twist to the end of the year and hinted at the prospect of a third round of QE, on top of the $2.6 trillion already completed. It said it was “prepared to take further action as appropriate to promote a stronger economic recovery and sustain improvement in labour market conditions”.

Now back to business as usual in German run Euroland. Germany zigs as Club Med zags. 
Is Italy the new Greece?

If at first you don't succeed, try again. Then quit. There's no use being a damn fool about it.

Silvio Berlusconi, with apologies to W.C. Fields

Debt crisis: bond buying plan to ease euro debts only 'theoretical' says Angela Merkel

Angela Merkel put Germany on a collision course with its European neighbours by insisting an idea to allow bail-out funds to buy Spanish and Italian debt was "purely theoretical".

The German Chancellor agreed that the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM) had the "possibility of buying bonds" but said no discussions were being held about such a move. 

Her comments came as a top European Central Bank policymaker publicly backed the idea. Benoît Cœuré said that the action could ease the “very severe strain” on Spain and Italy.

"Certainly it's a mystery why the EFSF was allowed almost a year ago to undertake secondary market interventions and governments have not yet chosen to use that possibility," he told the Financial Times in an interview.

François Hollande, the French president, told reporters that the idea had been raised at the G20 meeting in Mexico and would be discussed at tomorrow's summit of Europe's big four nations – Italy, Germany, France and Spain.

"Italy has floated an idea which deserves consideration, we'll speak about it at Rome," said Mr Hollande. 

"We are looking for ways to use the ESM for this. At the moment it is just an idea, not a decision. It is part of the discussion," he said.

In Mexico, Christine Lagarde, managing director of the IMF, declared that "the seeds of a pan-European recovery plan were planted". However, the European Commission said the plan was little more than "financial paracetamol".

Amadeu Altafaj, an EC spokesman, said unleashing the bail-out funds could "soothe tension, pain and malaise but it does not heal the root causes, the structural problems of the economies of Italy, Spain and others."

However, Mrs Merkel appeared to crush hopes of a breakthrough. "It is true that both the EFSF and the ESM do include the possibility of buying bonds in the secondary market, but this is not in discussion at the moment," she said.
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