Wednesday 5 September 2012

The ECB’s Last Chance.



Baltic Dry Index. 693  -05

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

Nomura’s Jens Nordvig said Spain’s crisis has entered a “more dangerous phase”, resembling the sort of currency dramas once confined to emerging markets.

Capital flight has been running at an annual rate of 50pc of GDP, more than twice the rate in Indonesia during the Asian meltdown in the 1990s.

The Telegraph, 04 Sep 2012

Mario Draghi, the ECB’s “Grand Old Duke of York,” who last month marched eurozone investors up the hill with a “promise” to do “whatever it takes” to save Club Med and the euro, only to march them down again when it turned out that a European central banker’s “promise” isn’t worth  used bus ticket, has marched them back up again with a leaked “promise” on Monday to do whatever it takes to buy up Spain and Italy’s debt out to three years maturity. The ECB’s “Duke” gets one last chance this week to deliver on his “promise.” Unsurprisingly, there is great uncertainty as to what happens next.

But first this. For more on China, scroll down to Crooks Corner.

China's Xi Jinping cancels Hillary Clinton meeting amid 'tensions'

China's likely next president Xi Jinping has cancelled a meeting with the visiting US Secretary of State Hillary Clinton, a US official said Wednesday, amid friction between the two global powers.

6:56AM BST 05 Sep 2012
Hillary Clinton had been due to meet Vice President Xi later Wednesday during a brief visit to Beijing that looks set to be dominated by a series of territorial disputes between China and its neighbours, notably in the South China Sea.

"We were informed after 11.00 pm last night by the Chinese side that for unexpected scheduling reasons, the meeting between Vice President Xi and Secretary Clinton is not going to happen today," said the official, who requested anonymity.

"We understand from the Chinese side that Vice President Xi's meetings with the prime minister of Singapore and a Russian official have also been cancelled today."

---- China has in the past called off meetings at the last minute to show displeasure, although Xi has generally made US-friendly statements and sought warm relations during a trip across the United States earlier this year.

Clinton has voiced hope that China, which claims virtually all of the South China Sea, will agree to work out a code of conduct on regional territorial disputes, and has encouraged Southeast Asian nations to stand united.

But Beijing has repeatedly expressed concern over what it sees as interference by Washington in the region.
More

Now back to the tragedy of Europe. This morning, Italy and France are desperately trying to hustle and roll Germany into bankrolling the ECB “promise. Spain is desperately trying to out bluff the ECB over the German austerity terms for a Spanish bailout. Bulgaria has bolted from joining the euro, not wanting an expensive berth in a sinking ship. “Super Mario” is drinking this week in the Last Chance saloon. Any marching them down again, will turn into a market rout.

Stay long physical precious metals though, delivering on Super Mario’s rash “promise,” finishes the Germanic “D.Mark Euro”  of the nineties and naughties, pun intended, and ushers in the “Lira Euro” which isn’t likely to be around for very long.

"If you don't trust gold, do you trust the logic of taking a beautiful pine tree, worth about $4,000 - $5,000, cutting it up, turning it into pulp and then paper, putting some ink on it and then calling it one billion dollars?"

Kenneth J. Gerbino

Brinkmanship as Spain warns over bail-out terms

Spain has issued a veiled warning that it will not accept a full bail-out from Europe if the terms are too harsh, a move that would paralyse the European Central Bank and call the euro’s survival into question.

In an escalating game of brinkmanship, Spanish finance minister Luis de Guindos said his country is not yet willing to sign a Memorandum giving up fiscal sovereignty to EU inspectors. “First of all, one must clarify the conditions,” he told German newspaper Handelsblatt.

Mr de Guindos said the crisis engulfing the region is larger than any one country and warned north Europe not to scapegoat Spain.

“My colleagues are aware that the battle for the euro will be fought in Spain. Spain is right now the breakwater for the eurozone,” he said, adding that “solidarity” would be well-advised.

The warning comes as German Chancellor Angela Merkel leaves for Madrid for talks with premier Mariano Rajoy to thrash out the conditions of a full sovereign rescue of up €300bn (£238bn), beyond the €100bn bank rescue already agreed.

The ECB’s executive board met today to prepare crisis proposals for the governing council’s meeting on Thursday, including a “yield band” to lower borrowing costs for Spain and Italy.

----There is little doubt that Spain will need a rescue as it struggles to raise €40bn over the next two months. The country’s finances are unravelling on every front, with internal rescues for Catalonia, Valencia, Murcia, and Andalucia fast depleting the €18bn fund set aside for the regions.

It emerged today that Spain’s social security system has raided a rainy-day fund to cover state pensions for the first time as deepening recession erodes contributions.

Tomas Burgos, social security minster, said the government had drained €4.4bn from the Fondo de Prevencion – financed from workers’ illness insurance – to the meet the shortfall in July, reducing the account to just €400m.

Pressure mounts on ECB to bring down bond yields

(Reuters) - France and Italy piled more pressure on the European Central Bank on Tuesday to agree steps this week to reduce crippling borrowing costs for southern euro zone states.

But the bank is expected to outline rather than detail its strategy on Thursday in order to keep the pressure on politicians to bring their deficits and debts under control.

Italian Prime Minister Mario Monti and French President Francois Hollande said after talks in Rome that European institutions must act to bring down the bond yields of countries that are unjustifiably penalized by markets.

Monti said he expected measures to remove "the serious obstacle of (bond) spreads that have no underlying economic justification" for Italy and other countries "doing our homework" on economic reform and deficit reduction.

The Bank of Italy said in a study that economic fundamentals justified a risk premium of 200 basis points - or two percentage points - over benchmark German bonds, rather than the 450 basis points that markets were charging at end-August.

Hollande said high debt yields facing countries such as Spain and Italy were not justified and it was the role of EU institutions, including the ECB, to bring them down.

----"Draghi certainly has to present something," said Guillaume Menuet, economist at Citi. "A document of some sort, something of substance is what markets want to see in order to justify valuations."

Spanish and Italian government bond yields fell on Tuesday as investors welcomed leaked comments Draghi made behind closed doors in the European Parliament on Monday, suggesting the ECB could buy bonds with a maturity of up to three years - at the long end of market expectations.

ECB executive board member Joerg Asmussen, the most senior German at the bank, spelled out one key argument for central bank action, saying it was unacceptable that financial markets were now pricing in the risk of a euro break-up.

September 3, 2012, 4:41 p.m. ET

Bulgaria Shelves Plans to Join Ailing Euro Bloc

SOFIA, Bulgaria—Bulgaria, the European Union's poorest member state and a rare fiscal bright spot for the bloc, has indefinitely frozen long-held plans to adopt the common currency, marking the latest fiscally prudent country to cool its enthusiasm for the embattled currency.

Speaking in interviews in Sofia, Prime Minister Boyko Borisov and Finance Minister Simeon Djankov said that the decision to shelve plans to join the currency area, a longtime strategic aim of successive governments in the former communist state, came in response to deteriorating economic conditions and rising uncertainty over the prospects of the bloc, alongside a decisive shift of public opinion in Bulgaria, which is entering its third year of an austerity program.

"The momentum has shifted in our thinking and among the public.…Right now, I don't see any benefits of entering the euro zone, only costs," Mr. Djankov said. "The public rightly wants to know who would we have to bail out when we join? It's too risky for us and it's also not certain what the rules are and what are they likely to be in one year or two," he added.

September 4, 2012, 11:53 p.m. ET

In Europe, Signs of a Jobless Generation

Euro-zone youth unemployment will remain elevated for at least the next half-decade, the International Labor Organization said Tuesday, forecasting a small reduction in the jobless rate will come from young people withdrawing from the labor market instead of stronger hiring activity.

The Geneva-based agency of the United Nations projects that 15-to-24 year-olds in the 17-member economic bloc will face jobless rates of nearly 22% in 2013 that will dip modestly to 21.4% in 2017. In the U.S., youth unemployment is forecast to fall from 17.4% this year to 13.3% in 2017.

Long-term youth unemployment has long-term consequences for young people and for businesses, according to the ILO and other labor market experts.

----“Temporary and long-term unemployment early in a person’s work life will have lasting effects on finding a job with the proper career perspectives related to that person’s competences and skills. In some case, even 10 or 15 years after the person’s entry in the labor market can he or she continue to suffer from such early adverse labor market conditions,” said Ekkehard Ernst, Chief of the ILO Employment Trends Unit.

“Skills and labor market experience typically start to deteriorate after six months of unemployment and then at an increasing rate.”

September 4, 2012, 7:52 p.m. ET

FedEx Warns of Slowdown

FedEx Corp. FDX -0.10% on Tuesday said a sharp decline in manufacturing activity would harm its profits, a sign of how declining Chinese output is ricocheting across economies around the world.

The world's largest air-cargo shipper by revenue said earnings in the August-ended quarter came in below its already reduced expectations. FedEx shares fell 3.1% to $84.85 in after-hours trading, with rival United Parcel Service Inc. UPS -0.15% down 1.9% at $72.31.

"It looks bad," said David Vernon, an analyst at Sanford C. Bernstein & Co. He said the global economy has decelerated faster than even FedEx anticipated.

FedEx is viewed as an economic bellwether, transporting everything from financial documents to pharmaceuticals to auto parts. Like UPS, FedEx has been hit by an overall slowdown in shipments and tougher competition from ocean freight as customers seek cheaper transport options.

Both FedEx and UPS have cut capacity out of Asia. The International Air Transport Association last week said members saw no signs of improvement in the global air freight market.

"Gold bears the confidence of the world's millions, who value it far above the promises of politicians, far above the unbacked paper issued by governments as money substitutes. It has been that way through all recorded history. There is no reason to believe it will lose the confidence of people in the future."

Oakley R. Bramble

At the Comex silver depositories Tuesday final figures were: Registered 39.26 Moz, Eligible 102.70 Moz, Total 141.96 Moz.  


Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over. 

Today, more sign of rising social tension in China. Just wait until later in the year when rising manufacturing unemployment collides with rising food and fuel inflation. Might a good foreign escapade come to a timely rescue?

Chinese officials investigate suicide bombing

4 September 2012Last updated at 23:32
Authorities in China are investigating a suicide bombing after a man blew himself up in a government office.
After being paralysed in an accident at work, he claimed he'd been denied proper compensation.
The case highlights growing tensions in Chinese society ahead of a major handover of power.
At least six government officials were injured in the blast in Shandong province.
Link.

Japan to bring Senkaku Islands under state control

TOKYO, Sept. 5, Kyodo
Japan has agreed with the family that owns the Senkaku Islands on its plan to bring them under state control, government sources said Wednesday, a move likely to further strain already tense relations with China.
The government has struck a deal with the family to pay 2.05 billion yen for the purchase of part of the group of islands in the East China Sea, which have been administrated by Japan for many years but are claimed by China.
Link

The monthly Coppock Indicators finished August:
DJIA: +76 Up. NASDAQ: +97 Up. SP500: +69 Up. All three indicators have reversed from down to up.

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