16-Dec (Fitch Ratings) — Fitch Ratings has placed the ratings of all investment grade rated eurozone sovereigns and their debt with Negative Outlook onto Rating Watch Negative (RWN). The euro area country ceiling of ‘AAA’ is unaffected. The rating actions are as follows:

- Belgium ‘AA+’/'RWN from ‘AA+’/Negative Outlook (‘F1+’ Unaffected)
- Spain ‘AA-’/'F1+’/RWN from ‘AA-’/'F1+’/Negative Outlook
- Slovenia ‘AA-’/'F1+’/RWN from ‘AA-’/'F1+’/Negative Outlook
- Italy ‘A+’/'F1′/RWN from ‘A+’/'F1′/Negative Outlook
- Ireland ‘BBB+’/'F2′/RWN from ‘BBB+’/'F2′/Negative Outlook
- Cyprus ‘BBB’/'F3′/RWN from ‘BBB’/'F3′/Negative Outlook

…Following the EU Summit on 9-10 December, Fitch has concluded that a ‘comprehensive solution’ to the eurozone crisis is technically and politically beyond reach.

[source]

Fitch Affirms France at ‘AAA’; Outlook Revised to Negative

16-Dec (Fitch Ratings) — Fitch Ratings has today affirmed France’s Long-term foreign and local currency Issuer Default Ratings (IDRs) as well as its senior debt at ‘AAA’. Fitch has also simultaneously affirmed France’s Country Ceiling at ‘AAA’ and the Short-term foreign currency rating at ‘F1+’. The rating Outlook on the Long-term rating is revised to Negative from Stable.

…Relative to other ‘AAA’ Euro Area Member States, France is in Fitch’s judgement the most exposed to a further intensification of the crisis.

[source]

16=Dec (Bloomberg) — Switzerland’s economic growth will almost grind to a halt next year as the franc’s appreciation and floundering global demand hurt exports, according to the KOF Economic Institute.

The economy will expand 0.2 percent next year and 1.9 percent in 2013, the Zurich-based institute said in a statement today, cutting previous projections. Swiss National Bank President Philipp Hildebrand will meet with the government today after the SNB yesterday maintained its cap of 1.20 francs per euro to fight deflation and help exporters.

[source]

16-Dec (MNI) — The European Central Bank has not yet launched its first ultra-long, three-year financing operation, but the move has already given a downward push to Eurozone bond yields.

Rates tumbled Friday in Italy, Spain, Portugal and other peripheral markets, partly in response Spain’s auction on Thursday, in which the government was able to sell nearly twice the amount of debt it expected at levels well below where secondary market bonds were trading.

That the newly auctioned Spanish debt will be eligible to be used as collateral in next week’s three-year LTRO was not lost on analysts.

[source]

16-Dec (USAGOLD) — Gold probed briefly back above the $1600 level in overseas trading, bolstered by the oversold condition that developed earlier in the week and short-covering ahead of the weekend. The bottoming pattern that emerged at 1565.85/1560.70 now provides a good intervening barrier ahead of the September low at 1534.06. A close above $1600 today would offer some encouragement. More important, would be a short-term close above the 200-day moving average, which comes in at 1621.58 today.

There does seem to be some sense of relief in the eurozone, as evidenced by narrowing spreads. Speculation is that the ECB in loosening its collateral requirements may be providing essentially free money to commercial banks, which are in turn plowing that money back into the sovereign debt market. Such a funding loop is not really a solution to the problems plaguing Europe, but it seems to be providing some short-term relief.

Here in the States, some eleventh-hour wheeling and dealing seems likely to avert a midnight shut-down of the government. The House and Senate are expected to vote on yet another stopgap spending measure of about $1 trillion. Debate over an extension of the payroll tax cut and unemployment insurance continues.

• US CPI flat in Nov, below market expectations of +0.1%; core +0.2%, above expectations of +0.1%.

BY MOHAMED EL-ERIAN
15-Dec (ForeignPolicy) — Europe entered the year with an acute emergency in the periphery of the eurozone, the European Union’s elite 17-member club that shares a common currency. Misdiagnoses and inadequate policy responses allowed the contamination to travel sequentially from the outer reaches of the zone (Greece, Ireland, and Portugal) toward its inner core.

In this first of three morphings in 2011, Italy and Spain were disrupted as interest rates soared, turning liquidity concerns into solvency ones. France was then impacted, with its AAA rating threatened by its exposure to the neighborhood’s problems. Then Germany, Europe’s strongest economy and the one that everyone looks to for a solution, had to contend with the embarrassing failure of a highly visible government debt auction.

…These are consequential developments whose impact will be felt for years, and the latter is not limited to Europe. Virtually every country in the world is exposed.

[source]

15-Dec (AP) — Congressional negotiators reached agreement Thursday on a compromise spending bill to avert a weekend federal shutdown. They also worked toward a deal renewing the payroll tax cut and unemployment benefits for another year but prepared a shorter version as a fallback.

[source]

Gold’s Fundamentals Remain Positive

15-Dec (USAGOLD) — Gold rebounded in overseas trading, bolstered by physical demand and oversold pressures. However, a round of generally positive US data have tempered the safe-haven appeal of gold somewhat and the yellow metal gave back those earlier gains.

Nonetheless, as long as we remain in a negative real interest rate environment, the long-term uptrend in gold can be considered intact. Yesterday’s record low award rate for the US 30-year bond is just the latest indication that we’re going to remain in a negative interest rate environment for the foreseeable future.

The Swiss National Bank bucked pressure from exporters today, holding the EUR-CHF target steady at 1.20. They also held the Libor target steady at 0%, but said, “”the SNB stands ready to take further measures at any time if the economic outlook and the risk of deflation so require”.

Despite the CHF peg, apparently savers continue to seek shelter in the perceived safety of Swiss banks. Therefore a Swiss government panel is considering imposing negative nominal interest rates on foreign deposits. In other words, foreigners will have to pay for the privilege of allowing Swiss banks to use their money. Yes, negative rates are here to stay for a while…

I’ve also always said that the Germans are unlikely to succumb to the need for ECB printing until they’ve been sufficiently terrorized by the alternatives. With German leaders still adamantly opposed to a bigger bailout facility, euro-bonds and ECB sovereign debt purchases, it would seem that we’re not at that point yet. In the Kyle Bass interview I posted late yesterday, he seems to agree with me; suggesting their may have to be a sovereign default in Europe before the ECB commences with full-on quantitative easing. However, Bass contends that a breakup of the EMU is still inevitable.

Given the plethora of risks still lurking — sovereign debt, liquidity, contagion, systemic, counter-party — not to mention simple supply and demand dynamics, the safe-haven appeal of a hard asset like gold endures. These deleveraging sell-offs we see periodically are simply an opportunity to make your initial purchases or add to existing holdings at discounted prices.

• US Philly Fed index surged to 10.3 in Dec, well above market expectations of 5.0, vs 3.6 in Nov.
• US Industrial production -0.2% in Nov, below market expectations of +0.2%, vs +0.7% in Oct; cap use 77.8%.
• US TIC data showed a surprise outflow of $48.8 bln in Oct, vs upward revised $65.0 bln inflow in Sep.
• US Q3 current account deficit narrowed to $110.3 bln, near expectations, vs $124.7 bln in Q2.
• US NY Empire State Index surged to 9.53 in Dec, well above market expectations of 3.0, vs 0.6 in Nov.
• US PPI +0.3% in Nov, above market expectations of +0.2%; core +0.1%, below expectations of +0.2%.
• US initial jobless claims -19k to 366k for week ended 10-Dec, well below market expectations, vs upward revised 385k in previous week.
• UK retail sales -0.4% m/m in Nov, vs +1.0% in Oct; +0.7% y/y.
• Eurozone Reuters PMI – Composite (advance) better than expected at 47.9 in Dec, vs 47.0 in Nov. Manufacturing and Services rise as well.
• Germany and France PMIs improve as well.
• Italy CPI – EU Harmonized (final) confirmed at 3.7% y/y in Nov.
• Eurozone CPI steady at 3.0% y/y in Nov.
• Japan Tankan Index (Large Manufacturers) falls to -4 in Dec, vs 2 in Nov; Large Non-Manufacturers rises to 4.

15-Dec (AP) — China bought less U.S. Treasury debt in October and total foreign holdings dipped for the first time since July.

The Treasury Department says total foreign holdings of Treasury debt edged down 0.1 percent to $4.66 trillion.

China, the largest foreign holder, bought 1.2 percent less to bring its total holdings to $1.13 trillion. China had increased its holdings 1 percent in September after a reduction of 3.1 percent in August.

[source]

China sold $14.2 bln in US bonds in Oct

14-Dec (Xinhua) — The U.S. federal government is again facing a looming shutdown by the end of this week, and agencies and departments are making contingency plans on Wednesday.

According to Kenneth Baer, spokesman for the Office of Management and Budget, federal agencies and departments are sending emails Wednesday to employees to notify them the next step should that comes to pass.

“In case Congress does not act, we are taking the steps necessary to be prepared if a lapse in funding should occur. That is why agencies are sending emails to their employees this afternoon to alert them to this possibility and how it would affect them,” said Baer in a statement.

The Congress has passed two short-term funding measures to keep the government’s doors open since the beginning of this fiscal year on Oct. 1, and the most recent of the stopgap continuing resolutions is set to expire Friday night.

[source]

15-Dec (Bloomberg) — French leaders are girding for the loss of the nation’s top credit grade, with the central bank governor taking a swipe at Britain as he called debt-rating companies “incomprehensible and irrational.”

Standard & Poor’s said last week it may lower France by two levels in a euro-area downgrade stemming from the failure of the region’s leaders to arrest a debt crisis that began in Greece in 2009 and now presents the biggest threat to the world economy.

“A downgrade doesn’t strike me as justified based on economic fundamentals,” Bank of France Governor Christian Noyer told Le Telegramme, a newspaper based in Brittany. “Or if it is, they should start by downgrading the U.K., which has a bigger deficit, as much debt, more inflation, weaker growth and where bank lending is collapsing.”

[source]

14-Dec (CNBC) — With no workable solutions in sight and a sovereign debt crisis only likely to get worse, the European Union is likely to see an ultimate breakup, widely followed hedge fund executive Kyle Bass told CNBC.

…”They’re going to have to restructure a lot of their debt. Eventually the (European Monetary Union) is going to have to break up,” he said. “The adjustment mechanism that these countries need is a much weaker currency.

[source]

PG View: Bass highlights the persistent threat of a euro break-up that has the market in full-on deleveraging mode. Bass says that the recent coordinated central bank liquidity scheme was just an “airbag” for the eurozone. The takeaway here is that the central banks aren’t even trying to avert a crash at this point, but merely seeking to soften the blow and hope Europe can limp away from the inevitable collision with reality. When the collision occurs, that’s when Bass thinks the ECB will start printing.

14-Dec (Reuters) — Europe’s “no pain no gain” attitude to solving its sovereign crisis risks exacerbating the bloc’s problems, choking off the very growth needed to raise the money to pay down the debt.

From Athens to Dublin, and almost everywhere in between, administrations are imposing wave after wave of spending cuts and tax increases to persuade investors they are serious about improving their public finances and persuade them to start buying euro zone sovereign debt again.

…”You don’t cut your way to growth.”

[source]

13-Dec (HousingWire) — The National Association of Realtors will revise its existing home sales figures downward dating back to 2007. It said new figures would be released Dec. 21.

The expected revision has been awaited since February when analytics firm CoreLogic challenged NAR on its numbers, suggesting they were far too rosy.

[source]

PG View: Revisions are likely to make the housing crisis look even worse than previously thought. Corelogic data suggest there hasn’t been any rebound at all. That could deal a heavy blow to already fragile consumer/investor sentiment.

14-Dec (MarketWatch) — Gold futures fell more than 5% Wednesday, a selloff that deepened as the euro dropped below the $1.30 level, signaling a new level of anxiety about the Europe’s debt crisis and prompting the metal’s breach of some long-held technical levels.

Gold for February delivery dropped $87.50 an ounce, or 5.3%, to $1,575.60 an ounce on the Comex division of the New York Mercantile Exchange. It fell as low as $1,645.80 an ounce.

[source]

PG View: As long as we remain in a negative real interest rate environment — and today’s 30-year auction is a pretty good indication that we’re here for the long-haul — any pullback in the price of gold is merely a correction.