02-May (Dow Jones) — The cost of swapping euros into dollars has dropped to a nine-month low by one indicator, a sign of increased expectations for the European Central Bank to take new steps to shore up financial markets.

The three-month euro-dollar cross-currency basis swap was quoted at negative 42.5 basis points Wednesday, its tightest reading since July 29. The indicator reflects the cost to banks borrowing dollars by lending euros; the closer the swap is to zero, the cheaper dollars become for European banks.

[source]

02-May (Reuters) — Spain is sounding out investment banks including Credit Suisse, Goldman Sachs and UBS as it seeks a credible fix for its banks roiled by a collapse in real estate prices and now threatening the creditworthiness of Spain itself, sources familiar with the matter said.

Spain has repeatedly said it will not ask for European Union or IMF money to solve the problem of its banks, hit by billions of euros in losses after the bursting of a decade-long property bubble in 2008. Instead, the central bank is consulting about setting up a holding company to value and sell off the real estate assets.

[source]

PG View: So let me get this straight; Spanish banks are about to go bust and must look within Spain (with guidance from investment banks) for salvation. The Spanish banks are in turn propping up the Spanish government by using cheap borrowed euros courtesy of the recent ECB LTROs to buy Spanish bonds. The same government that presumably is on the verge of bailing out the banks.

What we have here are two drunks that without each other to lean on would collapse into heaps.

With blood in the water, they are asking the sharks (investment banks) for assistance. This can’t end well for Spain.

01-May (ZeroHedge) — There is nothing quite like a $70 billion debt auction settlement at the last day of a month to bring total US debt to a record $15.692 trillion, which happens to be just $600 billion shy of the $16.394 trillion debt ceiling. (and no, contrary to simple economic textbook lesson, this does not mean that the private sector just got another $70 billion in debt capacity courtesy of taxpayers, as explained here). And now that we know what Q1 GDP was at the end of Q1, or namely $15.462 trillion, it is simply math to divine that today alone total US/debt to GDP rose by 50 bps to a mindboggling 101.5%.

[source]

02-May (The Economist) — IN DECEMBER, The Economist warned that without dramatic intervention the euro zone could face a new depression. Soon after, the European Central Bank sprang into action, averting an immediate financial meltdown through heavy lending to banks. The resulting calm looked like an opportunity for euro-area leaders to seize the moment and escape, once and for all, from crisis. Instead, complacency set in. The ECB’s financial anaesthetic has not prevented a steady economic deterioration that now threatens to engulf—and perhaps end—the euro zone.

Across the euro area, unemployment is worsening. The unemployment rate touched a new record high in March: 10.9%, up a full percentage point from the prior year.

Of course, the pain is not evenly distributed. It is low and reasonably steady in the north but high and climbing in the south. Youth unemployment rates are staggering—over 50% in Greece and Spain, 36% in Portugal and Italy, rising sharply in all four.

There is worse to come. Manufacturing activity is slowing sharply across the euro area, and the core is no longer immune…

…The euro area is walking, eyes wide open, into depression. Led by its periphery, which is already there.

[source]

02-May (Bloomberg) — Euro-region unemployment rose to a 15- year high and manufacturing contracted for a ninth month, adding to signs the economic slump is deepening.

The jobless rate in the 17-nation euro area increased to 10.9 percent in March from 10.8 percent in February, the European Union statistics office in Luxembourg said today. That’s the highest since April 1997, according to Bloomberg News data. Separate reports showed euro-area manufacturing contracted more than initially estimated in April and unemployment in Germany, the region’s largest economy, unexpectedly increased.

[source]

Dollar Boosted by More Bad Data Out of Europe, Weighs on Gold

02-May (USAGOLD) — Gold is under pressure this morning, weighed by a rebound in the dollar. The greenback was boosted by a round of weak economic data out of Europe, which sapped risk appetite, pushing European stocks and the single currency lower.

The eurozone unemployment rate ticked higher in Mar to 10.9%, a 15-year high. Even in Germany, where the jobs market has been pretty resilient, there was a surprise uptick in the number of unemployed in April. Additionally, the April manufacturing PMI for the eurozone was revised lower to 45.9. Swiss manufacturing PMI was much weaker than expected at 46.9.

With the ECB maintaining that they’ve done enough and politicians experiencing mounting pushback on the austerity measures they have advanced, what is Europe to do? We’ve seen some pretty drastic measures on both the fiscal and monetary side in recent years, but I would submit that we haven’t seen anything yet.

Italian and Spanish banks are continuing to load up on sovereign debt, utilizing cheap 3-year money from the ECB LTROs to essentially finance their governments. However, when the money runs out, either the ECB is going to have to be forthcoming with additional (essentially) free money, or we’re going to start seeing sovereign defaults. If the ECB is not forthcoming with additional liquidity, Europe is going to have to find the money elsewhere.

One thing is broadly agreed upon though, the wealth (and ability to borrow at a low rate) is concentrated in the core of Europe — and in particular in Germany. Many of the worst case scenarios for Europe revolve around the likelihood that one of the periphery members might opt to leave the European Union, and the economic mayhem that would likely ensue. But what if, it were a core European member state that was the first to opt out? When Europe as a whole comes for that wealth at the core, that scenario just might be put to the test.

The BoE reported today that UK M4 money supply is now contracting at a record 5.0% y/y pace, as households and businesses continues to delever. Despite the central bank’s best efforts at expansionary monetary policy — a base rate at 0.50% for more than three-years and quantitative easing to boot — credit creation and hence money supply continues to crater.

Clearly this trend is reflective of disinflation, but while UK CPI is down markedly from the cycle peak of 5.2% in September of last year, it was still running at 3.4% y/y as of February, well above the BoE target of 2.0%. Despite the risk of ramping inflation higher once again, the BoE has few options at its disposal other than additional printing and asset purchases.

The Fed too — already troubled by weak growth and revived employment worries — is unquestionably monitoring the situations in Europe and the UK quite closely, with an eye toward the growth implications here at home. If Europe follows the path of the UK and falls back into recession, can the US be far behind? And if it becomes necessary to at least make an effort to thwart a double-dip here in America, this Fed would likely have few qualms about unleashing QE3.

• US factory orders -1.5% in Mar, just below expectations of -1.4%, vs +1.1% in Feb.
• US ADP employment survey +119k in Apr, well below market expectations of +180k, vs negative revised +201k in Mar.
• Eurozone unemployment rate ticked higher in Mar to 10.9%, in-line with expectations, vs 10.8% in Feb.
• Germany unemployment change (sa) +19k in Apr, on expectations of -10k; unemployment rate unch from upward revised 6.8% in Mar.
• Eurozone Markit PMI – manufacturing below expectations at 45.9 in Apr; manufacturing PMI missed expectations in Germany, France and Italy as well.
• Italy PMI +0.3% m/m Mar; +2.7% y/y, vs upward revised 3.2% y/y in Feb.
• Switzerland SVME Manufacturing PMI fell to 46.9 in Apr, well below market expectations of 51.0, vs 51.1 in Mar.
• UK CIPS Construction PMI falls to 55.8 in Apr, above expectations of 54.0, vs 56.7 in Mar.
• UK M4 Money Supply (sa) -0.8% m/m in Mar; -5.0% y/y, vs -3.4% y/y in Feb.
• China HSBC/Markit PMI – Manufacturing falls to 46.9 in Apr, vs 48.3 in Mar.
• Bank of Thailand holds overnight repo rate steady at 3.0%, in-line with expectations.

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USAGOLD comment: Thank you, H.R. Its always good to hear that our efforts are appreciated. At the present USAGOLD averages about 1 million unique visits monthly and as high as 100,000 on days when the market is on the move. Growth has been strong over the past three years as more and more internet users have come to rely on this site as a source for information on the gold market and bookmarked favorite pages as you have. We constantly hear of visitors who have made one of our pages their home page. Our goal is to offer a website where newcomers can learn about gold ownership at their leisure and where our regular clientele can monitor the market and find meaningful and timely news and analysis — all in a gold-friendly environment. Thanks again and our best wishes to you and all of our friends Down Under.

02-May (Bloomberg) — Companies added the fewest number of U.S. workers in seven months in April, a reminder the job market will take time to strengthen, a private report based on payrolls showed today.

Employment increased by 119,000 following a revised 201,000 gain the prior month, according to figures from Roseland, New Jersey-based ADP Employer Services. The median forecast of economists surveyed by Bloomberg News called for a 170,000 advance.

Companies may remain hesitant about expanding their workforce until they see more evidence that the gains in consumer spending, which accounts for about 70 percent of the economy, will be sustained. A Labor Department report in two days is projected to show that private payrolls accelerated in April, while unemployment held at 8.2 percent.

“Employment growth is slowing,” said David Sloan, an economist at 4Cast Inc. in New York, who projected a 125,000 gain in the ADP figure. “The economy is growing at a fairly slow pace, though it’s sustainable.”

[source]

PG View: Expectations for Friday’s release of April nonfarm payrolls are running around +160k, although the weaker than expected ADP print may lower the median for payrolls over the next couple of days.

02-May (Dow Jones) — The single currency sank and the two-year German bond yield hit a record low after euro-zone manufacturing data proved a sharp reminder that the euro-zone crisis is still rumbling on.

However, European stocks proved to be more resilient as bourses returning from the May Day holiday responded positively to surprisingly upbeat U.S. manufacturing data from the previous session.

The two-year Schatz yield slid to a record low of 0.078% while the euro sank against the dollar after the euro zone’s manufacturing sector contracted in April at the fastest pace in almost three years.

Italian and Spanish 10-year government bond yields ticked up a touch and Spain’s IBEX 35 index fell hard, dropping 1.1% to 6928.70. Spain’s manufacturing PMI for April dropped for a fourth month in a row by a point to 43.5, a bigger decline than expected.

Commenting on Spain, European economist at BNP Paribas Ricardo Santos said, “The current level of the manufacturing PMI is consistent with further declines in activity going forward.”

[source]

PG View: IBEX35 is now down nearly 3%.

01-May (The Wall Street Journal) — Argentina’s move in April to nationalize its largest oil and gas company is deepening foreign investors’ fears over the country’s economic policies, further undermining its currency.

Concerns over the economic direction taken by Argentina’s government has sent the gap between a tightly controlled official exchange rate and a parallel rate—largely set by businesses conducting complex transactions in stock and bond markets in order to secure dollars—to multiyear highs.

This rate, called the “blue-chip swap rate,” fell to 5.69 Argentina pesos per dollar, a 29% discount to the official rate, on April 18, two days after the announcement. That was the biggest discount since November 2008, the height of the financial crisis.

…The lower value of the parallel rate reflects expectations that Argentina eventually could have to devalue its currency at a swifter pace to trim capital flight and appease exporters.

[source]

PG View: Is yet another devaluation of the peso in the offing?

01-May (The American Enterprise Institute) — Economists Carmen Reinhart, Vincent R. Reinhart, and Kenneth Rogoff (from here on out referred to as R3) have a new study out looking at the economic impact of high debt levels:

– We identify 26 episodes of public debt overhang–where debt to GDP ratios exceed 90% of GDP–since 1800. We find that in 23 of these 26 episodes, individual countries experienced lower growth than the average of other years. Across all 26 episodes, growth is lower by an average of 1.2%.

– If this effect sounds modest, consider that the average duration of debt overhang episodes was 23 years. In 11 of the 26 high debt overhang episodes, real interest rates were the same or lower than in other periods.

[source]

PG View: R3 warn that if we wait to reduce our debt load until higher rates signal danger, it may be too late…

01-MAy (Herald Sun) — The Reserve Bank has conceded Australia’s lending giants have irrevocably broken step, slashing the official interest rate in an attempt to lower “real” borrowing rates.

And the central bank has all but acknowledged that it should have trimmed the cash rate last month as fresh cracks started to emerge in the global and Australian economies, analysts say.

The cut of half a percentage point is the biggest unleashed by the RBA since the financial crisis.

It takes the cash rate to 3.75 per cent – only the second time in the modern history of the central bank that the rate has fallen below 4 per cent.

The first was at the nadir of the crisis.

None of the major banks had declared last night how much of the cut they intended to pass on, although economists and banking analysts broadly warned they were unlikely to pass on more than 40 basis points.

[source]

01-May (SmartMoney) — When will U.S. house prices recover? Likely never. But that’s no reason not to buy.

The latest S&P / Case-Shiller numbers, reported last week, show that prices in 20 major markets declined 3.5% over the year through February. They’re now back to 2002 levels. If we subtract for inflation, they’re back to 1998 levels.

But consider: After subtracting for inflation, prices are also back to 1986 levels. And 1955 levels. And 1895 levels (see chart).

That’s because the natural rate of price appreciation for houses is zero after inflation. Prices will eventually stop falling. They’ll resume rising. But over the long term, they’re unlikely to resume rising faster than inflation.

[source]

PG View: This article suggests that housing is not a terribly efficient inflation hedge. While gold is undervalued as well when adjusted for inflation, it is a significantly more liquid asset.

01-May (USAGOLD) — Gold has been somewhat choppy again this morning; coming in higher initially on a weaker dollar and then selling off on the April ISM beat, only to recover into stable territory. The yellow metal remains firmly entrenched within the broad range defined by the 1920.50 high from September 2011 and the 1522.40 low from December. Yet as my colleagues and I discussed in the latest USAGOLD VideoRoundtable, there may be reason to believe that the protracted period of consolidation may not last through the summer.

Persistent expectations that the Fed will launch additional quantitative measures may ultimately prove to be the catalyst for such a breakout. These expectations have served to put a floor under the market, protecting the low end the range. With the number of double-dipping economies in Europe on the rise, it may be just a matter of time before the entire EU is back in recession. This risks pulling the US back into recession as well, and last week’s US Q1 GDP miss may be a harbinger of just such a reality.

Japan remains a mess with their economy continuing to contract. The BoJ announced additional asset purchases late last week, because the past 20-years of ZIRP and QE have proven so successful (not!) that they may as well keep going to the same well. On top of that, concerns about a hard-landing in China linger, despite some indications to the contrary.

Even commodity based economies are starting to feel the pinch. Canadian GDP for February came in at a weaker than expected -0.2%, dashing hopes for an imminent BoC rate hike. The Reserve Bank of Australia cut interest rates a larger than expected 50 bps today on rising risks to growth.

More debt. More ZIRP. More QE. More currency printing. And I’m not just talking about here in the US. I’m talking a global reality check. Everything that has taken gold from just over $300 a decade ago to more than $1900 last September is still very much going on, and may be on the verge of accelerating dramatically in the coming months. There is every reason to believe that the present consolidation is simply a pause withing the long-term trend.

• US ISM rose to 54.8 in Apr, above market expectations of 53.0 and weaker whisper, vs 53.4 in Mar.
• US construction spending +0.1% in Mar, below market expectations +0.4%, vs negative revised -1.4% in Feb.
• UK CIPS manufacturing PMI fell to 50.5 in Apr, below expectations of 51.7, vs negative revised 51.9.
• South Korea CPI 2.5% y/y in Apr, vs 2.6% y/y in Mar.
• South Korea Trade Balance-CC (USD) $2.15 bln in Apr, vs upward revised $2.5 bln in Mar.
• China PMI Manufacturing (CFLP) rose to 53.3 in Apr, vs 53.1 in Mar.
• Thailand CPI 2.47% y/y in Apr, vs 3.45% y/y in Mar.
• Indonesia CPI 4.5% y/y in Apr, vs 3.97% y/y in Mar.
• Indonesia Trade Balance (USD) $0.8 bln in Mar, vs upward revised $0.8 bln in Feb.
• RBA cut the official cash rate by 50 bps to 3.75%. A smaller 25 bp cut was expected.

Growth in lending to euro zone firms and consumers slowed in March as banks scaled up purchases of government bonds, showing that an ambitious funding drive by the European Central Bank has yet to trickle down to the real economy.

Monday’s ECB data offered the first pointer to loan activity since the central bank completed the second of two tenders that flooded the euro zone’s banking sector with more than 1 trillion euros of cheap three-year cash.

The tenders, which ended in February, “have not had a very significant positive effect on loan growth,” said Berenberg Bank economist Christian Schulz.

“They have only averted an imminent credit crunch, but they have not yet had a major positive impact on growth in Europe.” Overall money growth in the currency bloc accelerated faster than expected in March, the data also showed, potentially pointing to a stronger recovery ahead.

[source]

30-Apr (Bloomberg) — A recession in Spain and forecasts of rising unemployment in the 17-nation euro area are amplifying criticism of the German-led austerity agenda in election campaigns this week in France and Greece.

With Spain’s largest unions leading marches involving thousands of protesters in 55 cities yesterday, Prime Minister Mariano Rajoy’s government battled to prevent Spain from becoming the next country to seek a bailout. In France, where the presidential-election runoff is set for May 6, Socialist frontrunner Francois Hollande pushed back against German Chancellor Angela Merkel’s focus on deficit reduction.
Spain Needs More Austerity, Fiscal Treaty, Schulz Says

“Watching Spain now is exactly like watching Ireland around October 2010 before Ireland was forced into its bailout,” Megan Greene, a senior economist at Roubini Global Economics LLC, told Bloomberg Television’s “Street Smart” on April 27. “The government can’t win no matter what it does.”

[source]

30-Apr (USAGOLD) — Gold has been rather choppy this morning, selling off initially on the slightly better than expected personal income print. However, the robust spending reflected in the February PCE data (upward revised to +0.9%) was not echoed in March, which came in below expectations at +0.3%. Additionally, big misses on Chicago ISM and the Dallas Fed manufacturing index are suggestive of mounting risks to growth. That translates into rising QE3 expectations and gold has recovered much of the earlier losses and is threatening to set new highs for the day.

This morning, the Census Bureau released its Q1 HVS data, showing that the homeownership rate had fallen to 65.4%, down from 66.0% in Q4-11 and the lowest level since the mid-1990s. Last week the S&P Case/Shiller home price index showed a sixth consecutive monthly drop in February and Robert Shiller told Reuters that he’s worried “that we might not see a really major turnaround in our lifetimes”. This has grim implications for the broader economy as rising home values in the years leading up to the crash had such a positive wealth effect. The prospect that home values may continue to have a negative wealth effect for some time to come — and perhaps even an entire generation — is further incentive for the Fed to maintain their super-accommodative policy stance for the foreseeable future, and perhaps launch additional quantitative measures directed specifically at the housing market.

Arguably the global financial crisis — and much of the turmoil that plagues global markets to this day — sprang from the US housing market. It would seem that both fiscal and monetary policy decisions have been largely unsuccessful in removing the dead-weight that is housing from the shoulders of the broader economy. Yet, that probably wont dissuade policymakers from further muddying the market with additional measures.

• Dallas Fed manufacturing index tumbled to -3.4 in Apr, well below market expectations of 8.0, vs 10.8 in Mar.
• HVS homeownership rate fell to 65.4% in Q1, down from 66.0% in Q4-11.
• Chicago ISM falls to 56.2 in Apr, well below market expectations of 60.8, vs 62.2 in Mar.
• US personal income +0.4% in Mar, above expectations of +0.3%, vs upward revised 0.3% in Feb; PCE +0.3%.
• Canada GDP disappoints at -0.2% in Feb, on expectations of +0.2%, vs +0.1% in Jan.
• UK Hometrack House Prices (nsa) -0.9% y/y in Apr, vs -1.0% y/y in Mar.
• Much of Europe closed for Labour Day.
• New Zealand merchandise trade balance NZ$134M in Mar, vs upward revised NZ$202M in Feb.
• South Korea industrial production +0.3% y/y in Mar, vs +14.4% y/y in Feb.
• Singapore unemployment rate (sa) 2.1% in Apr, vs 2.0% in Mar.

The Census Bureau released the Housing Vacancies and Homeownership report for Q1 2012 this morning.

This report is frequently mentioned by analysts and the media to track the homeownership rate, and the homeowner and rental vacancy rates. However, based on the initial evaluation, it appears the vacancy rates are too high.

The Red dots are the decennial Census homeownership rates for April 1st 1990, 2000 and 2010. The HVS homeownership rate declined to 65.4%, down from to 66.0% in Q4 2011 and at the lowest level for this survey since the mid-90s.

[source]

by Alistair Darling
27-Apr (The Financial Times) — The job as chancellor is a lonely one. You are often the bearer of bad news. Frequently you are depicted as Scrooge. So I do have some sympathy for George Osborne’s position. But it is now three and a half years since the collapse of Lehmans and if I had thought then that Britain would this week plunge into a double-dip recession – and be engulfed in the longest downturn for a century – I would have been appalled. The truth is that austerity is not working.

Almost exactly two years ago austerity was launched as the sure way to recovery. Today that central plank on which the coalition was formed is splintering. The government has defined itself by this central purpose. The evidence is that it is failing, badly. Like first world war generals, it is sticking with an orthodoxy that is not working. The question is whether it will accept the need to change tack.

[source]

PG View: Former chancellor of the exchequer Darling calls for more borrowed stimulus (infrastructure spending) and more QE.