05-Apr (USAGOLD) — Gold is modestly higher today, but being limited by dollar gains amid rising risk aversion. The growing realization that two-rounds of LTROs and Greece’s second bailout didn’t really resolve anything has prompted a retreat in the euro and the widening of periphery spreads. Focus seems to be on Spain this week and Spanish yields have returned to levels not seen since before the first ECB LTRO operation.

I think everyone will acknowledge that the bailouts and cash infusions were simply a means to buy some more time. Has anyone else noticed however, that the amount of time being bought with ever-larger amounts of cash is growing increasingly short?

Euro flight caused a brief violation of the 1.2000 level in the EUR-CHF cross, prompting a quick response by the SNB to weaken the franc once again. An SNB spokesman was quoted by Reuters saying, “We won’t accept any exchange rate below SFr1.20. We are committed to buying foreign exchange in unlimited quantities to defend this level.”

Risk aversion is also weighing on global stocks, with additional weight on US shares stemming from the Fed’s seeming aversion to additional quantitative measures…at least in the short-term. Yet, with the Dow off more than 300 points from Monday’s high and entering its third consecutive day in the red, you can expect pleas from Wall Street for additional Fed accommodations to intensify with every downtick.

US initial jobless claims -6k to 357k in week ended 31-Mar, below expectations of 360k, vs upward revised 363k in previous week.
Canada employment +82.3k in Mar, well above expectations of +10.0k, unemployment rate drops to 7.2%, vs 7.4% in Feb.
Canada building permits +7.5% in Feb, well above expectations of +2.0%, vs -11.4% in Jan.
BoE held steady on both repo rate and asset purchase target, at 0.5% and £325 bln respectively, in-line with expectations.
Switzerland CPI +0.6% m/m in Mar, above expectations of +0.4%, vs +0.3% in Feb; -1.0% y/y, above expectations.
UK industrial production +0.4% m/m in Feb, above expectations of +0.3%, vs -0.4% in Jan; -2.3% y/y, vs -4.0% in Jan.
UK manufacturing production -1.0% m/m in Feb, well below expectations of +0.1%, vs -0.3% in Jan; -1.4% y/y, vs -0.1% in Jan.
Germany industrial production -1.3% m/m in Feb, well below expectations of -0.6%, vs negative revised 1.2% in Jan; -1.0% y/y, vs negative revised 1.5% in Jan.
Thailand FX Reserves (USD) edge higher to $179.2 bln in Mar, vs $179.0 bln in Feb.
Taiwan CPI rises to 1.29% y/y in Mar, vs negative revised 0.23% y/y in Feb.
Taiwan FX Reserves (USD) unchanged at $394 bln in Mar.

05-Apr (The Wall Street Journal) — Spain continued to find itself in the market’s cross hairs Thursday, as mounting concerns over the economy sparked a sharp slide in the country’s bonds and led to an evaporation of the effect of the European Central Bank’s generous cash injection.

The rout in Spanish bonds weighed heavily on financial markets, with the euro coming under pressure, stocks falling and Italian bond yields rising sharply.

Spanish borrowing costs are now at levels last seen before the first of the ECB’s two long-term refinancing operations, or LTROs, which have been widely credited with soothing Europe’s sovereign debt crisis.

[source]

05-Apr (Financial Times) — The euro fell sharply against the Swiss franc on Thursday morning to breach the floor of SFr1.20 established by the Swiss National Bank in September for the first time.

The single currency quickly climbed back above the SFr1.20 level as traders reported seeing large euro bids being pushed through as the SNB reiterated its commitment to buying foreign exchange in unlimited quantities to protect the floor.

“We won’t accept any exchange rate below SFr1.20. We are committed to buying foreign exchange in unlimited quantities to defend this level,” said an SNB spokesman quoted by Reuters.

[source]

PG View: A semi-official name was reportedly on the bid below 1.2000, helping to establish a floor. These are the Swiss for Pete’s sake, saying they “won’t accept any exchange rate below SFr1.20″, market realities of supply/demand, flows, risk, interest rates be damned…

The stock market is overreacting to what the Federal Reserve didn’t say about quantitative easing in the minutes from its March meeting, bond king Bill Gross told CNBC Wednesday.

“It’s much ado about nothing or much ado about a little,” the founder of Pimco said. “We should think of the Fed as like a chess game where some of the pieces are more important than others,” likening Fed Chairman Ben Bernanke to the king, San Francisco Fed governor Janet Yellen to the queen and New York Fed chief William Dudley to the castle, with the rest of the governors the knights.

…The Fed and other central banks have “got to keep going [with some form of stimulus] if they expect equity markets to continue…at this level,” he said.

[source]

04-Apr (Chicago Tribune) — Treasury Secretary Timothy Geithner said in Chicago Wednesday that improvement in the economy is “promising” after strong gains in investment and exports, but emphasized that a wrong move in deficit cutting could undermine the recovery.

…Meanwhile, Geithner noted repeatedly that unemployment remains high and that too many Americans are still facing difficulty, though they have made progress in paying down debt.

“Household debt is down 17 percentage points relative to income since before the crisis,” he said. Yet, he urged political leaders to be cautious about moving too quickly with extreme deficit reduction because the lesson of past financial crises has been that cuts too early bring about new recessions.

[source]

PG View: Certainly the fact that you have no money shouldn’t deter spending. And who gets to decide what constitutes “needed” spending?

04-Mar (MNI) — European Central Bank President Mario Draghi said Wednesday it was too soon to talk about an exit strategy from the ECB’s extraordinary liquidity measures.

“Any exit strategy talk for the time being is premature,” Draghi told a press conference following bank’s decision to leave its key interest rates unchanged. He said “there wasn’t any discussion on interest rate changes.”

Draghi said the central bank was not confronted with any immediate inflationary pressures and inflation expectations were “anchored over the medium term,” although he did note price pressures from commodities and indirect tax hikes.

[source]

04-Apr (Reuters) — Europe’s top shares fell on Wednesday as economic data out of Europe fuelled recession fears and flagging demand for Spanish government bonds gave bearish investors the incentive to bank recent profits.

Having gained 1.9 percent on Monday, its biggest one-day rise in three weeks after strong manufacturing data out of the U.S. and China eased fears over slowing global growth, the FTSEurofirst has fallen more than 2 percent over the past two days.

It was down 9.78 points or 0.9 percent at 1063.09 at 1033 GMT.

The catalyst for the falls has been a slide in banks , which have retreated after a strong start to the year – down 10 percent from their mid-March highs as concerns have grown over Spain’s ability to deal with its bulging debts.

[source]

04-Apr (USAGOLD) — Gold has extended to new 12-week lows, weighed by dissipated hopes for QE3 here in the States and a sudden re-escalation of the eurozone debt crisis, which has boosted the dollar. The yellow metal is once again back in the lower third of the 1920.50/1522.40 range.

Yesterday’s release of the minuted from the 13-Mar FOMC meeting has swung the QE3 pendulum back in favor of the doubters. Yet at least “a couple of members” echoed the recent sentiments of Fed chairman Bernanke, that the use of further quantitative measures remains ‘on the table’ and ‘data dependent’. Apparently, the market was looking for a more overt signal. While the retreat in gold is probably not so troubling to the Fed, the resulting plunge in the stock market after the minutes were released — and the downside follow-through in shares today — is certainly a concern. We can probably expect some indication in the Fed in fairly short order — particularly if stocks remain under pressure — that QE3 plans have not been permanently shelved.

Pimco’s Bill Gross tweeted this today: Central banks are where bad bonds go to die. Without QE, the financial markets & then the economy will falter.

Additional bleak economic data out of Europe — particularly the deterioration in the German manufacturing sector — and a bad Spanish auction clearly suggests that Europe is anything but ‘out of the woods”. While the second Greek bailout deal succeeded in pushing Europe from the financial headlines for a time, euro-concerns are back with a vengeance. The euro has tumbled to 3-week lows, prompting a firmer dollar, which in turn added additional impetus to the decline in gold.

The ECB held steady on rates, in-line with expectations, but it seemed like Mario Draghi spent an inordinate amount of time at the presser discussing inflation. With the data amplifying recession fears, perhaps Draghi’s inflation-centric rhetoric was merely a bone thrown to the Germans. His biggest concern should be growth risks right now, but it’s worth considering that the ECB is really simultaneously concerned about both price and growth risks…stagflation.

Bill Gross’ tweet today is reflective of the reality that additional Fed measures has been and will remain data dependent. If Europe slides back into recession and/or additional bailouts are needed, certainly it will have a negative impact on the US economy. I believe the discounting of QE3 is misplaced…as it the discounting of gold.

• US ISM non-manufacturing index fell to 56.0 in Mar, below market expectations of 56.8, vs 57.3 in Feb.
• US ADP employment survey +209k in Mar, above expectations of 205k, vs 230k in Feb.
• ECB left refi rate unchanged at 1.0%, in-line with expectations.
• Markit PMI – Services for Mar: Italy 44.3, France 50.1, both in-line with expectations.
• Germany Markit PMI – Services improves to 52.1 in Mar, above expectations of 51.8, vs 51.8 in Feb.
• Eurozone Markit PMI – Composite 49.1 in Mar, above expectations of 48.7, vs 48.7 in Feb; Services 49.2.
• UK CIPS Services PMI 55.3 in Mar, well above expectations of 53.6, vs 53.8 in Feb.
• Eurozone retail sales -0.1% m/m in Feb on expectations of unch, vs positive revised 1.1% in Jan; -2.1% y/y, vs negative revised -1.1% in Jan.
• Germany manufacturing orders +0.3% m/m in Feb, well below expectations of +1.1%, vs positive revised -1.8% in Jan; -6.1% y/y, vs negative revised -6.0% in Jan.
• Australia Balance on Goods and Services -A$0.48 bln in Feb, vs negative revised -A$0.97 bln in Jan.
• Philippines FX Reserves (USD) $76.6 bln in Mar, down from $77.8 bln in Feb.

04-Apr (USAGOLD) — Spanish borrowing costs rose sharply on Wednesday after a disappointing auction of the country’s debt failed to reassure investors already nervous about plans for the deepest budget cuts in the post-Franco era.

At the first government bond auction since the budget, Spain sold €2.6bn of debt, at the lower end of a targeted range.

The sale followed a series of measures to slash the country’s deficit by €27.3bn this year, through a mix of raising the corporate tax rate, a public sector wage freeze and lopping 16.9 per cent off government spending.

[source]

03-Apr (Times of India) — IMF managing director Christine Lagarde implored the United States to help back-stop debt-ridden European countries Tuesday, wading neck-deep into bubbling US political waters.

Speaking in the US capital, Lagarde said the 187-nation International Monetary Fund needed more firepower to tackle financial crises raging around the globe, arguing it was in the US interest to pitch in and help Europe.

[source]

03-Apr (The Wall Street Journal) — Stocks are dropping immediately after the release of the Fed minutes. No immediate signals of additional quantitative easing appear to be the catalayst from the latest downdraft.

The Dow dropped 111 points, or 0.8%, to 13153. The S&P 500 fell 11 points, or 0.8%, to 1408 and the Nasdaq Comp declined 13 points, or 0.4%, to 3108.

The Fed minutes didn’t yield any grand surprises. Fed officials believe the economic recovery has strengthened, but the big worry is the labor market and whether the pace of job growth can continue increasing.

[source]

Minutes of the Federal Open Market Committee meeting from March 13, 2012

As usual, the key passage is: A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below its mandate-consistent rate of 2 percent over the medium run.

In other words — and as chairman Bernanke has been saying all-along — the likelihood of further quantitative measures by the Fed remains ‘data dependent’.

03-Apr (CNBC) — Whether it’s another round of quantitative easing or an extension of Operation Twist, “we’re going to see something by June” out of the Federal Reserve, Goldman Sachs chief economist Jan Hatzius told CNBC.

“After June, the probability goes down,” he said Tuesday, when the Fed is scheduled to release the minutes from its last meeting later in the day.

“June is the time Operation Twist ends. That’s a natural time to decide if they want to have a successor program,” he added. “We will see something in the second quarter by the June meeting.”

Operation Twist, under which the Fed extended the average maturity of its portfolio of Treasurys to keep interest rates low, is expected to end June 30.

The Fed “would like to see the economy grow more strongly” and has been encouraged by gains in the labor market. But if the U.S. gross domestic product does not pick up or the economy slows, another round of easing could be in the offing.

[source]

03-Apr (USAGOLD) — Gold is consolidating within yesterday’s range, amid conflicting reports about the end of the Indian gold strike. There have been some stories that suggest the strike ended Monday as a result of the Indian government deferring the hike in the excise duty on non-branded gold. Meanwhile, other stories dated from 02-Apr suggest the strike is ongoing and has turned violent in some instances.

With Indian demand accumulating ahead of the marriage season, we’ll be looking for this story to clarify in the coming days. This pent-up demand could result in higher prices for the yellow metal once it has been released.

In Europe, peripheral spreads are widening once again as concerns about Portugal’s solvency have resurfaced. In addition, the number of those in Spain registered for unemployment benefits rose for an eighth consecutive month in March, reaching a new all-time high. As of the end of 2011, the jobless rate in Spain is more than double that of the eurozone as a whole. The Spanish government projects the unemployment rate will hit 24.3% this year, but some analysts are already suggesting it could top 25%. According to Eurostat, nearly a third of all those unemployed in the eurozone live in Spain. Concerns that Italy may need help at some point as well, have sparked a rise in Italian yields too.

Nonetheless, the euro remains resilient in the face of these fresh worries. However, the corresponding softness in the dollar isn’t doing much to bolster the yellow metal at this point.

• US factory orders +1.3% in Feb, below expectations of +1.5% ,vs negative revised -1.1% in Jan.
• Spain unemployment change +38.8k in Mar, vs +112.3k in Feb.
• UK CIPS Construction PMI rose to 56.7 in Mar, above expectations of 53.2, vs 54.3 in Feb.
• Eurozone PPI +0.6% m/m in Feb, above expectations of +0.5%, vs upward revised +0.8% in Jan; +3.6% y/y, above expectations, vs upward revised 3.8% in Jan.
• Russia Q4 GDP 4.8% y/y, vs positive revised 5.0% y/y in Q3.
• Australia retail trade +0.2% in Feb, vs +0.3% in Jan.
• Thailand CPI hotter at +3.45% y/y in Mar, vs 3.35% y/y in Feb.
• RBA holds official cash rate steady at 4.25%, in-line with expectations.
• Singapore PMI eased in Mar to 50.2, vs 50.4 in Feb.

03-Apr (BusinessWeek) — Spanish 10-year bonds fell for the first time in three days after a report showed unemployment rose for an eighth month, adding to concern the nation may struggle to reduce its budget deficit.

Italian and Portuguese 10-year bonds also declined, while German bunds were little changed. Spanish two-year note yields rose as the nation said its debt to gross domestic product ratio will climb this year. The European Financial Stability Facility and Belgium auctioned bills today, while Spain prepared to offer as much as 3.5 billion euros ($4.7 billion) of debt due between January 2015 and October 2020 tomorrow.

[source]

by Betsey Stevenson and Justin Wolfers
02-Apr (Bloomberg) — Here’s something you don’t often hear an economist admit: We have very little idea where the economy will be next year.

Truth be told, our best guesses just aren’t very good. Government forecasts regularly go awry. Private-sector economists and cutting-edge macroeconomic models do even worse.

…By contrast, the longer-run consequences could be dreadful, if we find ourselves with 8.5 percent unemployment fully six years after the recession began. Europe’s experience in the 1970s and 1980s demonstrated that persistently high unemployment can become entrenched, leading to further unemployment in the future — a process economists call hysteresis. Skills atrophy, hope fades and people lose contact with the networks that can help them find work. If this occurs with the millions of U.S. workers who have been without jobs for more than a year, it will be costly and very difficult to undo.

In other words, the cost of too little growth far outweighs the cost of too much. If we readily bear the burden of carrying an umbrella when there’s a reasonable chance of getting wet, we should certainly be willing to stimulate the economy when there’s a reasonable risk that doing nothing could yield a jobless generation.

[source]

03-Apr (USAGOLD) — I can’t remember the last time pretty much everything was starting out in the red like this.

Just to add a bright note, I’ll tell you that platinum and palladium are up $3 and $4 respectively.

02-Apr (MINEWEB) — With the Indian government stating that it would delay the implementation of hiking the excise duty on non-branded gold jewellery, the bullion strike in India has been officially called off. Jewellers in Mumbai and several parts of the country were back to their stores Monday afternoon, expecting a revival in demand.

[source]

02-Apr (Financial Post) — As long as growth in the U.S. economy continues to limp along, the Fed will remain in play and QE3 should become a reality at the central bank’s June 19–20 meeting, according to Tom Porcelli, chief U.S. economist at RBC Capital Markets.

This view is based on his expectation that first quarter GDP looks like it will come in close to 1%. Mr. Porcelli also noted that hiring remains anemic, global risks persist, and little is being done to stem the threat of a massive fiscal contraction by the end 2012.

…Mr. Porcelli thinks the Fed will buy mortgage-backed securities, but expects the purchases will be smaller than both QE1 and QE2.

[source]

01-Apr (Bloomberg) — Since the launch of the euro in January 1999, Germany and the Netherlands have experienced a growth slowdown and loss of wealth for their citizens that would not have happened had they never joined the euro.

We know this to be true, because we can compare the progress of these two Northern European economies with that of Sweden and Switzerland, which kept their freely floating currencies in 1999 and continued to grow as before. Indeed, over the period of the euro’s existence, the German and Dutch economies have grown significantly more slowly than those of the U.S. and the U.K., despite the debt crisis now engulfing the “Anglo-Saxons.”

Sweden and Switzerland grew as fast or faster in 2001-11 as they did in 1991-2001. The German and Dutch economies, by contrast, not only slowed down in 2001-2011 (to 1.25 percent from 3 percent in the case of the Netherlands), they also suppressed wage growth to adjust for the effects of the euro.

[source]

PG View: It would seem the notion that Germany benefited dramatically from the euro over the past dozen years, and should therefore be supporting the profligate Mediterranean states, may in fact be misplaced.