12-Apr (Dow Jones) — The premium between Argentina’s official exchange rate and a parallel rate has approached levels in recent days last seen at the height of the 2008-09 global financial crisis in a sign that President Cristina Kirchner’s economic policies continue to erode confidence in the local currency.

After winning re-election in October with 54% of the vote, Kirchner implemented strict foreign exchange controls and import barriers to protect the central bank’s international reserves that are a key source of government funding.

Dollar-hungry businesses and well-heeled individuals have increasingly turned to the “blue-chip swap,” known locally as “contado con liquidacion”, to move money out of the country or to obtain the U.S. dollars they need to pay foreign suppliers.

The blue-chip swap involves the purchase of dollar-denominated Argentine bonds or the local shares of companies with ADRs in the U.S. and the subsequent sale of those securities abroad for dollars.

…As of Wednesday, the peso had weakened 1.9% versus the dollar for the year. But when annual inflation that most economists peg at 20% to 25% is taken into account, the peso has strengthened to the detriment of the manufacturing sector.

Kirchner and the central bank, which is run by a close ally of the president, have largely closed the door on conventional inflation-fighting measures such as raising interest rates to cool the economy. A new law also gives the administration greater discretion to borrow from the central bank, which some economists have interpreted as a license to print money.

In a worrisome sign, 12-month inflation expectations rose to 30% from 25% in a closely followed monthly survey published in March by the respected Torcuato Di Tella University.

[source]

PG View: Below the radar, inflation is Argentina soars.

12-Apr (WSJ Blogs) — Stocks are jumping this morning, yet there doesn’t appear to be many fundamental reasons for the sudden uptick. Jobless claims stunk and PPI data didn’t exaclty sway opinions on inflation or the Fed’s stance on more accommodation.

But several traders are passing notes around saying the whisper numbers for China’s first-quarter GDP report may be much better than initially anticipated.

…For what it’s worth, Peter Boockvar of Miller Tabak says these rumors are being misinterpreted:

The Chinese govt researcher that supposedly commented on China GDP said he thought we get 9% GDP growth for FULL YEAR 2012 and that he only expected Q1 to be 8.4-8.5% which is in line with expectations.

Nevertheless, all this talk has helped the Dow notch a triple-digit gain this morning.

[source]

12-Apr (BIS) — The Basel Committee published today the results of its Basel III monitoring exercise. The study is based on rigorous reporting processes set up by the Committee to periodically review the implications of the Basel III standards for financial markets. A total of 212 banks participated in the study, including 103 Group 1 banks (ie those that have Tier 1 capital in excess of €3 billion and are internationally active) and 109 Group 2 banks (ie all other banks).

…The aggregate shortfall of required stable funding is €2.78 trillion.

[source]

PG View: That’s one heck of a shortfall.

12-Apr (USAGOLD) — Gold is up sharply again today, bolstered by rising QE3 expectations and whispers that China’s Q1 GDP may come in higher than expectations on Friday. Today’s higher than expected initial jobless claims print seems to have been the straw that broke the will of the QE3 doubters that emerged in the wake of last week’s release of the March FOMC minutes. All of the losses in gold related to diminished QE3 expectations from last Tuesday have now been reversed out of the market.

Fed Vice-Chair Yellen set the stage in a speech on Wednesday, hinting that the central bank might have to continue it’s über-accommodative policy stance beyond the end of 2014 due to sluggish growth. Yellen went on to say, “I anticipate that the U.S. economy will continue to recover only gradually and that labor market slack will remain substantial for a number of years to come.”

The growing acceptance that Europe is probably already back in recession lends itself to a growing acceptance that ZIRP and other forms of central bank accommodations are likely here to stay for an indeterminate period of time. Be assured that a European recession would be an additional drag on the US economy, providing little incentive for tightening here. In fact, it could well prove to be the catalyst for additional easing in the form of QE3.

Of course recent market gyrations could be the result of a well orchestrated management of short-term expectations: Stocks fall, increasing the likelihood of QE3 in the minds of investors. This in turn prompts stocks to rise, lessening the likelihood of Q3. Lather, rinse, repeat. In the collective mind of the Fed, having stocks confined to a broad range certainly beats the heck out of a new bear market. They seek to buy time until real economic growth can become self-sustaining. But how can that possibly happen if markets are prevented from clearing and finding their true value? Ask the Japanese about that…

The ones who really pay for this arguably misguided policy stance are savers, as ZIRP nets them a negative yield in real terms. The wealth of those saving in dollars, euros, pounds and yen is being consistently eroded by yields that are below the rates of inflation. Savvy savers hedge that reality, by keeping a portion of their savings in gold.

• US initial jobless claims +13k to 380k for week ended 07-Apr, above expectations of 355k, vs upward revised 367k in previous week.
• US trade deficit narrowed to -$46.0 bln in Feb, inside expectations of -$52.0 bln, vs -$52.5 bln in Jan.
• US PPI unch in Mar, below expectations of +0.3%, vs +0.4% in Feb; 2.8% y/y, vs 3.3% y/y in Feb. Core +0.3% on expectations of +0.2%.
• France CPI +0.8% m/m in Mar, vs 0.4% in Feb; 2.3% y/y, above expectations of 2.2%.
• Sweden CPI +0.3% m/m in Mar, on expectations of +0.2%, vs +0.7% in Feb; 1.5% y/y.
• Eurozone industrial production (sa) +0.5% m/m in Feb, above expectations of -0.2%, vs negative revised unch in Jan; -1.8% y/y, below expectations.
• Greek unemployment rate rises to record 21.8%.
• Australia unemployment rate steady in Mar at 5.2%.
• South Korea M2 +5.3% y/y in Feb, vs negative revised +4.8% in Jan.
• Bank of Indonesia holds steady on rates at 5.75%.
• India iIndustrial production +4.1% y/y in Feb, vs big negative revision to 1.14% y/y in Jan, from 6.8% pace originally.
• Thailand FX Reserves (USD) $178.0 bln in Mar, vs $180.0 bln in Feb.
• China M2 +13.4% y/y in Mar, vs +13.0% y/y in Feb.
• China Loan Growth +15.7% y/y in Mar, vs +15.2% y/y in Feb.

12-Apr (Reuters) — Greece’s jobless rate rose to a record of 21.8 percent in January, twice as high as the euro zone average, statistics service ELSTAT said on Thursday, as the debt crisis and austerity measures took their toll on the labor market.

Youth unemployment remained at levels where more are jobless than in work.

[source]

12-Apr (The Wall Street Journal) — Industrial production in the euro zone slumped in February by the largest amount in more than two years, Eurostat reported Thursday, adding to evidence that the common-currency bloc is in an economic recession.

Other data released Thursday, including Greek unemployment, added to the bleak outlook for the region.

…Industrial production accounts for almost a fifth of the euro-zone economy, which analysts say may already be in a technical recession, or two consecutive quarters of economic contraction, after shrinking 0.3% in the final three months of 2011.

[source]

12-Apr (MarketWatch) — Gold’s rebound puzzles the bugs — but they’ll take it anyway.

…In fact, the important gold-positive news I noted — that the strike by the jewelers in India, the world’s biggest gold importer, appeared to be ending — turned out to be wrong. The strike went on for another week. But it did finally end this past Saturday, after an extraordinary 21 days.

…Since India is in effect the default buyer on a gold downswing, this means critical underpinning is back in place.

…“The massive gold purchases may signal the People’s Bank of China is continuing to secretly accumulate gold reserves.”

HSBC contributed an interesting point:

“China is also the world’s largest gold producer. This is the first time in history, to our knowledge, that the world’s largest gold producer is also a major importer. This implies strong underlying demand, which we believe will help cushion further losses.”

[source]

12-Apr (Project Syndicate) — Last December, with Europe’s financial system on the brink of disaster, the European Central Bank stunned the markets with an unprecedented intervention, offering banks across the eurozone essentially unlimited liquidity against any and all collateral for an exceptional period of three years.

The ECB’s surprise liquidity operation put the continent’s crisis on hold. But now, just fourth months later, matters are again coming to a head. The big southern European countries, Spain and Italy, battered by austerity, are spiraling into recession. The deterioration of economic conditions is casting doubt on their governments’ budgetary arithmetic, undermining political support for structural reform, and reopening seemingly closed questions about the stability of banking systems.

Once again, the eurozone appears to be on the verge of unraveling. So, will it be once more into the breach for the ECB?

…With governments hesitating to do their part, the ECB is reluctant to support them. In its view, rewarding them with monetary stimulus – keeping the boat afloat with more spending – only relieves the pressure on national officials to do what is necessary.

If this is the ECB’s thinking, then it is playing a dangerous game. Without spending and growth, there can be no solution to Europe’s problems.

[source]

11-Apr (The New York Times) — Janet L. Yellen, the vice chairwoman of the Federal Reserve, said Wednesday that the lackluster trajectory of the economic recovery might require the Fed to continue its efforts to bolster growth even beyond the end of 2014.

In a speech in Manhattan, Ms. Yellen offered a rejoinder to recent remarks by other Fed officials and investors warning that the Fed would need to raise interest rates well before the end of 2014 to prevent an increase in the rate of inflation.

She indicated that the Fed’s leadership, including the chairman, Ben S. Bernanke, remained firmly committed to the central bank’s efforts to suppress interest rates and reduce the cost of borrowing for businesses and consumers.

“I anticipate that the U.S. economy will continue to recover only gradually and that labor market slack will remain substantial for a number of years to come,” Ms. Yellen said, according to an advance copy of her prepared remarks.

She said that by some measures the Fed was not doing enough.

[source]

11-Apr (USAGOLD) — Gold remains well bid, underpinned by a falling dollar even as stocks are clawing back a portion of yesterday’s sharp losses. With stocks down more than 200 points yesterday and more than 400 points now from last week’s peak, the resurgence in QE3 talk comes as no surprise.

Adding additional shine to gold is the return of the eurozone debt crisis to the front pages of the financial press. You may recall that it was only about a month ago that the second Greek bailout was approved and briefly returned calm to European markets; €28 billion is a pretty big price tag for a month of relative calm. Many are beginning to notice that the extraordinary measures implemented by governments and central banks are having increasingly short-lived impacts…and that’s downright ominous…

• US import prices +1.3% in Mar, well above market expectations of +0.8%; export prices +0.8% on expectations of +0.3%.
• Canada housing starts surged 5.0% to 215.6k in Mar, well above market expectations of 199.0k, vs upward revised 205.3k in Feb.
• Russia Trade Balance (USD) $19.8 bln in Feb, vs $20.5 bln in Jan.
• UK BRC Retail Sales – All +3.6% y/y in Mar, on expectations of unch; same store +1.3% y/y.
• Japan machinery orders ex-Elec&Ship 4.8% m/m in Feb, vs 3.4% in Jan.

10-Apr (BusinessWeek) — With every 200,000-plus jobs report that has come out over the past few months, the odds of the Federal Reserve embarking on a third round of monetary stimulus (known as quantitative easing, or QE3) seemed to get a little slimmer. In Bloomberg’s most recent survey of economists, conducted in March, just after we learned the economy added 227,000 jobs in February, 61 percent of respondents said the Fed would not pull the trigger on QE3, up from 50 percent in January. Recent surveys of primary dealers by the New York Federal Reserve show a similar decline.

After Friday’s weaker-than-expected jobs report, there’s a renewed sense that QE3 may be necessary to keep a waning recovery on its feet.

[source]

Macquarie’s Gibbs Expects Fed QE3 by End of July
10-Apr (Bloomberg) — Richard Gibbs, global head of economics at Macquarie Group Ltd., talks about the outlook for the U.S. economy, Federal Reserve monetary policy and its implications for global financial markets. Gibbs also discusses China’s economic growth.

11-Apr (USAGOLD) — The latest USAGOLD Newsletter is posted and it’s a good one.

The lead article, entitled Surging central bank gold demand adds new dimension to bull market suggests that the recent shift is perhaps the biggest change in gold’s supply/demand dynamic since the Central Bank Gold Agreement.

[Link]

Never miss another USAGOLD Newsletter by subscribing here.

This Reuters chart out today is a timely tip-in for the newsletter article, showing the dramatic rise in Chinese gold imports from Hong Kong.

11-Apr (Reuters) — Gold steadied on Wednesday, after rising for four days straight, as the intensifying euro zone debt crisis threatened to undermine the euro and offset any potential safe-haven demand for the metal.

The euro rose on Wednesday but has come under pressure in the past week as the debt crisis has reignited. The focus is now on Spain, where the head of the central bank said on Tuesday commercial banks would need more capital if the economy continues to deteriorate.

Benchmark 10-year Spanish yields touched 6 percent for the first time since early December on Wednesday, having risen by more than two-thirds of a percentage point in the past week alone, while peripheral banking stocks have been pummeled.

[source]

11-Apr (The Wall Street Journal) — Germany’s auction of government bonds Wednesday was uncovered for the first time since November, as investors balked at accepting the lowest yields on record as the price for safety, while Spanish and Italian bonds recouped some of their recent losses.

Germany auctioned €5 billion ($6.54 billion) of the new 1.75% July 2022-dated bund and sold €3.87 billion. It received bids totaling €4.109 billion, leaving the auction technically uncovered.

…The average yield came in at 1.77%, the lowest ever at a German 10-year auction.

…This yield means that investors effectively don’t make any real return when holding German paper, given the above 2% inflation rate in Germany.

[source]

PG View: It would seem the price of “safety” is a record low yield below the rate of inflation. Seems like if safety is the desire, gold would make a much better choice.

Meanwhile, Italy 12-mo bill yields spiked to 2.84% at today’s auction, vs 1.405% in Mar, raising concerns about tomorrow’s €5 bln bond offering.

10-Apr (USAGOLD) — Gold has traded in a choppy manner thus far today. The yellow metal pushed to a four-session high of 1654.37 overseas before succumbing to risk aversion as European stocks and periphery bonds got hammered on resurgent sovereign debt and growth concerns. Gold retreated more than $20 in early New York trading, before rebounding once again to set new intraday highs after the European close.

Gold is eating deeper into the sell-off that resulted from last week’s release of the March FOMC minutes, when everyone was suddenly convinced by the third iteration of the same story; that the Fed was turning more hawkish. Well it sure didn’t take long for the market to start jonesing for the promise of further Fed accommodations. Friday’s disappointing jobs report pretty much swung expectations back in the other direction.

Interestingly, Fed chairman Bernanke largely ignored the topic in a speech last night, opting to focus instead on new curbs for the shadow banking system. Bernanke did note however that, “About three and a half years have passed since the darkest days of the financial crisis, but our economy is still far from having fully recovered from its effects.”

I worry that like Japan, we’ll never truly recover because the central banks have made it their life’s mission to meddle in markets to the point that they will never truly clear. While the BoJ took a steady policy stance today, it is widely expected to ease further when they release their new economic forecasts on 27-Apr. Such easing is expected to come in the form of additional quantitative measures designed to further devalue the yen.

• US wholesale sales +1.2% in Feb, well above market expectations of +0.6%; inventories +0.9%.
• US NFIB small business confidence fell to 92.5 in Mar, vs 94.3 in Feb.
• Switzerland unemployment rate (sa) steady in Mar at 3.1%.
• Germany trade balance (sa) €13.6 bln in Feb, vs upward revised €15.1 bln in Jan.
• France industrial production +0.3% m/m in Feb, above expectations of -0.1%, vs negative revised +0.2% in Jan; -1.2% y/y.
• Norway CPI – Core +0.4% m/m in Mar, above expectations of +0.3%, vs +0.7% in Feb; +1.5% y/y, above expectations.
• BoJ holds Target Overnight Call Rate steady at 0%-0.1%, no indication of additional quantitative measures.
• China Exports +8.9% y/y in Mar, vs +18.4% y/y in Feb.
• China Imports +5.3% y/y in Mar, vs +39.6% y/y in Feb.
• China Trade Balance (USD) $5.4 bln in Mar, vs -$31.5 bln in Feb.
• Hong Kong FX Reserves (USD) steady at $294.7 bln in Mar.

10-Apr (Reuters) — European shares hit a 10-week low on Tuesday as fresh concerns about global growth and pressure on some highly indebted euro zone countries hurt cyclical stocks, with charts for a major blue-chip index showing scope for yet further declines.

Financials, miners, automakers and energy sectors bore the brunt of the sell-off after trading in Europe resumed following the Easter holidays, reacting to Friday’s weak U.S. jobs report and Tuesday data showing no growth in France’s economy in the first quarter.

…”Investors are in a risk-off mode, with the U.S. job numbers and the situation around Spain becoming an excuse for the sell-off. I expect the market to fall 3 to 5 percent in the next couple of weeks,” Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets, said.

“I would advise investors to take some more profits. If the market falls 10 to 15 percent, you could start buying again as you would expect the central banks to intervene to support the market. Focus on defensive sectors such as pharmaceuticals and food and beverages and companies that give high dividends.”

[source]

10-Apr (Bloomberg) — Spain’s efforts to calm investors with 10 billion euros ($13 billion) of budget cuts in education and health failed to stem concerns the nation may be the fourth euro member to need a bailout.

The yield on Spain’s 10-year benchmark bond surged 20 basis points to 5.95 percent today as Economy Minister Luis de Guindos declined to rule out a rescue for Spain and Bank of Spain Governor Miguel Angel Fernandez Ordonez said the nation’s lenders may need additional capital if the economy weakens more than expected.

[source]

PG View: Italian bonds and stocks are getting hammered too. Nothing has been “fixed” in Europe…

10-Apr (Reuters) — The Bank of Japan kept monetary policy steady as expected on Tuesday, holding off on any further steps to help meet its new inflation target and boost activity ahead of a more thorough assessment of the economy later this month.

The yen edged higher and Tokyo stock prices slid after the board’s unanimous decision to stand pat, although many market players had expected the bank to wait in easing until the next rate review on April 27, when revised long-term forecasts should show that a sustained end to deflation is a long way off.

…When the BOJ next acts, it will probably again expand its 65 trillion yen asset buying and loan program, mostly by committing to purchase more government bonds. In doing so, it may need to extend the maturity of bonds it buys under the program to five years from the current two-year timeframe as two-year yields are already stuck at 0.1 percent.

[source]

PG View: The BoJ will also offer up to $12 bln in 1-yr US dollar denominated loans to companies with high growth potential at the 6-month dollar LIBOR rate, with the option to roll up to 3-times.