The BOC announced that rates will remain on hold and the Canadians will watch to see what happens in Europe as an important indicator of bank policy. It is unanimous that all central banks are concerned about the economic situation in Europe. Even the Chinese have noted the deterioration in Europe as a reason to be cautious about trying to slow the economy too quickly. However, in a confusing headline, “IMF PREDICTS MODEST GROWTH AS EUROPE STARTS TO EXIT RECESSION,” the Washington Post seems to think the worst is over for Europe. This headline is off base as the body of the article reveals, but such is the crap that drives the markets. IMF Managing Director Christine Lagarde is begging for increased funding for a bigger firewall for Europe and then this headline appears. Which is it: Crisis averted or further vigilance and action necessary to calm the European debt markets?
The U.S. Treasury stated today that no more money will be forthcoming to the IMF so it will be up to others to provide for added money to backstop the European nations that need liquidity to forestall a credit collapse. Anybody who believes that Europe is exiting its shallow recession OUGHT to be loading up on Spanish debt and getting short the German two-year note (the SCHATZ). Oh well, another case of flawed models leading to flawed policy or as others may opine: MONEY TALKS AND BULLSHIT WALKS.
***Building on the lack of credibility on Europe’s exiting its recession, let us analyze the EURO/SWISS CURRENCY CROSS. All currency traders are aware that the SWISS NATIONAL BANK (SNB) has drawn the proverbial line in the sand at 1.20 Swiss rate to the euro. After said policy was announced, the EUR/CHF cross rallied to 1.25 and the market paid a modicum of respect to the policies the SWISS were trying to sustain in an effort to weaken the currency that was having a deflationary impact on the Swiss economy. Slowly, the credibility of the SNB is being challenged and the EUR/CHF is hovering above the self-proclaimed MAGINOT LINE.
The market hasn’t frontally assaulted the SNB yet but the fact that it is so close to the level means a test of the SNB’S WILL IS COMING. The next response will be negative interest rates so watch the 90-DAY INTEREST RATES AS THE CANARY IN THE COAL MINE. More importantly, if the EUROPEAN RECESSION IS BEGINNING TO RECEDE, WHY DOESN’T THE EURO BEGIN TO RALLY ON ITS OWN AGAINST THE SWISS, AND, OF COURSE, ALL THE OTHER CURRENCIES.
***Further, yesterday President Sarkozy fired a salvo at the ECB as he voiced his concern that the EUROPEAN BANK should be more concerned with GROWTH rather than solely PRICE STABILITY. This contradicted the support he had shown Chancellor Merkel in the German desire for a restructuring of the PROFLIGATES prior to a full fiscal union. Again, President Sarkozy is in dire straits as he battles to maintain his office.bSunday will provide the first clues as to why Sarkozy is all over the political map as election day nears. Sarkozy has gone from wanting Angel Merkel to actively campaign for him to attacking the entire program put force by the Germans on containing the EURO DEBT CRISIS. The insanity that is European politics!
Tags: Bank of Canada, Christine Lagarde, ECB, Euro/Swiss cross, France elections, Germany, IMF, Merkel, Sarkozy, SNB
April 17, 2012 at 9:32 pm |
You know you are a respected central banker when you get asked about stepping up to the plate of a foreign nations central bank.
http://www.ft.com/intl/cms/s/0/1d085e5a-88a7-11e1-9b8d-00144feab49a.html#axzz1sMKID3uC
Hope all is well in the windy city!
April 17, 2012 at 9:41 pm |
Hi Yra,
There was an article about how the Swiss are enacting strict regulations for hedge funds which threatens the industry over there.
I think that answers the question of the subtlety of the defense. By getting hedge funds out of the country, that are most likely short, the EUR/CHF should wind in up in another short squeeze.
And, like you said, if the Europeans are getting their money out – why should it be in just another European country who doesn’t doesn’t have the banking privacy like the good ‘ole days.
Cheers,
April 18, 2012 at 2:29 am |
The music accompaning the dancing on the Titanic is getting louder and louder.
Take on more debt to solve the debt problem. Full speed ahead.
April 19, 2012 at 12:41 pm |
TrimTabs Research has a blog, and the CEO Charles Biderman does really cool videos on youtube. This week he had an informative and funny one about the blind assumptions of the financial media. The propaganda these media people spew is pretty hilarious in my opinion, and it’ll be funny to watch them be in shock when the EU double dips, even though you, and by extension we, already see what’s coming. Anyway, I’m of the opinion that the Washington Post is a propaganda rag, for all intents and purposes, not to mention all the other news outlets. But maybe that’s a topic unsuited for comment here. Of course, we have our own share of political insanity here as well. House of cards? Hopefully they’ll find some sanity before it’s too late.