First, let me apologize to my readers. I erred when I said Marine Le Pen made it to the second round of the 2012 French presidential election. Reader Al 13 corrected me. It was her father Jean-Marie Le Pen who made it to the second round in 2002 and got trounced, garnering 18% of the vote to Jacque Chirac’s 82%. But read Al 13’s comment on the previous post because he notes that if the second round were to be a choice between Le Pen and one of the two far-left candidates–Melenchon or Hamon–the impact would be highly volatile for European markets.
Posts Tagged ‘SNB’
The vote on the Trump health care plan is important only from the perspective of what the Freedom Caucus was promised in return for acquiescing to the desires of the White House. President Trump is desirous of a win, any win and the Freedom Caucus seems to know they have great leverage in the current political scrum. Whatever the House passes the Senate will have home field advantage and last bat so the initial Trump victory will Pyrrhic at best. What was compromised to assuage the conservative wing of the Republican party? How far will Trump have bent to bring this deal to fruition? The strident nature of the Freedom Caucus has been elevated and what value was extracted?
In an inane study of the world’s countries by the U.N. and released on World Happiness Day (what an absurd concept) the land locked nation with its active printing press was heralded as ranking FOURTH while the U.S. fell to 14th. To paraphrase Tolstoy: Happy countries are all alike; every unhappy country is unhappy in its own way. On March 17 Bloomberg ran a story, “Swiss National Bank (SNB) Foreign Reserves Soar, Signaling Interventions.” In February the SNB’s reserves increased by 3.8% to 668.2 billion francs, “the biggest increase since December 2014.”
The question for the political uncertainty confronting global markets will be the rollback of the U.S. influence via the reduction of its presence in various regional treaty agreements. Trump’s “faux pas” over Taiwan should cause the entire NATO structure to be reviewed. The ONE CHINA issue was pledged by the Nixon/Kissinger framework forged during the détente with China. The People’s Republic of China maintained that Taiwan’s independence was a domestic affair and should be resolved by the Chinese people. But the bottom line for the U.S. was: Would Washington risk a thermonuclear war to maintain Taiwan’s independence? Well, a similar question is relevant today in regards to Turkey. Would the U.S. risk war with Russia if Vladimir the Magnificent attacked Turkey in an effort to further destabilize the Middle East, resulting in a greater Iranian presence and further strengthening the KURDS?
Wow! Was it quiet in today’s market? The simple answer is yes but Notes From Underground never takes things at face value. The global markets digested Friday’s “robust” employment report and seemed content with the market results: stronger dollar, stronger equities, higher yields and selling of precious metals. The euro and gold were steady today, but the yen and Swiss were weak as the safe haven’s were shunned as the risk-on trade is back en vogue. I have no problem with the market’s assessment of the jobs data but there were other stories that piqued my interest.
This is a week loaded with data. The U.S. retail sales numbers are reported tomorrow and it will take a tremendous increase in consumer purchases to put any pressure on the June FOMC meeting to raise rates. Currently, the market consensus is for a 0.4% increase in core sales and I would venture a guess that it will take an increase of more 1.0% to move the needle on any talk of June being on the table. There are several British inflation numbers released tomorrow morning but with the Brexit vote next Thursday and a Bank of England meeting this Thursday there will be no change in BOE policy. Wednesday of course brings the FED and again the retail sales number would have to be very robust to move the FOMC. It ain’t going to happen. Wednesday night and Thursday morning brings the Bank of Japan and the Swiss National Bank into focus. These two banks are more interesting as the recent strength in the Swiss franc and the Japanese yen provide some rationale for each of these banks to increase monetary stimulus to drive the respective currencies lower . However, both the BOJ and SNB will be careful not to roil the markets ahead of the BREXIT vote. Yet the Japanese seemed to be perturbed over the G-7 signaling its anger at the Japanese for its previous efforts to weaken the YEN. The Japanese authorities are not happy with the recent cut in Korean interest rates which have resulted in a weakened Korean won.
Notes From Underground: Chinese Economic Policy Is Modeled on Kelly’s Heroes Paradigm of Sgt OddballMay 4, 2016
It is time to invoke one of the great war movies of the anti-war decade, Kelly’s Heroes. The theme is relevant in two ways. First, a ragtag group is trying to steal a hoard of German gold from a heavily guarded town and divide it up among themselves as booty from the war (similar to Chinese desire for Western-owned gold). Secondly, one of the key characters is Sargent Oddball, a tank commander played by Donald Sutherland,who will not tolerate the negative waves of people who doubt the success of the “mission.” Today, Nasdaq ran the article, “China Warns Economists to Brighten Outlooks.” Through various sources the Chinese authorities said, “Securities regulators, media censors and other government officials have issued verbal warnings to commentators whose public remarks on the economy are out of step with government upbeat statements …” The formal policy is “zhengnengliang,” translated as POSITIVE ENERGY or as Oddball would command, “don’t give me any negative waves.”
The Japanese leave Washington with no support for alleviating one-sided currency moves. For China it is all about respect for growth, wherever it may be. The Chinese GDP was released on Thursday and it came out exactly as forecast at 6.7% (shocking, I know). There was virtually no criticism of the Chinese as the nations are watching closely while China commences its transition from an export-dominated economy to a more balanced growth model, where domestic consumption takes on increased importance. In contrast to the G-20 view on Japanese currency intervention, SNB President Thomas Jordan announced that the Swiss would increase its balance sheet through currency intervention “… to prevent an already ‘significantly overvalued’ franc from strengthening.”
Lies, lies, you’re tellin’ me that you’ll be true
That’s all I ever hear from you
I shed a million tears for you
And now you’re lovin’ someone new
Someday I am gonna be happy
But I don’t when just now
A-breakin’ my heart
You think you are such a smart girl
And I’ll believe what you say
But who do you think you are girl?
To lead me on this way, hey!
This song can be applied to so many policy makers: Draghi, Lagarde, Kuroda and, of course, Yellen. This week has brought interest rate policies from five central banks and the biggest impact was from the Fed as the market believes that the “dot plot” has thickened since the projections for “four is still in the park” has certainly left the rate increases stranded at SECOND. Today, three banks announced policy decisions. The Swiss National Bank left policy unchanged but noted it believed that the global economy was soft and as usual the Swiss franc was overvalued. The SNB reserves the privilege of intervening to weaken the FRANC whenever it deems it appropriate. The recent strength of the EURO and the stability of the EUR/CHF cross should keep the Swiss quiet but vigilant.
You don’t have to be a weather man to know which way the wind is blowing, or so says Bob Dylan. As long as all things are emanating out of China it may be the time to dust off the sayings of Mao for as the talking heads are reminding us daily: “The East Wind Is Prevailing Over the West” in all things financial. THE PROBLEM FOR ME IS I DON’T ACCEPT THAT VIEW AND AM IN THE CAMP OF FORMER DALLAS FED PRESIDENT RICHARD FISHER that all roads lead to the FED and certainly the European Union for providing the tinder for a financial prairie fire. There has been so much volatility during the first six trading days of the year it is difficult to get a handle on what is algo-driven non-fundamental and what may be the commencement of a change in previous momentum trades. Today I will go through a list of POTENTIAL SPARKS TO IGNITE THE FLAMES OF A FINANCIAL FIRE so that we can be aware of what constitutes a genuine change in momentum: