Last night’s lack of intervention by the BOJ is finally being appreciate for the strategic bluff it was. When even an incremental QE dosage is unable to put a dent in your currency, and has in fact strengthened the JPY ever since the announcement, investors are now flocking to all safe currencies, first and foremost the CHF, which has just breached the critical 1.3000 barrier and immediately took down all stops all the way down to 1.2980. This means that the BOJ very strategically left the intervention card to the next currency debaser down the road, i.e. the Swiss National Bank, whose boss Phillip Hildebrand is now staring at his Bloomberg terminal in shock knowing full well he has no choice now but to intervene yet again. Once again, Shirakawa shows how it’s done.
The British pound jumped 50 pips earlier after the BOE decided to keep rates unchanged at 0.5% and not increase the level of QE from the current 200 billion pounds. In a situation that mirrors our own, the bank’s board saw one member, Andrew Sentance, voting for a rate hike, with 8 others deciding to keep rates at the current 0.5%. Sentance pushed for an increase in the rate to 0.75 percent on concerns that inflation expectations may become dislodged. And in a somewhat analogous loosening-tightening dynamic to that of the US, even as many had expected the BOE to actually loosen some more by raising the amount of QE, the bank kept QE total at the existing level, without adding on a Lite, 2.0 of some other silly designator. The reason is that unlike in the US with its doctored core CPI metric, the UK is already experiencing inflation over 3%. As BusinessWeek notes: “Annual consumer-price gains exceeded the 3 percent ceiling in July, requiring King yesterday to send a public letter of explanation to finance minister George Osborne on how he plans to control the cost of living. King argued that inflation has been driven higher by “temporary” factors and reiterated the central bank’s readiness to change policy in either direction.” It appears that for the time being, the US is all alone, and well in the lead, in the currency debasement via more printing race.
Europe is now irrelevant, at least according to FX traders, and, well, everyone else. The gyration of the Euro currency, previously moving the market tick for tick, now exists purely in its own vacuum, as more and more hedge fund will unwind and outright liquidate positions. In order not to be caught facing some multi-billion macro fund with its pants down as it faces massive massive margin calls, the ever declining population of market participants has decided to shift the market signal to the AUDJPY, the last bastion of the carry trade. Anyone tracking the FX-ES trade will now need to recalibrate their models to be driven of the Aussie-Yen, and to completely disregard or materially mute inputs coming out of a bankrupt Europe.
Gary Shilling talked with Bloomberg about the implications of China’s recent currency move and the European debt crisis. True to form, he is bearish – both on the Chinese move and on the European debt situation. His view is that the Yuan move comes at the wrong time given that the European debt crisis and fiscal austerity is already poised to slow global growth.
While I agree with his comments on the risks to the eurozone and the Chinese economy, I will defer to Marc Chandler’s views on China’s forex move who has fewer negative things to say about the move.
Taking the long view of the Chinese yuan, assuming gradual ~3% annual appreciation, it should be under 5 by 2020. I wouldn’t get too excited by this news. The Chinese know exactly what they’re doing and will manage their currency’s appreciation accordingly.
A week ago Hungary had the unfortunate mishap of telling the truth when it compared itself to Greece, resulting in a massive selloff of the Forint and leading to fresh lows for the euro. Today, it is Japan which is using the very same strategy in an attempt to devalue its own currency. So far it’s working. The BBC reports that Naoto Kan has been a little truthier than the G-20 plenary sessions generally allow. We now look for the PM’s reign of truth to be even shorter than that of his thousands of predecessors during the past couple of years: “Naoto Kan, in his first major speech since taking over, said Japan needed a financial restructuring to avert a Greece-style crisis.”Our country’s outstanding public debt is huge… our public finances have become the worst of any developed country,” he said.” Obviously, none of this is news. However, the market certainly does not appreciate when it is told that what it sees day after day in the non-mainstream media is actually the truth and nothing but the truth. What next – Tim Geithner coming out to say that a downgrade of the US is actually long overdue?
Despite recent improvements in the health of European banks, they remain vulnerable to a daunting array of hazards that are expected to produce another round of sizable write-offs in the next couple of years, the European Central Bank said.
Its report cataloged in detail the problems facing the region’s financial institutions.
The challenges for banks in the 16-nation euro zone include exposure to a weakening commercial real estate market, hundreds of billions of euros in bad debts, economic problems in East European countries, and a potential collision between the banks’ own substantial refinancing needs and government demand for additional loans, the central bank said.
In its twice-yearly review of risks facing the nations that use the euro currency, the central bank expressed particular concern about banks’ need to refinance long-term debt of an estimated 800 billion euros, or $984 billion, by the end of 2012.
European banks will need to set aside an estimated 123 billion euros in 2010 for bad loans, and an additional 105 billion euros in 2011, the report said. That would be in addition to the 238 billion euros they set aside from 2007 to 2009.
Jim Rogers, chairman of Rogers Holdings, talks with Bloomberg’s Haslinda Amin about China’s yuan policy and calls for the mainland to allow the currency to appreciate. Speaking from Singapore, Rogers also discusses the outlook for global economies, currencies and the commodities market. Bloomberg’s Paul Gordon and Patricia Lui also speak.
Before entering every trade, you must know your pain threshold. You need to figure out what the worst-case scenario is and place your stop based on a monetary or technical level. Every trade, no matter how certain you are of its outcome, is an educated guess. Nothing is certain in trading. Reward, on the other hand, is unknown. When a stock moves, the move can be huge or small.
The British pound jumped 50 pips earlier after the BOE decided to keep rates unchanged at 0.5% and not increase the level of QE from the current 200 billion pounds. In a situation that mirrors our own, the bank’s board saw one member, Andrew Sentance, voting for a rate hike, with 8 others deciding to keep rates at the current 0.5%. Sentance pushed for an increase in the rate to 0.75 percent on concerns that inflation expectations may become dislodged. And in a somewhat analogous loosening-tightening dynamic to that of the US, even as many had expected the BOE to actually loosen some more by raising the amount of QE, the bank kept QE total at the existing level, without adding on a Lite, 2.0 of some other silly designator. The reason is that unlike in the US with its doctored core CPI metric, the UK is already experiencing inflation over 3%. As 
A week ago Hungary had the unfortunate mishap of telling the truth when it compared itself to Greece, resulting in a massive selloff of the Forint and leading to fresh lows for the euro. Today, it is Japan which is using the very same strategy in an attempt to devalue its own currency. So far it’s working. The 
Despite recent improvements in the health of European banks, they remain vulnerable to a daunting array of hazards that are expected to produce another round of sizable write-offs in the next couple of years, the European Central Bank said. 
Before entering every trade, you must know your pain threshold. You need to figure out what the worst-case scenario is and place your stop based on a monetary or technical level. Every trade, no matter how certain you are of its outcome, is an educated guess. Nothing is certain in trading. Reward, on the other hand, is unknown. When a stock moves, the move can be huge or small.
