US Dollar Rises As Silver, Gold, Oil, Base Metals, Agricultural Commodities, Timber, Cotton, Stocks, And Currencies Trade Lower … As Global Growth Falls, And As Fed Limits Stimulus To An Extension Of Operation Twist, And As Fears Of A European Political Union Emerge

Financial Market Report for Thursday June 21, 2012

The US Dollar, $USD, UUP, rose as Junior Gold Miners, GDXJ, Silver Miners, SIL, Gold Miners, GDX, Uranium Miners, URA, Rare Earth Miners, REMX, Copper Miners, COPX, Coal Miners, KOL, Small Cap Energy, PSCE, Energy Service, IEZ, OIH, Energy, XLE, Steel, SLX, Networking, IGN, Semiconductors, XSD, traded lower; and European Financials, EUFN, led Global Banks, IXG, lower, and World Stocks Outside Of The US, ACWX, lower ….. as silver, gold, oil, base metals, agricultural commodities, timber, cotton, and currencies traded lower, as global growth data came in lower once again, and as the US Federal Reserve limited stimulus to an extension of Operation Twist, and as fears of a European Political Union emerged ….. of significant note Jack Chan of JC’s Buy and Sell Signals, gave a sell signal on gold , GLD, today.

Bloomberg reports Commodities Fall to Lowest Since 2010 as Fed Cuts Outlook. Commodities, DBC, dropped to the lowest level in almost 19 months after the U.S. Federal Reserve cut its growth outlook for the world’s largest economy. Crude fell below $80 a barrel in New York for the first time since October. The Standard & Poor’s GSCI Spot Index of 24 commodities fell for a second day, losing as much as 1.5 percent to 566.85, the lowest since November 2010, and was at 568.91 at 9:49 a.m. in London. Raw materials will enter a bear market if they finish around 570.26, or 20.3 percent below their Feb. 24 closing high. I comment that the ratio of Stocks to Commodities, VT:DBC, has never been higher.

Strong US stock fallers included cement manufacturer, EXP, small tool manufacturer, LECO, paper manufacturer, NP, construction services, USG, FLR, MTRX, Auto Parts Manufacturers, AXL.

China Infrastructure, CHXX, Thailand, THD, Hong Kong, EWH, Singapore, EWS, China Small Caps, HAO, China, YAO, Brazil Small Caps, EWZS, Switzerland, EWL, Russsia Small Caps, ERUS, Russia, RSX, Australia Small Caps, KROO, Canada Small Caps, CNDA, Sweden, EWD, Germany, GERJ, South Africa, EZA, Australia, EWA, The UK, EWU, Brazil, EWZ, Egypt, EGPT, and the Emerging markets, EEM, all fell strongly on falling currencies. Competitive currency devaluation emerged once again today; the currency demand curve, RZV:RZG, manifested massively bearish harami.

Carry trade investment, came out of Brookfield Infrastructure Partners, BIP, a Bermuda based limited utility partnership, putting an end to the final bastion of neoliberal financed momentum investing. Risk on has turned to risk off in the defensive utility, XLU, shares.

In Today’s News

Bloomberg reports Italy, Spain Heading for Full Bailouts, Fidelity’s Stuttard Says; Italy and Spain, which account for more than a quarter of the euro-area economy, are heading for sovereign bailouts in the next 12 months that will send shockwaves through the global economy, Fidelity Investments’ Jamie Stuttard said. Both sovereigns will likely stumble over debt auctions in the next year, forcing European authorities to find official funding for them to hold the single-currency area together, Stuttard, Fidelity’s head of international bond portfolio management in London, said in a telephone interview on June 19

Bloomberg reports ECB’s Coeure Tells FT EU Fiscal Union Is A `Necessity’; European Central Bank executive board member Benoit Coeure sees increased economic integration in the European Union as an essential step toward stability, the Financial Times reported, citing an interview. Coeure, who is responsible for the ECB’s market operations, told the FT that his answer to people who are in doubt about “the necessity of fiscal union” is that “if they want to keep the euro and have the benefits that the euro has brought to their economies, they have to make steps towards a fiscal union.” Europe is in the third year of an economic crisis and reaching a point where “deeper questions are being asked,” the FT cited Coeure as saying. Central to those questions is the shape of a future banking and fiscal union to bolster the monetary union, Coeure said, according to the newspaper. Without such strengthening, “the system will not be stable and we will continue to experience crises,” Coeure told the FT. Couere said a cut in the ECB’s main interest rate — at 1 percent since December — was “discussed at the last governing council meeting,” and that he “would expect the next council to discuss it again,” the FT reported. While he supports using the EU’s bailout fund to intervene in government bond markets as a stopgap measure, he is not eager for the ECB to take on that role, saying that the Securities Markets Program isn’t considered “the best instrument to use at the current juncture” because it’s not advisable to “mix the central bank with the fiscal authorities,” he told the newspaper.

Bloomberg reports China’s Stocks Decline To 3-Month Low On Manufacturing Concern; China’s stocks fell, dragging the benchmark index to the lowest level in three months, after a report showed China’s manufacturing may shrink for an eighth month in June and the U.S. cut its economic growth estimates. Jiangxi Copper Co. and China Shenhua Energy Co. the biggest copper and coal producers, declined at least 2 percent on concern demand for commodities will slow. Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. fell after the 21st Century Business Herald said the four biggest lenders saw net deposits decline by a combined 460 billion yuan ($72 billion) in the first two weeks of this month. The Shanghai Composite Index (SHCOMP) lost 35.5 points, or 1.6 percent, to 2,257.38 at the 11:30 a.m. local-time break, set for the lowest close since March 29 and a weekly decline as financial markets are closed tomorrow for a holiday.

Manufacturing Slump Deepens From Euro Area To China; Euro-area manufacturing output shrank at the fastest pace in three years in June and a Chinese output gauge indicated contraction as Europe’s worsening fiscal crisis clouded global economic-growth prospects. A gauge of euro-region manufacturing fell to 44.8 from 45.1 in May, London-based Markit Economics said today in an initial estimate. That’s the lowest in 36 months. The preliminary reading was 48.1 for a Chinese purchasing managers’ index from HSBC Holdings Plc and Markit. A reading below 50 indicates contraction. A gauge of German manufacturing output dropped to 44.7 in June from 45.2 in the previous month, Markit said today. The French indicator rose to 45.3 from 44.7. Euro-region gross domestic product probably dropped 0.6 percent in the second quarter, according to Chris Williamson, chief economist at Markit. In the year’s first three months, the area’s economy stalled. “The downturn is gathering pace and spreading across the region, with Germany on course for a marginal fall in GDP in the second quarter, though far steeper declines are likely elsewhere,” Williamson wrote in the statement. “Firms are preparing for conditions to worsen in the coming months, with the darker outlook often attributed to uncertainty caused by the region’s ongoing economic and political crises.”

Bloomberg reports In Europe, Idle Car Factories Live On Few places illustrate the troubles of the European auto industry better than Fiat SpA’s vast Mirafiori plant near Turin, Italy. The factory was churning out cars earlier this week but suddenly became a ghost town on Thursday and Friday, its production lines silent and the company’s adjacent headquarters offices almost entirely empty and darkened. The same thing happened on two day earlier this month and will again on four more days in July. Shutdowns similar to those at Mirafiori have become a regular occurrence all across Western Europe and reveal an auto industry crisis that is quietly reaching dire proportions. This as Dietmar Henning of WSWS reports  IG Metall union backs rationalization plans for Opel  The IG Metall union, together with Opel management and the works councils, has taken the lead in ensuring the success of “Strengthening the Opel brand” at the expense of the workforce.

Business Insider reports A Look At India’s Economic And Political Problems That Has Everyone Freaking Out

Businessweek reports Fed expands Operation Twist by $267 Billion through 2012.

Reuters reports Weak global data drags stocks lower

AP reports Fears about global economy push dollar higher

Chris Kahn, AP Energy Writerm reports Oil price drops below $80 for 1st time since Oct.

EuroNews reports Stonehenge summer solstice despite the rain; Grey skies could not darken the mood as hundreds turned out to celebrate the summer solstice at Britain’s ancient Stonehenge site.

Open Europe reports German ratification of ESM and fiscal treaty delayed following request from Constitutional Court;  FAZ: Merkel pressured German President to ignore request from Karlsruhe;
Following a request from the Constitutional Court, German President Joachim Gauck announced he would not sign off either the fiscal treaty or the ESM – the eurozone’s permanent bailout fund – after their expected ratification by the German Parliament next week. Following complaints that the treaties restrict the sovereign budgetary competence of the Bundestag, the Court said it wanted to examine their legality. A decision is expected within two to three weeks, meaning that the ESM is unlikely to be approved by Germany by 1 July, the date on which it is due to be launched.

German Finance Minister Wolfgang Schäuble criticised the decision, saying, “I do not think it is wise for constitutional bodies to communicate publicly with one another.” FAZ reports that the judges were “shocked” that German Chancellor Angela Merkel had allegedly urged Gauck to ignore their request, which they claim could have triggered a constitutional crisis. However, Merkel’s spokesperson denied that this had taken place. Meanwhile, the Finnish parliament ratified the ESM treaty yesterday, while the Slovak parliament did so this morning.
EUobserver FT Telegraph Welt FAZ FAZ 2 ARD Handelsblatt Bild Slovak Spectator Slovak Spectator 2

Zero Hedge comments The Euro Bailout Fund (Which Does Not Exist) Is Being Delayed, As Germany Fires Back Against Broke Europe

Monti: Delay in tackling the euro crisis risks backlash against EU integration;
In an interview with La Stampa and other European papers, Italian Prime Minister Mario Monti warned, “In order to get out well of the eurozone crisis, and the crisis of the European economy, there is an ever-growing need for greater integration. However, if the [EU leaders] fail to tackle the eurozone’s problems quickly, the will of national public opinions, governments and also parliaments would turn upon that greater integration, which is, nonetheless, necessary. This is a risk I can see even in our own parliament, which has been traditionally pro-EU integration and now is not anymore.” EUobserver El País: Monti Guardian Guardian: Monti La Stampa: Monti Le Figaro EUobserver 3 El País Times Mail FT CityAM Irish Times FT 2 WSJ Bloomberg View WSJ Review&Outlook Corriere della Sera

France to join Westerwelle’s ‘Future of Europe’ group next month;
The Times reports that, from next month, France will join German Foreign Minister Guido Westerwelle’s ‘Future of Europe’ group – a group of ten EU member states, excluding the UK, that has been meeting to discuss the future political architecture of the EU, including the prospect of creating a European finance minister, a beefed up European border police force and a European army. In an interview with Le Figaro, Westerwelle said, “We need to discuss without taboos the ways to strengthen Europe and make it more effective and capable to act.”

Separately, in an interview with several European papers, Italian Prime Minister Mario Monti said, “Look at the UK: from the economic point of view, the decision not to join the euro may have had some advantages in the short term, but the UK’s influence on determining the broad orientations of European policies has weakened.”

The Economist’s Bagehot writes that “the chances of Britain leaving the EU in the next few years are higher than they have ever been.” Times Le Figaro: Westerwelle La Stampa: Monti Economist: Bagehot

Ed Miliband to change Labour’s stance on EU migration;
In a speech today, Labour leader Ed Miliband will say, “It was a mistake not to impose transitional controls on accession from Eastern European countries. We severely underestimated the number of people who would come here. We were dazzled by globalisation and too sanguine about its price.” He will promise measures to help British workers, including setting up an early-warning system, run by the Migration Advisory Council, to highlight areas where the workforce is “dominated by low-wage labour from other countries” and forcing medium and large employers to declare if more than a quarter of their workforce is foreign.
Open Europe research BBC Guardian Telegraph Mail Independent

Euro Intelligence provides the best of news reporting and analysis in its for fee daily email briefing and relates Samaras presents his conservative government with Vassilis Rapanos as finance minister;
Prime Minister Antonis Samaras on Thursday unveiled a 39-member cabinet, centered around MPs from his New Democracy party, Kathimerini reports. The Cabinet is dominated by conservatives, who hold 30 of the 39 positions. Of these, 24 are ND deputies and the others are figures associated with the party. The new finance minister is Vassilis Rapanos, who is not linked to ND at all, but has worked with PASOK governments as a civil servant. The new government promised on Thursday to renegotiate the terms of the country’s bailout without endangering its future in the euro. At the first cabinet meeting, Samaras said his ministers would take a 30% pay cut and told them to use government cars as little as possible in an effort to lead the debt-laden nation by example. The government will also seek to extend the payment of unemployment benefits to two years from one, to offer benefits to the self-employed without work and to limit public sector lay-offs, the official told Reuters.And The FT describes him as a career public servant with close knowledge of Greek public finance and strong views on tax collection and how to combat tax evasion.

Bundesbank opposes Monti plan to let the ECB buy troubled Eurozone government bonds as an agent of the EFSF/ESM as such would constitute monetary financing and be a violation of EU Treaties;
According to Financial Times Deutschland the Bundesbank opposes plans by Mario Monti to cap spreads by tasking the ECB to buy government bonds as an agent of the EFSF/ESM. In return, according to the Italian prime minister’s plans, the funds would partially guarantee against potential losses from the bond purchases. “This would be monetary financing and thus a break with the EU treaties”, the paper quotes the Bundesbank. The German central bank argues that the motive for the bond purchases would not be monetary policy but rather fiscal policy because it would be about easing the burden of rising spreads for countries like Italy. At the G20 in Los Cabos, Monti had been understood to say that he wanted the EFSF/ESM to buy bonds of troubled Eurozone countries. But two high ranking Eurozone sources told FTD that the Italian prime minister pleaded for the ECB to do the job so that Italy or other beneficiaries of the operation would be burdened with the conditionality the EFSF/ESM would apply in such a case. “This will not fly”, the paper quotes one source. “This is the attempt to get the money without accepting a program and the conditions attached to it.” The proposal will be on the agenda today when Monti meets Angela Merkel, Francois Hollande and Mariano Rajoy today in Rome.

Joachim Gauck has bowed to pressure from the German Constitutional Court, and announced he will not sign off on the ESM and the fiscal pact for the time being;
After an intervention of the Constitutional Court, the German president Joachim Gauck will not sign the new law Bundestag passed to implement the ESM and the fiscal pact for the time being, Frankfurter Allgemeine Zeitung reports. As a consequence it is now impossible that the ESM starts to exist as of July 1st. According to the paper the Karlsruhe judges were outraged at attempts by Angela Merkel to pressure Gauck into signing the laws quickly. Had the president done so and thereby deprived the constitutional court of any chances to an in depth examination of the constitutionality of the laws this would have amounted to “constitutional crisis”, FAZ quotes the constitutional court. Merkel’s spokesman denied that the chancellor had attempted to exercice pressure on the president. Meanwhile Wolfgang Schäuble criticized the court for its intention to do an examination of the laws.

Reuters reports Christine Lagarde On Banking Union, Fiscal Union and Sharing of Funds; “As a priority, the principle of a banking union, which takes the form in our view of a common European supervision, which takes the form of bank resolution, which takes the form of deposit insurance of a euro area-wide nature. That is principle number one.
“Principle number two is a fiscal union, more integration in fiscal terms, with risk-sharing supported by stronger governance… It includes more resources at the centre, democratic controls and oversight and intermediate steps towards gradual, but limited, sharing of funds.
“You can call them project, you can call them bills, you can call them bonds, but the principle of it is the sharing between the member states.”

Christine Lagarde On Completing Eurozone Monetary Union; “We are clearly seeing additional tension and acute stress applying to both banks and sovereigns in the euro area. And with that in mind, the IMF believes that a determined and forceful move towards a complete European monetary union should be reaffirmed in order to restore faith in the system because as we see it at the moment, the viability of the European monetary system is questioned.”

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