Euro Tumbles As JPM Predicts ECB Rate Cut To 0.50%, "Deep Euro Area Recession"

The ECB may soon have to change its policy of keeping a 1.00% rate floor if JPM is correct.In a note just released by JPM's Greg Fuzesi, the JPM analysts says that "with the Euro area economy entering a potentially deep recession, we now think that the ECB will cut its main policy interest rate to just 0.5% by mid-2012. We expect the interest rate corridor to be narrowed to +/-25bp, so that the deposit facility rate will be 0.25%. We recognise that the ECB did not cut rates below 1% during the 2008/9 recession. It never fully explained why it did not, but we think that the two most likely reasons will be less important this time." And when the ECB does cut which it will have no choice considering Germany's stern reluctance to allow it to print outright, Hugh Hendry will make some serious cash. As a reminder, 'He’s made bets that he says will deliver a 40-to-1 return if the ECB cuts rates below 1% next year." Lastly, and as fully expected, the EURUSD is tumbling on the news.

Devastation In Adjusted Euro-Sovereign Basis Trade Resumes: Generali And Allianz CDS Update

Continuing our coverage of our favorite European implosion derivative trade for entities which, unlike countries, are not too big to fail, namely Italian and German mega insurers loaded to the gills with Italian and other Euro sovereign debt, Generali (ASSGEN) and Pimco parent Allianz (ALZ), we find that their CDS continue to implode (or soar as the case may be), more or less as expected. We anticipate that more and more traders will proceed to switch basis trade hedges not with sovereigns (where the CDS is now clearly defunct) but with sovereign derivatives such as insurers which can certainly fail (at least for the time being). In the meantime, below is a refresh on how ASSGEN and ALZ has done since we suggested buying protection in the two companies.

Eurozone Contagion Deepens After Disastrous German Auction; Silver Supply Issues

Gold is lower in all major currencies today except euros with euro gold having risen 0.25% to EUR 1,263/oz. The euro came under pressure due to the surprise collapse in new Eurozone industrial orders which led to Germany failing to get bids for 35% of bunds offered. The German 10-year bund yield rose sharply from 1.92% to over 2.06%. This is one of Germany's worst auctions since the launch of the Euro with the Bundesbank having to pick up nearly 40% of the 6 billion euros on offer. The German auction in turn led to further weakness in European equity markets. Asian equity indices followed US equities lower after news of a new US bank stress test and then the poor Chinese manufacturing data. Gold will be supported at these levels as the euro zone debt crisis continues to degenerate with the periphery increasingly affecting the core – leading to contagion. The bond auction in Germany is a disaster. If Germany has to buy its own bonds, it is frightening to think how other European nations, including France, will fare at bond auctions in the coming weeks. Gold remains possibly the most under-owned asset in the world, and definitely the most infrequently and poorly covered in the mainstream media.

Is ECB's Non-Intervention Sending A Message To Belgium?

Presented with little comment (Belgium spreads +26bps) - but with Fitch worrying over France and Dexia becoming more of an anchor, perhaps the ECB is applying its own special type of pressure to get the deal done (or to force Rehn's austerity measures) - by not intervening.

Bad Economic News Trifecta Hits: Jobs And Core Durable Goods Worse, Savings Rate Higher As Consumers Hunker Down

The economic data dump is here. In order of appearance, first we have jobless claims which rose from an upwardly revised (of course) 391,000 to 393,000, worse than expectations of 390,000. That is Seasonally Adjusted. Not Seasonally Adjusted claims exploded by 74,214: good thing nobody looks at the unfudged number. The bleeds from the 99 week cliff continued as a net of 7K people dropped from EUC and Extended Claims. Next we have durable goods which while on the surface were better than expected declining by just -0.7% on expectations of -1.2% (with the previous month revised massively lower from -0.8% to -1.5%), the orders ex volatile non-defense and air dropped by a whopping 1.8%, on expectations of -1.0%, and the revised September number collapsing from +2.4% to +0.9%. This means that not only will the final Q3 GDP be revised even lower, but that Q4 GDP rebound hopes have been all but dashed. Finally, in Personal Spending data, we learn that consumers spent less, with spending rising only 0.1% on expectations of 0.3%, while income increased (thank you Uncle Sam) from 0.1% to 0.4% on expectations of 0.3%. This was to be expected: after all the savings rate in September hit 3.3% - the lowest since August 2008. It had only one way to go, and so it did, with the October Savings Rate increasing to 3.5%. Expect this number to keep rising as consumer finally re-retrench yet again, in the process hitting the economy.

"Phase Shift" - JP Morgan Downgrades All Commodities To "Sell"

If the ECB will not take the hint, JPM will bring the mountain to Mohammed. Or something. In a note just released by JPM's Colun Fenton, the firm has downgraded the entire commodity complex to "underweight" (yes, that includes gold). The reasoning? It is all the Supercommittee's fault. It also likely has nothing to do with the fact that JPM was selling commodities to clients all through this run up, and is now in finally buying, in anticipation of ECB printing and Fed's LSAP. Full report attached.

Whose Debt Am I?

First the EFSF had trouble raising money.  Then EIB spreads widened.  Then EXPT got crushed.  And now Germany struggled to raise money. Is there a realization that all the quasi-sovereign debt and supranational debt is actually someone’s debt?  Is relying on implicit or explicit guarantees as a way to raise money indirectly over?  Guarantees do count.  AIG never “owned” any mortgages, all it did was write insurance or CDS contracts on them.  As investors get more concerned about sovereign credit and dig deeper, will some of these programs be tested?
So Whose Debt Am I?

Goldman Finally Capitulates: Closes EURUSD Trade At 2.3% Loss

This will come as no surprise to anyone, because as we noted previously it only took Goldman 2 days to Stolper its clients this time around. But just because the EURUSD apparently never actually "closed" below 1.35, Goldman formally kept the trade on for one more week subjecting clients to not only extra losses but much greater volatility. Today, everyone has had enough of this charade. "Closing long EUR/$ as risk sentiment failed to improve on new reform-friendly governments in Italy, Spain and Greece."

All European CDS Now Triple-Digit Offered

As expected, German CDS are soaring in the aftermath of the failed auction. And even UK CDS are now offered triple digits. What is ironic is that the UK is in far worse shape than Germany. That UK-Germany compression trade gets more attractive by the day.

Busy Economic Docket In Holiday Thin Market

Anyone who has not taken the pre-Thanksgiving day off may regret it as in addition to a Eurozone whose core is now officially imploding we have possibly one of the busiest economic days of the year to top it all of right into what will likely be the thinnest volume days. Expect massive manic depressive mood swings on the smallest of blocks.

China`s Slowdown: No Surprise

Admin at Jim Rogers Blog - 59 minutes ago

Latest CNBC Asia video interview. *Related ETFs, iShares FTSE/Xinhua China 25 Index ETF (FXI) * *Jim Rogers is an author, financial commentator and successful international investor. He has been frequently featured in Time, The New York Times, Barron’s, Forbes, Fortune, The Wall Street Journal, The Financial Times and is a regular guest on Bloomberg and CNBC.* 

 

 

 

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Zurich Is A Perfect Place

Admin at Marc Faber Blog - 1 hour ago

Zurich is the most beautiful and pleasant city in the world. If the weather is fine, in the summer it`s a lovely place. It has an old city, it has a lake, it has the proximity of the mountains...you can do sports... It`s relatively small, it`s cosy, you can walk from A to B, you don`t need to take the subway. Zurich is a perfect place. - *in a University Of Zurich video* *Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.* 

 

 

 

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Korean Stock Market May Slide Further

Admin at Marc Faber Blog - 2 hours ago

Dr. Faber said at a conference held in Seoul Tuesday that China will continue slow economic growth and eventually affect the Korean stock market. Korea stocks already peaked last May and they could slide to the mark of 1,200 or 1,400 points. *Related, iShares MSCI South Korea Index Fund ETF (EWY) * *Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.* 

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