Yesterday’s utterly, utterly pointless decision by Europe’s central bank to lower interest rates by a whopping 0.25% to 0.25% smacks of desperation and has convinced me the fear-on trade is due an almighty come back. In the last month we’ve seen the Fed’s nerve fail catastrophically, Carney suggest the BoE isn’t yet done in its efforts to prop up the financial sector and the Bank of Japan carry on with its extraordinary printing operation.
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Well what a difference a year makes!
This time last year and news that Spanish public debt was about to hit a new record would have sent markets reeling. Now, however, I expect them hardly to budge.
The numbers out of Spain are truly awful. Unemployment is above 26% and youth unemployment above 50%. The national debt is now €942.8bn, which equals 92.2% of GDP. This is 15% higher than September 2012 and Spain’s central bank expects the situation to deteriorate over the next 3 years, with public debt to GDP eventually topping 100%. Considering how pitiful the efforts of eurozone policy makers in predicting anything at all have been, this prediction could even be on the positive side!
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Just over a year ago you couldn’t open a financial website or publication without seeing a headline proclaiming that the yields of Spanish or Italian 10 year government debt were above the “unsustainable 6% threshold”. The popular belief was that these stricken nation states could not afford to service borrowing costs above this level and that this was going to lead to a default, precipitate a wider crash and even destroy the Euro. As the eurozone crisis peaked, all lazy journalists needed to do was a quick check of Bloomberg to get the latest bond prices and the sensationalist copy basically wrote itself… From a reporting perspective, one of the great things about the 6% threshold was that it made it easy to communicate quite how bad the situation was.
As the crisis abated however, the worst fears were not realised, bond yields dropped and the headlines went away. However, this whole issue could be about to reignite unless the European Central Bank (ECB) acts.
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***UPDATE – I’ve been writing this blog over the course of the morning while doing other things. As I’ve written gold has continued to plummet. It has crashed through all major levels of support.
Please click for full image
On Friday the price of gold went into meltdown on news that Cyprus was selling its £340million worth of gold to contribute towards its share of its bailout/in. I bought a very small position at $1500/oz only to see it get wiped out by the close of markets.
I had to make this move as this level was just below a line of major support for gold on my system, but I limited my risk in view of the obvious weakness in the market.
The sharp decline in price strongly suggested that a long squeeze was at play. There had been a lot of speculation that gold’s support was at about $1,550/oz and this seemed an obvious place to go long. It is probable this view gave birth to many trading positions, creating the opportunity for a long-squeeze.
This morning the selloff has continued and the price briefly touched $1430/oz. (PLEASE NOTE – Chart taken at roughly 0900 GMT this morning, the price has fallen further since).
Gold’s fall has caused similar declines in silver ($24.40/oz), Palladium ($676/oz) and Platinum ($1452/oz).
There are several valuable lessons in gold’s capitulation. Continue reading
Throughout the Cypriot shambles I have wondered time and again whether or not Jeroen Dijsselbloem is high.
I’m not suggesting this just because he is Dutch but rather because of the incredible statements attributed to him over the last week or so.
As President of the Euro Group, one would have hoped he had learned from his predecessor, Jean-Claude Juncker, about the damage ill advised statements can cause. Remember Juncker was credited with the extremely revealing “when it becomes serious you have to lie” quote at the height of the Greek crisis.
Often contradictory, Mr Dijsselbloem’s position has changed time and again since the Cypriot measures were first announced. He’s apparently swung from trying to calm fraught nerves, saying the action in Cyprus is unique, to advocating widespread wealth confiscation.
However today he has outdone himself.
This interview with the FT has to be read to be believed. Continue reading