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“China’s economy is now in good shape, featuring fast growth, gradual structural improvement, rising employment and basic price stability” said Chinese Premier Wen as he seems to be verbally easing any Chinese concern over the new record high in the Yuan vs the US$ dating back to 1994. He did though remain steadfast on cooling down their bubbly property markets. Congress does have hearings Wed and Thurs on the Yuan and its no coincidence China this week has let the Yuan rise. In terms of the actual economic impact to all this political FX noise, I don’t believe it will be relevant. Germans feel great today but not so great about the next 6 months. The Sept ZEW economic confidence over the next 6 mo’s went negative at -4.3 (est was +10) to the lowest since Feb ’09 but Current Conditions rose to the most since Jan ’07 and was 10 pts above the estimate.

Greece sold 26 week bills today at a yield of 4.82% vs 4.65% in the last one in July but at a solid bid to cover of 4.54 vs the bid to cover of 3.64 in July. The market is saying yes to a Greek debt restructuring but just not within the next 6 months and buyers know the EU has Greece’s back for a short period of time. Greece won’t issue debt past 6 months right now because the funding cost would be above the 5% level that they are currently borrowing from the EU. Proving that a slow economy doesn’t necessarily equate to low inflation (look at the 1970’s too), the UK reported their 8th month in a row of CPI y/o/y growth above 3% at 3.1%. With the UK 2 yr yield at .65%, 5 yr at 1.74% and the 10 yr at 3.06%, investors are clearly betting that losing money right now on an after inflation adjusted basis is ok because the current level of inflation is not sustainable. We’ll see about that in a world of cheap money and QE.

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