President Hollande Calls for Intervention to Weaken the Euro


Australia’s December trade deficit shrank to A$ 427 mn, as compared with November’s revised A$ 2.79 bn and better than the A$800 mn forecast.

The Australian service industry improved slightly – an index of services, produced by the Commonwealth Bank, rose to 45.3, from 43.2 in December, though still in contraction territory.

The BoJ governor, Mr Shirakawa, announced that he will retire on 19th March, the same time as 2 of his deputies, rather than his actual retirement date of the 8th April. I suppose if someone does not play ball, you suggest that he retires early. Whatever, the Yen declined by over 100 bips on the news. The Japanese PM now has to move fast to select a candidate, who he can get approved – especially by the opposition controlled Upper House;

The FT reports that Chinese warships targeted a Japanese ship. This kind of practice is highly dangerous and just reinforces the possibility of an accidental incident occurring. China has announced that it will increase patrols in many parts of the South China Seas !!!!;

As expected, the Australian Central Bank, the RBA kept interest rates on hold. They added that the global economy was improving, with China progressing. Commodity prices had improved, though GDP growth would be below trend this year. Inflation was in line with targets, which allows for “an accommodative stance” in future. The RBA added that the A$ remained at higher than expected levels. Basically, no surprises;

China’s services PMI rose to 54.0, from 51.7, according to HSBC.

Chinese banks loaned a total of Yuan 370 bn in January, up from Yuan 320 bn in the corresponding period last year

Indian January services PMI came in at 57.7, much higher than December’s 55.6. The services sector is the largest part of the Indian economy – better news;

EZ December retail sales declined by -0.8% M/M, as opposed to the -0.5% expected. November was revised lower to -0.1%, from +0.1% previously. Y/Y, retail sales were -3.4% lower, much weaker than the -1.4% expected;

EZ final January services PMI came in at 48.6, as opposed to 47.2 in December, though higher than the flash reading of 48.2. Spanish final services PMI was much better than initial estimates (indeed, the highest since June 2011, though still in contraction territory), with Germany slightly better. France was in line, though Italy was much weaker;

EZ final composite PMI came in at 48.6, above the flash reading of 48.2 and 47.2 in December, a 10 month high – Germany was the main contributor, of course. Interestingly Markit, the producer of the index, reports that the contrast between Germany and France is the widest since the survey started in 1998. This is the real problem and, quite frankly, I see no solution for France, in particular, based on its current policies. And the Euro is at US$1.3550 !!!!;

President Hollande is clearly worried about the recent rise of the Euro. He proposes that the EZ formulate a common forex policy. I quote “We cannot let the Euro fluctuate as the market decides”. Does that mean intervening in the forex markets? Theextraordinary outburst just emphasizes the problems facing France – expect further verbal rhetoric to try and reduce the value of the Euro, in particular by the French;

Finally, some better news from the UK. January services PMI came in at 51.5, as opposed to 48.5 and higher than the 49.5 expected. In addition, the British Retail Consortium reported that retail sales rose sharply in January. Y/Y, the value of goods sold rose by +1.9% on a like-for-like basis (+3.0%, if you include sales from new shops) and well above the +0.3% rise in December. Clearly UK shoppers were waiting for the post Christmas sales. The improvement suggests that consumer confidence will have risen. Phew, maybe, just maybe, I won’t have to wear the dunce cap. The services sector is by far the most important for the UK economy. Just 1 months figures, but I continue to believe that the UK is performing better than recent data;


Asian stocks declined from 18 month highs today on fears over Spain and Italy, in particular, though the Shanghai Composite continued higher, as sales from one of China’s largest property companies came in better than expected. European markets are rebounding today, as Italian and Spanish bond yields are declining, following yesterday’s selloff. Will the political problems in Spain force Rajoy, finally, to ask for help from the ECB/EZ. Well, the chances sure are greater. Spanish press report that Spain will ask for a relaxation of their budget deficit targets. Well they were never going to make them anyway. In Italy, Mr Berlusconi’s party continues to improve in the polls. The only good thing is that its still early – time for a reality check to dawn on his prospective supporters. Whatever, I am starting to reduce my equity positions. US futures suggest that markets will open around +0.5% higher.

Some very strange action in the Euro. From the UK market open, the Euro rose some 100 bips against the US$ and traded as high as US$.1.3563. Yes, the revisions to the EZ services/composite PMI were better and Italian/Spanish bond yields are lower, but the retail sales data was bad. There are a lot of unconfirmed reports, but in these circumstances, such reports are generally unreliable and just made up by traders talking their own book. In any event, my short Euro position (against the US$) is not looking healthy The Euro is currently at US$1.3517 – finally some sense. However, the Yen weakened on the news that Shirakawa is to retire – some compensation.

Spot gold is trading at US$1674, with March Brent at US$116.44 – just won’t stay down.

Still feel that the market is overbought, far too complacent and due a correction.


-Kiron Sarkar, 5th February 2013

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