Equities received a modest boost in USA in late trading on Monday evening as news emerged that Italy is apparently courting China trying to get it to buy as much of it’s ‘junk’ as possible. Apparently these negotiations have been conducted ‘in camera’ for weeks but only now the news has leaked. Desperation or inspiration, has the saving of the Euro now gravitated to cheap publicity stunts?
Italy aims to sell “significant” quantities of bonds and stakes in strategic companies. Any rumours that they’re trying to sell the refuse collection contracts in Naples by way of “an offer they couldn’t refuse” is yet to be verified. Whether or not Italy’s involvement in Libya, (where circa 30,000 Chinese workers fled as NATO bombs rained down), will be a stumbling block is anyone’s guess.
What is for certain is that China is in an acquisitive mode, Bloomberg is reporting that China National Petroleum Corp. offered the highest royalty and a refinery to win Afghanistan’s first oilfield auction last month, using a strategy that helped Chinese companies gain access to African resources. The deal, to be completed in a month, will boost China’s position as its neighbour’s biggest foreign investor after a state company won the right in 2007 to mine the biggest copper deposit in Afghanistan by pledging to build a coal mine, power plant, smelter and railroad.
Presumably Timothy Geithner the USA treasury secretary is not visiting Poland to ‘do a Berlusconi’, Reuters are suggesting he’s very concerned with regards to the potential for contagion if Greece defaults. Having returned to the USA after the G7 meeting in Marseille over the past weekend his unnecessary jet lag will hopefully wear off as he meets Euro zone leaders exclusively. It would represent a first for a USA treasury secretary to attend a meeting of Euro zone finance leaders. Suggestions are that are Greek stabilisation can only be affected by bond holders agreeing to fifty percent haircuts, as to how much sway and persuasion Mr. Geithner can offer remains to be seen.
The SPX finished 0.8% up from a position of circa 1.5% down at certain times during the trading session. As a consequence of the renewed optimism Brent crude advanced in late trading and the ftse daily future is suggesting a positive opening on Tuesday morning. The Euro has recovered from it’s position of lows versus the yen not seen since 2001.
French banks were pummelled in Monday’s trading sessions, as the contagion of Greece continued and the rumours of credit downgrades by Moodys refused to disappear. Soc Gen fell by circa ten percent and quickly announced a disposal of assets in order to shore up it’s balance sheet. A four billon infusion by way of distressed sales is a drop in the ocean in comparison to the bank’s shrinking share capital which has fallen from €110bl in 2007 to €12bl today. The attrition of European banks’ share capital since 2008 is still in hide behind the curtains territory.
Scandinavian countries are continuing to ‘enjoy’ a flight into their currencies as the new safe havens. Naturally this phenomena has accelerated with the news last week that the Swiss Central Bank will go to any lengths to prevent further damage to it’s economy by way of a stronger franc. The SNB even went so far to suggest they’d buy copious amounts of others’ currencies to prevent further appreciation of their currency. The potential for James Bond Blofeld style ‘white cat on lap’ ironic laughter, with the thought that the gnomes at the SNB may be diversifying and hedging by buying Scandinavian currencies, has not been lost. Reuters have provided a neat video commentary on the subject of the attraction of the Krone and other currencies.
More bad bank news came on Monday in the form of an early jobs knock so soon after the last USA NFP report. Bank of America will slash circa 30,000 jobs, ten percent of it’s workforce. This news arrives as the Republicans verdict on President Obama’s jobs act speech of late last week is a condescending “must try harder”.
Early morning data releases, for those FX traders amongst us concentrating on the London session, includes the release of the UK trade balance and the inflation figures, both RPI and CPI. Expectations for the trade balance are a modest improvement in the UK’s deficit. CPI is expected to increase marginally from 4.4% to 4.5%. RPI is expected to increase from 5.0% to 5.1%.