|
The
situation in Europe is taking a turn for the worse as the Prime Minister of
Hungary says Hungarian economy is in a "very grave situation and talk of
a default is not an exaggeration".
Please consider Hungary’s
Forint Weakens to 12-Month Low; Bonds, Stocks Plunge
Hungary’s
forint weakened to the lowest level in a year, the nation’s stocks
plunged and government bond yields had the biggest increase since November
2008 after a spokesman for Prime Minister Viktor Orban said the economy is in
a “very grave situation.”
The forint depreciated 2.1 percent to 287.73 per euro at 2:28 p.m. in
Budapest, the weakest level since June 2009. The extra yield investors demand
to own Hungary’s debt over U.S. Treasuries rose 93 basis points, the
most since November 2008, to 4.12 percentage points, according to JPMorgan
Chase & Co.’s EMBI Global Index. The BUX Index of equities tumbled
7 percent.
Hungary’s economy is in a “very grave situation” because
the previous government manipulated figures and lied about the state of the
economy, Orban’s spokesman Peter Szijjarto said at a press conference
in Budapest today. Talk of a default is “not an exaggeration,”
Szijjarto said. European equities and U.S. stock-index futures fell after the
comments.
Hungary secured a 20 billion-euro ($24 billion) loan from the IMF, the
European Union and the World Bank in October 2008 to avoid default as the
global financial crisis spurred investors to avoid the country and sent the
economy into a recession.
Orban, who took over May 29 after winning elections by pledging to cut taxes
and stimulate the economy, yesterday failed to get EU approval for looser
fiscal policy.
Whatever
You Do, Don't Tell The Truth!
Here is an interesting quote from the article.
“The new government needs to think a bit more clearly about
communication with the market. You simply cannot talk like this in these
markets” said Timothy Ash, head of emerging-market research at
Royal Bank of Scotland Group Plc, in an e-mailed comment.
Translation "No matter what the problem is ... please don't tell the
truth!"
US$ Index Weekly
Euro vs. Dollar Weekly Chart
On news of the "Save the Euro Plan" the Euro bounced all the way up
to 1.31 (see previous red candle). However, the Euro could not hold the gains
for even a few days.
Now, the Euro is making fresh new lows.
Euro Swiss Weekly
This is a chart of the Euro vs. the Swiss Franc. I think it is the most
interesting of the lot because the Swiss Central Bank has openly intervened
in the currency markets in an attempt to suppress the Swiss Franc.
Swiss franc intervention cost a billion a day in April
Inquiring minds are reading a May 21, 2010 Financial Times Alphaville article
Swiss franc
intervention cost a billion a day in April
Data
just released show that the SNB increased its holdings of foreign currency by
an extraordinary CHF28.5 billion in April – almost CHF1 billion a day.
This means that, in the first four months of this year, Herr Hildebrand had
gobbled up CHF58.9 billion of a money nobody else much wanted to own –
on top of which we have to add what is likely to be a sizeable sum of flight
capital ‘absorbed’ in the first turbulent weeks of May
(€9.5 billion on Wednesday morning alone, according to market rumour).
Making a simple estimate that the overall intervention this month has at
least matched that undertaken in April (a decidedly conservative guess), the
Bank will have amassed around CHF80 billion so far this year, a total of
which the mighty PBoC would not be ashamed and one, even more remarkably,
equivalent to around 45% of the Confederation’s entire private national
income for the period.
Not only has the SNB therefore seriously diluted its existing
citizen-shareholders’ equity stake in their own country (think about
it), it has gone some good way into turning the Swissy into the Hong Kong
Dollar of Europe, since fast approaching 70% of the asset side of its balance
sheet is currently being held in the form of forex (160% of the monetary
base, 38% of M1), putting the once-proud Swissy well on track to degenerating
to mere currency board status.
With Hildebrand maintaining the stance in the Swiss press that reserves were,
if anything, too low, before his shopping spree – and with the
ECB’s ability to create extra Euros being both essentially limitless
and in inverse proportion to its Northern members’ desire to hold them
– the Swiss are in danger of selling out their remaining economic and
monetary independence in the name of a mercantilist desire to buffer their admittedly
important exporters from the malfeasance of their neighbours’
governments.
Alphaville attributed the above snip to Sean Corrigan of
Diapason Commodities.
Currency Intervention Simply Does Not Work
As I have said before many times. Currency intervention simply does not work.
For a look at Japan's currency intervention in 2003-2004, and other currency
intervention madness, please consider Currency
Intervention And Other Conspiracies
Once again the results speak for themselves.
Swiss Franc Libor Falls; SNB May Curtail Intervention
After amassing billions in Euros in a foolish as well as losing attempt to
suppress the Swiss Franc vs. the Euro, I find myself laughing at this
Bloomberg headline just yesterday: Swiss Franc Libor
Falls; SNB May Curtail Intervention.
The
rate banks say they pay for three-month loans in Swiss francs fell to a
record low, potentially sparking inflation and compel the nation’s
policy makers to let the currency rise, according to Citigroup Inc.
The Swiss National Bank has intervened to curb the currency’s gains by
pumping francs into the market, said Michael Hart, a foreign-exchange
strategist at Citigroup in London. That risks stoking inflation, which
accelerated a more-than-forecast 1.4 percent in April, he said. The SNB says
consumer-price growth may be 2.2 percent in 2012.
“It indicates they will need to tighten policy and stop intervention
over the coming months,” Hart said yesterday in a phone interview.
“The SNB has flooded the market with liquidity as a result of the
interventions.”
The Swiss franc was little changed at 1.4153 per euro as of 11:50 a.m. in
London.
As of right now,
the Euro fell to 1.40 vs. the Swiss Franc after touching a new low for the
move this morning at 1.393.
I think Michael Hart, Citigroup's foreign-exchange strategist in London is
off his rocker in suggesting the Swiss national Bank is about to tighten.
However, if they do, the Swiss Franc will go soaring vs. the Euro.
Look at the holes central bankers dig attempting to defeat the markets. The
track record of central bankers learning anything from the failures of other
central bankers is a perfect zero percent.
Mish
GlobalEconomicAnalysis.blogspot.com
To
sign up for a free copy of Sitka’s Monthly Client Newsletter,
please register your email address at the bottom of the Sitka Pacific Commentary Page.
Mish's Global Economic Trend Analysis
Thoughts
on the great inflation/deflation/stagflation debate as well as discussions on
gold, silver, currencies, interest rates, and policy decisions that affect
the global markets.
|
