Roger Baettig

Falling gold may well be blamed on growing signals from Federal Reserve officials considering slowing down the pace of asset purchases from its current $85 bn/month.

Since equities had reached bottom in June 2012, major indices have rallied 21% to today, compared to -1% for gold bullion and -20% for the Gold Bugs index – An index of the 16 most popular gold mining companies.

Are the euro's gains just starting as the ECB balance sheet shrinks further from LTRO repayment? 278 European banks have repaid €137 bn in the first LTRO operation, which raised € 489 bn in December 2012.

The ECB's final press conference of the year triggered euro selling on a combination of downward revisions in growth and inflation as well as Draghis indication that discussions over interest rates remained ongoing.

Fresh four-year highs in monthly US building permits and housing starts at 894K and 872K respectively, are consistent with the 43% and 36% increase in US existing home sales and new home sales from their respective 2010 lows.

Tasmania currently holds the unwanted distinction as the cigarette epicentre of Australia and if state authorities would have their way, they would want not only to erase that image but also to create a generation of non-smoking Tasmanians.

ECB president Draghi has succeeded in reducing the relevance of the Bundesbanks opposition to bond purchases by making bond-purchases dependent upon ESM conditionality. And by integrating the conditionality of the ESM/EFSF plan into the much-needed bond purchase program, Draghi has also firmly sent the ball back into court of national governments.

More evidence of the German locomotive dragged down by the rest of the European continent as German manufacturing PMI dips to 45.0, its lowest figure since May 2009. The French version of manufacturing PMI hit 44, also a 36-month low. EURUSD hits a fresh low on the year at $1.25, down 3.3% year-to-date, and down 7.0% from its February highs. Our warning that the PMIs were a more effective leading indicator than the IFO or ZEW was first made in March, stating the reasons in more detail.

Recent intermittent bounces in EURUSD in the face of surging Eurozone spreads are said to be reflecting possible liquidation by European banks unloading US assets to relieve an ensuing shortage of US dollars. Other explanations were attributed to the IMF buying Irish and Portuguese bailout tranches during the late European trading hours, taking advantage of cheaper levels (lowest since Feb 15). But as long as traders find no confidence in battling the coordinated efforts of asset-buying central ...

This helps explain the weaker than expected 2.0% rise in personal consumption expenditure (PCE), following 1.7% and 0.7% in Q3 and Q2 respectively. The PCE chart (red graph) shows a potential dead-cat bounce, which may fail to regain the 3.6% high attained in Q4 2010. Finding the growth will be challenging, especially as stalled US budget negotiations risk forcing $1.2 trillion sequesters (automatic cuts in discretionary spending) starting this year.

Today's coordinated central bank liquidity injections coincide with liquidity concerns (USD LIBOR nearing the highs of June 2010 at 0.53%); policy concerns (EFSF & austerity deadlock), geopolitical concerns (storming of UK Embassy in Tehran) and solvency concerns as signaled by implicit (voluntary) default from Greece.

Wednesday's 2% decline in EURUSD was the only 3rd of such magnitude over the past 3 years. There have been five of + or 2% in the last 3 years, 2 of which occurred last month; (-2% Oct 31 after referendum announcement and +2% on Oct 27 after the EFSF/Troika/recap deal). Yesterdays 13% surge in EURUSD 1-month volatility typified the broadening rise in the currency's volatility as of late.

The FOMC has done what was expected via Operation Twist; buying the same amount of Treasuries ($400 bln) as much it will sell, thereby maintaining the size of its balance sheet at $2.87 trillion. This explains today's jump in USD. And the fact that the Fed stayed away from cutting interest rate on overnight reserves is another positive for USD & negative for equity indices.

As risk currencies become quickly overcrowded and range-bound equity indices remain the territory of traders rather than investors, silver once again appears as the notable gainer, characterised by richly similar fundamentals to gold. The only thing is that silver is trading 20% below its record high.

It was no surprise that Bernanke did not dare utter the words QE3 on Wednesday's press conference. Yet, there was no need to refer to further easing when the FOMC already downgraded its growth outlook for the 3rd successive meeting.

These charts could seem like the perfect set up for USD upside. It was about a month ago (week ending Mar 18) that USD net shorts bottomed at a 3 year low. Six weeks later, USDX hit a 3-year low thanks partly to a 500-pip decline in EURUSD. We've already argued the case against any considerable USD rebound on here.

This headline-charged first week of May has been dominated by the announced death of Osama Bin Laden, a historic 5-cent retreat in the euro and the greatest weekly decline in silver. But the week could have witnessed a positive transition (another one) in favour of precious metals. Here is why;

China's latest action to raise banks' reserve requirement ratios is no longer weighing on market sentiment as participants expect the more aggressive option of higher interest rates (borrowing and lending). The overnight decision to hike RRR for the 6th time this year is seen as part of a broader tightening. With 1-year lending rates standing at 5.56% and deposit rates of 2.50% below 4.40% CPI, the case for higher rates into 2011 remains intact. This helps explain why Shanghai Composite In...

March corn was 7 3/4 cents higher overnight. The dollar was modestly lower. Deliveries against the December corn contract were 1,128 contracts this morning.

US dollar stabilizes up as US bond yields push higher following the 93K increase in Nov ADP (highest since Nov 2007) and the October revision to +82K from +43K. US 10 year yields jump to 2.91% from 2.79% earlier, further boosting the "good-data-is positive-for-USD" reaction, which was not always apparent. Although the euro is holding firm, general FX dynamics are increasingly similar to exactly a year ago when USD strengthened in early December 2009 on a combination of strong US Nov jobs r...

Aside from Korea skirmiches and the FBI raids of several US hedge funds, rising Eurozone credit spreads extend beyond Ireland as Portuguese, Spanish, Greek and Italian 10- year spreads relative to Germany hit their highest sinc Nov 11-12). Good US data (US Q3 GDP revision to 2.5% from 2.0%) is good for the US dollar as was proven after last week's Philly Fed survey, as data weakens the case for buying the entire $600 bln in QE2. Korean border fire, FBI raids of US hedge funds & prolonged Iris...

India's annual food inflation eased somewhat to 16.24% for the week ended September 25 against 16.44% in the previous week, as supplies of essential items resumed in most of the parts of the country after witnessing a sustained disruption due to heavy rains and floods in parts of the country.