Weaker Chinese growth means less demand for raw materials and equipment imports. It also means that less money is being earned for use in the markets. The overnight repo rate just crossed 5% again. The last time that happened, the rates quickly went parabolic. Rumor has it that the PBOC is attempting to jawbone rates lower, but talk seems to be insufficient at this juncture.
Whenever a single shred of positive news comes from the Eurozone, mainstream media members rush to be the first to call the beginning of the recovery. Today’s Chart of Truth illustrates how far the Eurozone is from strong economic growth. Three of its four largest economies continue to contract while its largest, Germany, is stagnant. Unemployment remains at record levels, and banks continue to shrink the amount of loans that they’re originating.
A recovery is simply not in the cards. During a recession, input prices should fall sufficiently to make new investment very cheap. Unfortunately, money printing throughout the world has maintained the high prices of energy, raw materials and labor. Without low prices and credit, the Eurozone economy will stagnate at best when it requires robust growth to reduce debt levels.
Pending home sales fell in June in response to rising mortgage rates. While pending home sales remain near recent highs, the effect of higher rates is lagging, which portends a larger drop in this figure in July.
Silver has taken a much greater beating than gold. Unlike gold, there is a definite oversupply problem. In order for silver to rise, demand will have to increase from speculators as industry as more than enough of the metal. This will happen if gold breaks out of the doldrums.
The article shows both why Europe needs a banking union with a common resolution template and why it will never get one. The EC has refused to approve Italy’s bailout of MPB, because the Italian government is being very soft on the various stakeholders of this politically connected bank. The EC want more pay cuts, more job cuts, more pain for creditors and more capital reserves. Italy, on the other hand, wants to protect the status quo for its ruling class just like every other Eurozone country. Eventually, both sides will reach a compromise, but don’t be surprised if the Germans support what the Italians are doing. Remember that Germany is the home of the world’s most leveraged bank, and this institution is also politically well-connected.