Slow Week, Weak Euro
December 27, 2016
Dennis Gartman is editor and publisher of The Gartman Letter, and strategic advisor of the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN). He regularly contributes to AlphaBaskets and lends his institutional insight to educate advisors and investors about commodities and the forex markets, including about trading gold in different currency terms.
The forex market is rather quiet as one might expect given that the UK markets are closed today and given that the market in Canada too is closed. Trading took place in Asia however, and the dollar is stable relative to the EUR and to the Yen, but there is action in the gold market and gold, as noted below at some length, is strong in all currency terms.
That said, the EUR remains weak on balance and all we can suggest is that the failure… and that is truly what it was: abject, utter and complete failure… of the hoped-for private bailout of the Banca die Monte di Siena has resulted in the government in Rome taking the reins of the bailout and dropping this entirely into the lap of the Italian public. Monti dei Paschi has been bankrupt for years but has been capitalized, recapitalized and recapitalized again and again and again until such time as there are no more “dupes” to be found to recapitalize it once more. The “Jig” as they say, “Is up.” The game has ended.
Now this means one thing and one thing only: the Bank of Italy has no choice but to buy and keep on buying Monte die Paschi’s debts that are now Italian government debts and as a result, the ECB has absolutely no choice but to continue to buy €80 billion/month in its QE experiment. There was talk previously… wonderful whistles past the proverbial graveyard as it were… by some who were bullish of the EUR that the experiment in question was about to come to an end. It is not. It is set to expire at the end March but it will not end. It will be rolled over again… and perhaps again and then yet again taking the experiment on into early ’18 and it may not end even then.
Making matters immeasurably worse, the Bank has itself said that its “net liquidity position”… which was last week €10.6 billion… will turn negative in four months. The Bank reckons that it will have net negative liquidity of €15 million… not billion this time; “only” €15million, but do remember that that is down from €10.6 billion… by May and that that may grow to a truly stunning €750 million (swiftly closing in on the “billion” level) by December! Oh, and as our friend, Grant Williams of the always amazingly insightful “Things That Make You Go Hmmm!” reported that Monte dei Paschi has already lost 11% of its deposits between January and September of this year… €14 billion (and there’s that “billion” figure once again)… and we suspect that that outflow has only just begun in earnest and will turn torrential after the turn into the New Year [Ed. Note: Monte die Paschi’s management said, officially last evening, that its liquidity position “has quickly deteriorated” between the end of November and December 21st. Is anyone, even marginally surprised?].
Turning to Japan for a moment, the government was disappointed today to report that consumer prices fell yet again and for the 9th time in a row. Worse yet, prices in Tokyo, which of course sets the tone for the rest of the country, fell the most. According to the government, “core” consumer prices… which includes energy but which excludes fresh food… were down 0.4% in November from those of a year ago. The “Street” in Tokyo had been looking for a decline, so that fact that prices were down was not terribly fascinating, but the consensus was that the yearon-year decline would be “only” 0.3% and so the “miss” was dismayying to many. As for “Core prices” in Tokyo? They were -0.6% year-on-year and that clearly was a “miss” of some material magnitude.
The Bank of Japan really hasn’t any choice then but to also continue its aggressive experiment with QE and any thoughts of “tapering” the purchases of JGBS that might have been considered by a few of the members of the monetary policy committee shall have to be abandoned.