European Inflation Rises, Confidence Retreats And Unemployment Lingers

The euro zone released a batch of important data including CPI estimate, confidence and unemployment, yet attention is more inflation data as it may provide some evidence of the ECB's action next month.

China PMI Rises, Payrolls Expand, Markets Rally

NFP rose by 216,000 workers in March after a revised 194,000 gain in February, according to numbers released today, mostly in line with expectations. The jobless rate dropped to 8.8 percent from 8.9 percent in February.

The numbers show that the public sector added 14,000 people last month, indicating depressed hiring at the local level, while Federal government increased payrolls by 1,000. Factory payrolls improved by 17,000, which is less than the survey forecast of a 30,000 gain.  Services employment rose by 185,000 in March, which is the highest monthly gain since May 2010, while construction payrolls fell 1,000 and retail trade employment increased 17,700.

On the whole these numbers show that the Fed`s effort to encourage U.S. Consumers to maintain their earlier habits has had some success, since the improvement in services hiring would be hard to explain in the absence of a matching improvement in overall economic data. The data also suggests that the U.S. Government`s pressure on the Chinese to appreciate the USDCNY will be less of an urgent focus in bilateral relations, now that the old regime of economic relationship shows signs of being resuscitated, albeit temporarily.

In that light, it is not surprising to learn that China’s Purchasing Managers’ Index rose to 53.4 in March from 52.2 in February, registering its first increase in four months. Even as the Chinese government`s attempts to cool down the economy bear some fruit, the economy appears to be benefiting from better U.S. performance. Chinese stocks responded positively to the release, but Japan underperformed on the back of continuing uncertainty about the nuclear issue.

In a sign of what is driving the U.S. economy in the aftermath of the Fed`s aggressive actions last year, today`s news reports show fixed income investors flocking to high-yield as investment grade debt of all kinds deliver historically low returns. Speculators of varying backgrounds are believed to have channelled some $14.4 billion into high-yield mutual funds so far in 2011. That is compared with $31.5 billion in all of 2010, bringing yields lower as returns of about 88 percent since the end of 2008 is more than double the gains of the S&P 500 stock index.

Markets received the Chinese PMI data positively, and coupled with a rebound in Europe, the optimism in Asia was enough to lift stocks around the world. The USDJPY was lower, while pairs where the dollar serves as the funding currency were higher, in response to stronger market sentiment.  Libya remains in an uncertain situation, but the victory of the loyalist forces against the rebels near the oil producing town of Ras Lanuf seems to have boosted the price of oil and commodities today, in spite rising inflation risk.

U.S. Markets Find Some Strength on EM Interest Rate Rises, Fitch Cuts Greece

U.S. markets are happy, somehow, that emerging markets tightening to combat the effects of U.S. Fed imposed money inflows and consequent inflation will improve the appeal of domestic stock markets, and maintain the current momentum to higher levels. It is, to say the least, a very strange point of view. We wonder if it wasnt the Fed`s promise to pump money into the bond market that lifted the equity markets out of their depressive mood, and fuelled the global rally that has been going on since September. Up until Mr. Bernanke`s clarification that he would do whatever it takes to float the economy, a recession was being anticipated. The strong performance of emerging markets, the appreciation of their currencies, and the improvement in their consumption trends that ensued, was clearly the major if not the main driver of the turnaround. And now, we`re elated that emerging market demand will contract in consequence of rate rises? Where is the sense in that, and on what kind of basis do people generate such analyses?

On no basis, naturally, since markets are driven by impulses, not commonsense. Not that commonsense would have benefited us any way, since, even that doesn`t seem to be enough to help us in the face all the strange contradictions that are popping up around the world. But as human beings, we tend to believe that being reasonable is an advantage.

A very interesting piece of news came from the North African Nation of Tunisia this year where the President in power for the past 23 years, Zine ElAbidine ben Ali has quit his office, and and finally was forced to  flee the country after massive protests proved to be too much for his regime. Dismayed by high unemployment and a very corrupt administration, Tunisians have ousted their dictator from power. It is a good sign for the world at large that another dictator has been forced to say farewell to his palaces, police, and powers, but from a more general vantage point, it is not really that clear that the recent events will prove to be constructive for the trends that the optimists expect. The loss of economic stability has damaged social accord and political harmony in many nations around the world, and as the global society transitions from its present state of disequilibrium to a new mode of existence, events of strong impact must be anticipated.

In Europe, Fitch has cut Greece`s long-term debt rating to BB+, which is a junk level , and maintained the negative outlook in place for the country. Moody’s lowered its ranking for  Greece to Ba1 on June 14 and S&P rated the country at BB+ from BBB+ on April 27. The Euro wasn`t impacted by the news, and is in fact somewhat higher on the day. Since stock markets around the world have been performing reasonably well, it seems that the currency has been supported by the general optimistic mood, apart from anything specific.

Stocks, currencies fell, as markets anticipated Chinese rate rises

Events Friday appeared to be dominated by the release of Q3 Chinese GDP data, which came at 9.8, above the expectation of 9.4-9.6 current in the market. Inflation is reported to have eased to 4.6% in December, but that will provide no change to the government`s assessment of the current situation, and the need for rate increases, since price pressures in the commodity market, and the domestic sector leave very little room for any delay of the necessary action. We should recall that the government`s inflation target is just 3%, way below the 4.6% just mentioned.

The expectation of Chinese tightening has battered gold prices, which were lower to as much as $1345 per ounce during the last day of the week, as oil was similarly sold, losing around 2.65% off its value in Friday`s trading. We expect the difficulties in the commodity market to continue for the first half as the Chinese need to tighten is very real. In any case, prices of some commodities like silver and oil are probably already out-of-synch with their fundamental and technical trends, so a reversal of course will not be surprising. Still, we don`t expect the Chinese to be too aggressive with their tightening, and since the Fed will keep undermining the dollar, commodity trends will survive in the longer term, barring a major catastrophe such as a disorderly breakup of the Eurozone.

In separate developments, in a speech today Hu Jintao, the Chinese President, emphasized the necessity of "U.S. respecting Chinese sovereignty over Tibet and Taiwan", warning that acting in the opposite direction would create tensions in the Asia-Pacific region. He was rather frank in his words, saying that the history of bilateral relations shows the potential for steady growth if the countries respect each other`s points of sensitivity, concluding that "otherwise our relations will suffer constant trouble or even tension".

China`s concerns about about Tibet and Taiwan are well-known, of course. The Tibet issue  is probably the easier one, since, apart from the well-publicized protests of the Dalai Lama, and the occasional censure of various international bodies and U.S. Congress, there is not the remotest possibility that the Tibetans will be able to throw away the yoke imposed on them, or that the Chinese will face any significant security risks. India, which is the only  relevant  Asian backer of the Dalai Lama, has been trying to improve relations with the Chinese recently, and another conflict over the Aksai Chin or any Tibet-related issue seems extremely unlikely.

The Taiwan problem is an altogether different matter. We believe that the Chinese are make a mistake by playing their cards so openly, and leaving no room for doubt in their relations with the Americans. Arguably, this is born of their desire to maintain stability through an effective diplomatic deterrent, in that, if their partners and rivals are aware of what they will not be tolerating, the risk of a conflagration should be expected to be lessened. This approach makes sense from a Chinese point of view, since they see themselves as the righteous aggressors over the Taiwan issue, defending Chinese honor and power against the  humiliation of the past centuries. It also means that the Chinese do not expect the Americans to make a first move, such as inciting the Taiwanese to some declaration of independence, or an equivalent action that would force them to take action in terms defined by the U.S. It is unclear how much of a risk this poses for China over the longer term.

Apart from the propaganda value of such a stance, it is hard to see what strategic benefit the PRC gains from its current stance on the Taiwan issue. The U.S. can at any moment trigger a highly predictable Chinese response by encouraging the Taiwanese leadership to be more aggressive about the independence issue, potentially creating a crisis situation in which the Chinese have little opportunity to adapt to the emerging situation. The PRC leadership is, undoubtedly very well aware of this risk, and its very buildup of forces in the region, strong concentration of naval and air forces is probably directed at giving a clear sign of how powerful its response will be in case that a Taiwan crisis emerges. President Hu`s recent comments in the U.S. emphasizing this point, are to be understood in this context, and not a sign of belligerence or hostility, in our opinion.

On  the CNY issue in Washington, Democratic Representative Sander Levin of Michigan is reported to be planning to introduce a legislation as early as Monday next week, which will be reproducing the language of a similar bill passed by the House in September 2010. Hu`s response, while being questioned on it by senators, was that the problem is that "we, the China are more productive", and "have lower labor costs", according to Senator John McCain. Not very constructive, but one cannot expect Hu to say much else either. We are surprised that he was so candid with his answer.

In short, Friday was not a good day for stocks, commodities, or risky currencies, with the dollar, yen, and bonds generally being the better performers. We don`t expect this to change much in the near term, with the trigger point being signalled by Chinese rate rises, and their end marking the reinception of the previous bull trend. On U.S.-China relations, the main concern remains the currency issue, since, as both political parties are deeply out of touch with voters, it is but a matter of time that the politically lucrative, and low-cost USDCNY issue becomes too enticing a target for exploitation.  In the meantime, smiles will be maintained, since big business has as big a stake in seeing the status quo continue just as the Chinese leadership does, and with so much cash to spread around, it seems that the resolution can be delayed for quite a while.

U.S. Markets Find Some Strength on EM Interest Rate Rises, Fitch Cuts Greece

U.S. markets are happy, somehow, that emerging markets tightening to combat the effects of U.S. Fed imposed money inflows and consequent inflation will improve the appeal of domestic stock markets, and maintain the current momentum to higher levels. It is, to say the least, a very strange point of view. We wonder if it wasnt the Fed`s promise to pump money into the bond market that lifted the equity markets out of their depressive mood, and fuelled the global rally that has been going on since September. Up until Mr. Bernanke`s clarification that he would do whatever it takes to float the economy, a recession was being anticipated. The strong performance of emerging markets, the appreciation of their currencies, and the improvement in their consumption trends that ensued, was clearly the major if not the main driver of the turnaround. And now, we`re elated that emerging market demand will contract in consequence of rate rises? Where is the sense in that, and on what kind of basis do people generate such analyses?

On no basis, naturally, since markets are driven by impulses, not commonsense. Not that commonsense would have benefited us any way, since, even that doesn`t seem to be enough to help us in the face all the strange contradictions that are popping up around the world. But as human beings, we tend to believe that being reasonable is an advantage.

A very interesting piece of news came from the North African Nation of Tunisia this year where the President in power for the past 23 years, Zine ElAbidine ben Ali has quit his office, and and finally was forced to  flee the country after massive protests proved to be too much for his regime. Dismayed by high unemployment and a very corrupt administration, Tunisians have ousted their dictator from power. It is a good sign for the world at large that another dictator has been forced to say farewell to his palaces, police, and powers, but from a more general vantage point, it is not really that clear that the recent events will prove to be constructive for the trends that the optimists expect. The loss of economic stability has damaged social accord and political harmony in many nations around the world, and as the global society transitions from its present state of disequilibrium to a new mode of existence, events of strong impact must be anticipated.

In Europe, Fitch has cut Greece`s long-term debt rating to BB+, which is a junk level , and maintained the negative outlook in place for the country. Moody’s lowered its ranking for  Greece to Ba1 on June 14 and S&P rated the country at BB+ from BBB+ on April 27. The Euro wasn`t impacted by the news, and is in fact somewhat higher on the day. Since stock markets around the world have been performing reasonably well, it seems that the currency has been supported by the general optimistic mood, apart from anything specific.

Markets Take a Deep Breath Before the Irish Vote, Gold Rises

Gold was close to its nominal all-time high today, reaching as high as $1419 per ounce, as the Euro fell, and bourses oscillated during the day. The focus is on the Irish budget vote tomorrow, with markets remaining reasonably quiet in the lead-up period.

Bernanke says cheap yuan is bad for both China and U.S. More QE possible if the economy continues to underperform.

The limited bullishness in trading was a result of the focus on Ben Bernanke's comments today during interview for the CBS program "60 minutes", in which the chairman made it clear that he and his team are prepared to go further beyond the $600 billion in bond purchases and similar operations if the sluggishness of the economy persists.

On the USDCNY issue, he stated that the Chinese must allow greater flexibility for the yuan so that they do not have to adopt the same monetary stance as the Fed, and can combat inflation by pursuing their own independent stance based on domestic factors. He maintained the line adopted by Treasury Secretary Geithner that the Chinese position is untenable and harmful to the U.S., China, and their trading partners. On the whole, the currency issue appears to have been left almost entirely to the management of the Treasury Department, and Mr. Bernanke's comments do not signal any change.

The chairman was asked some questions about the external debt of the U.S., to which he replied in an optimistic but cautious tone, saying that while the U.S. does not face a confidence or solvency crisis at the moment, Americans should not "wait however many years it takes until we are at that point". He maintained his cautious tone in response to questions about budget cuts, stating that the U.S. must avoid hasty budget cuts, although something needs to be done to manage the rising debt burden.

Although in this particular case, Bernanke did much to say nothing while talking a lot, in general it is hard to fault the Fed Chairman for indecisiveness, or lack of clarity. The ECB for instance, finds it difficult to find a common stance nowadays, and is a hotbed of dissession of conflicting opinions. Rapid reversals of course are common. The Fed, on the other hand, presses on with its conclusive main theme of printing as much money as it can in order to keep the economy afloat and preventing a recession, and while the merits of its choices are always open to heated discussion, that it has been communicating its plans sufficiently clearly over the past quarters is not a major point of contention. Whether this will benefit the U.S. economy over the long term is a different matter, however.

Merkel threatens to leave the Euro, refuses to commit to an enlargement of the EFSF, CDS rally

The Guardian newspaper has published an article where it is reported that PM Angela Merkel threatened, somewhat lightly, that Germany may quit the Eurozone if her concerns are not heeded. Bloomberg, too, reports that the Germans are unwilling to join the Eurobond idea currently being discussed, and that they don't want to sponsor the proposed increase in the size of the EFSF. At the same time, the same Germans are saying that the Euro is safe, that the Eurozone will not break up, and that they will do their utmost to prevent the risks from threatening the demise of the common market. One must wonder what exactly they have in mind if they are not prepared to pay when the bill comes due, since the cost of the survival of the single currency is not small.

There seems to a degree of consensus among a majority of analysts and commentators that the Germans will eventually have to give in to market demands, if only because the alternative is impractically dangerous and destructive. No one knows how deep the impact of the chain reaction following the implosion of the Euro would be. We quote in this context briefly from report in Bloomberg that reads:

Europe has "no credibility" in ruling out debt restructurings, Kenneth Rogoff a Harvard University professor and former International Monetary Fund chief economist, said in a Bloomberg Television interview broadcast today. "Greece will be very lucky to avoid restructuring, Ireland, Portugal -- they're just in denial, saying it can't happen. They really haven't drawn clear lines, they haven't really said what they wanted to do, they haven't really made choices."

Nor can the nations of the core afford to let them collapse with totally unpredictable consequences for the whole world. So some series of bailouts will follow until Spain reaches the door with open hand.

---

Meanwhile, ECB's Christian Noyer, the Governor of Bank of France, has remarked today that the present measures of liquidity are to be maintained at least until the first quarter of 2011.Many suspect that they may be extended quite a bit further unless the periphery stages a rather unlikely recovery by then.

Although Moody's cut Hungary's sovereign rating by two notches to Baa3, the debt markets were generally stable, after the exhausting widening of the past weeks. The market remains weak, but is not willing to stage any strong move to either side at the moment. This is, after all, a Monday. Our eyes will be on Ireland's vote this week on the 2011 austerity budget, as the government tries to survive with its paper-thin majority. The possibility of failure, and an ensuing general election is preventing the markets from staging a meaningful movement before the result of the Tuesday vote becomes clear.

With respect to the interbank market, the improvement in CDS and peripheral spreads has not been mirrored in the Euribor rates, with the 3-month benchmark moving to 1.028% vs. Friday's 1.027%. Euribor rates have retreated from the 1.050% level reached earlier, but we conjecture that they will reach beyond those levels at some point next year as the usual concerns become transferred to the banks due to exposure concerns. That tensions remain significant in this segment is made evident by the deposit facility usage statistics of the ECB, which show that Eurozone banks placed some Eur84.85 billion in the bank's coffers for interest income versus the previous week's Eur26.93 billion, implying a lack of counterparty trust in the region as uncertainty dominates. These numbers are tempered by the lack of a need, apparently, to resort to the marginal lending facility, which we take to mean that the banking sector remains isolated for now from the issues for as long as the authorities can avoid a breakdown. As Merkel's comments show, however, it is far from clear that this will be the case.

Monday is a quiet day, with few news providing guidance on how the rest of the week may progress. At the same time, we suspect that the Irish vote tomorrow has the potential to wreak havoc on the markets if the result leaves the country without a government during this most difficult period.

More Setbacks for Barack Obama, Gold Rises

Gold has rallied today on the back of positive sentiment in equities which we will be attributing to the year-end effect from now on, unless convincing data on the health of the global economy becomes available over the coming period. In particular, that China`s communicated intention to tighten is not dampening risk sentiment is a sign of over-optimism, unless we assume that market consensus regards the cautious nature of China`s rulers as a sign that the proclaimed tightening phase will be mild and brief. We believe that the outcome in this respect is related to the fate of the USD over the coming months as much as it depends on the domestic Chinese situation, and is a lot more uncertain than it is being factored in by the markets for now.

In any case, the Chinese are out of options, if our analysis of the situation is correct, and although we admit that they are by nature cautious about their decisions, our  emphasis is that the nature of the Chinese economy and the political situation at home and abroad does not facilitate the undertaking of radical solutions.

Every one seems to know that China is facing a serious inflation problem at home. Two interrelated causes, among others, cause for this problem, that of hot money inflows, and that of wage pressures as the labor market in the Eastern, coastal regions becomes very tight after years of preferential treatment of the area. It has been reported to be tight for a while, but because Chinese labor has a hard time making its claims heard, serious changes occur slowly. Against this background, the consensus is that the PBOC must raise interest rates to combat inflation, since the yuan is pegged to the USD, but raising rates is ineffective since liquidity extracted by the central bank is more than compensated by foreign inflows that seek to benefit from interest rate differentials.    At the same time, if the PBOC does allow the yuan to appreciate significantly against the yuan, the extremely imbalanced, inefficient, government-subsidized, and export-biased nature of the Chinese economy poses a risk of collapse which the authorities are determined to avoid at all costs.

Against this argument it is often proposed that the growth of the Chinese economy is fuelled much more by consumption that it is generally assumed, and that the observed overheating is caused not to a small extent by much needed infrastructure investment in a country that is still a third world economy in many ways. While a higher target of inflation is acceptable for any developing economy, and infrastructure investment makes sense in a long-term point of view, experience shows that bubbles are likely to develop where there are the most convincing arguments to support them. Rationalizations on the basis of size and capacity do not negate the evidence supplied by the parabolae on many of China`s economic indicators.

It is difficult, also, to justify the belief that China needs so many factories of low added-value products, because  the country has moved out of the class of nations where such products offer the greatest returns long ago, and remains a profitable destination for their producers only because of the government`s policies that artificially maintain consumer incomes at a low level by investing proceeds in U.S. Treasuries, and other external assets. Indeed, that the government is trying to force domestic firms to invest the country`s wealth oversees, instead of diverting these resources to establish a social security system at home is a sign that the Chinese are beyond their limits in benefiting from savings and investment . Finally, there is the limit posed by physical and natural contraints. The northern regions present such a picture of despair in terms of the quality of the environment that even in the highly unlikely case that the Chinese model, and the people`s tolerance for low wages were not exhausted, it appears that the country itself is very close to its limits.

We must wonder, after all, how much it is the wish of the Chinese to see the income level of the population rise rapidly. It is the explicit desire of the CCP that it will hold on to power for many more years to come (official comments place the lifespan of party autocracy between 25 and 100 years.). Assuming that China is no less  susceptible to centrifugal pressures and the desire for freedom than any other country of its size, it is possible that the Chinese government is intentionally pursuing a path that will prevent the income of society from rising too fast in order to prevent the breakdown of social structures that are  sustaining the party`s grip on power. After all, one plausible way of managing the excess liquidity in the country`s system without raising wages or interest rates is to impose and increase labor taxes on profitable companies in order to improve the confidence of the general populace. But the Chinese are not choosing this path either because they are worried about competitiveness, or because they don`t want to see the population becoming too complacent about the future, and thinking about here and now, with predictable unpredictability for the domination of the CCP.

What happens in this country will determine the trajectory of the globe for many years to come, and since the U.S. and the rest of the developed world are sidelined to a large extent due to the implosion of the past years, we believe that the future of China is almost identical to the future of the world economy.  It is arguable, from a purely analytical point of view, with no thought of the human cost, that a quick disintegration of the Communist Party would bring the easiest transition for everyone. But the CCP is not the Communist Party of the Soviet Union, and in spite of endemic corruption and incompetency, it does enjoy the support and enthusiam of a large section of the population, and can show the rising prestige and wealth of the country, even if it doesn`t imply prosperity, as its accomplishments in defense of its legitimacy. In any case, The Chinese probably do not think much about how much better their fortunes would be if they were ruled by a democratic, more competent and responsible government, since the CCP is all that they have.

In news events, the yields of Chinese CDS have risen last week,on the back of speculation that the country will face difficulties as it tries to bring inflation under control. U.S. sentiment was not impacted by the court decision that struck down a key component of the administration`s health care reform plan, but the development does have long-term significance for the markets in terms of the reelectability of the president. Equities, currencies, gold and oil are rallying, and cautious optimism is the theme of the day for today.

Crude Oil Rises but Underperforms Equities, Gold Positioning Hints Topping

Most crude oil benchmarks are now approaching the psychologically-significant $100 level, but fundamentals suggest that a sustainable break is not yet in the cards.

Stocks End Another Week Higher. Oil rises.

Gold is continuing to fluctuate in the 1380-1390 area, while oil is rising in line with stock market sentiment. Although equities have run out of steam today, December has been a very good month on the whole, and the weakness of the day doesn`t have a lot of significance even in the context of the week.

Oil, in particular, seems to have found a strong basis justified by the uncertainties surrounding the global supply-demand picture, as well as the political tensions in the Middle East. What we understand from the Israeli`s Stuxnet operation is that they do not see inaction as an option, even though they are prepared to be creative in order to protect their somewhat lukewarm relationship with Washington under the Obama administration from further damage. They have bought some time by delaying t Iran`s nuclear enrichment program through highly creative means, while the sanctions contribute to the slowdown by reducing the regime`s field of maneuver. But none of these is a permanent solution, and sooner or later, barring a regime change, or perhaps a gigantic step forward in the Israeli-Palestinian peace process, the Israelis will have to confront the danger of a fully nuclear Iran, which, in fact we believe that they will refuse to accept and will respond to by resorting to some form of aggression in the end.

Naturally such prospects place a floor under the long-term price movements of the commodity. At the same time movements in the commodity complex are going to be dependent on the short term trends of the USD index for direction, and in that context, risk perceptions, and expectations of QE by the Federal Reserve are of paramount value. Our final assessment is that until the Chinese go bust, commodity prices will continue to move higher, and while the European situation may continue to create a lot of volatility now and then, prices are unlikely to be checked meaningfully as the whole world races to devalue national currencies in a shrinking global market.

The favorable outlook for commodities as an asset class is only slightly dependent on the role of supply-demand dynamics. Commentators like to stress that the tight supply of many different industrial goods and raw material is driving prices higher, but the very demand that is creating the tight supply situation is essentially dependent on the flow of credit from advanced nations, and their large speculators and investors, who are, ironically, the buyers of commodity futures on the notion that rising demand will stress  the supply side. The argument seems circular in many ways, and we believe that it is contradictory in essence. The opinions advanced in defense of the multiple bubbles in this sector are lacking in logical basis, and are only being listened to because the opposite case is neither pretty nor constructive for the long-term outlook. The idea that the authorities are building up bubbles of a size which will probably dwarf the subprime bubble once they explode, and is not very pleasant to listen to.

Gold is a commodity as well, and it is difficult it to expect to survive a lasting commodity crash when it does happen. Still, it could survive for a couple of quarters as speculators anticipate the total breakdown of the world`s financial structures, with trust in governments, politics, and trade partnerships rapidly evaporating. One can conceive of a situation in which the worst case scenario materializes and we see gold skyrocketing to extreme levels, but the more moderate, and still severely damaging outcome where a rapid readjustment of imbalances leads to cash squeezes, price controls, imposition of tariffs seems a lot more likelier. In this case, prices would be quickly targeted by international bodies and large owners of the metal in order to undermine trust in the metal, and to boost the profile of central bank issuances. Coupled with meaningful rises in interest rates, this would mean the end of the bull trend for gold, coinciding with a precipitous collapse of the global growth rate. But arguably, even that is less costly and dangerous than the wholesale breakdown of trust on an international basis.

For 2011, though, we suspect the main theme will be the Eurozone where authorities are committed to keeping their heads in the sand as long as an imminent default is not being expected by the markets. With elections, loan repayments, restructurings, and rating downgrades in store for much of the year, stocks and the Euro will have to battle a constant barrage of difficult news from the region if they manage to end the year in the black. That is possible, if only because of the Fed denying freedom of trade to one type of point of view makes it totally unwise to bet on a nominal fall in stock prices for quite a while. We know little about what will happen China or Korea, or the Eurozone, and the ECB`s future course is open to debate. But with the Fed, matters are simpler, and as long as the sovereign credit rating of the U.S. is not being questioned, the present posture is going to be maintained. That, naturally, means that the USD will remain under pressure during any selection of a one year period on the charts...

FX Headlines: British Pound Rises on Positive UK Manufacturing Data

UK Purchasing Manager Index Manufacturing was at 58.3 for the month of December, the highest reading in the last four years. Mortgage Approvals also rose to 48K for the month of November, topping expectations while also being the highest reading since August.